Short Lot Concerns

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Hey all, I am under contract on a 50 lot park that is giving me pause due to the lot sizes, both from a legal and an economic viability standpoint. I wanted to get the community’s feedback and see where I am at with it.

All of the lots are 30+ feet wide, allowing 14 and 16 wides with plenty of space between homes. But the lots are short lengthwise.

There is one block of lots that is 135’ long and the other blocks are 117’ long. City fire code is 5’ between homes, end-to-end and there are utility runs (gas & electric) that split the lots.

On the 135’ long block, I could theoretically fit 66 footers on one row and a row of 56 footers abutting it and still have 8’ between homes and 1.5’ between the longer homes and the utility runs. The 117’ long blocks would fit two rows of 56 footers with 5’ between homes and 2.5’ between the homes and utility runs.

I have my attorney looking at the easements (there is one recorded for gas but not for the electric) to see what the standoff zone is. So I’ll have his legal opinion on that, but I wanted to reach out to the community to see what the operator feedback looked like here.

Even if the easements are good, 80% of my park would be limited to 2 bedroom homes. My 2-bedroom specific test ads are showing a decent, but not knock-your-socks-off great, demand for 2 BR homes (7 calls in 3 days).

This is a very heavy infill project with 16 vacant sites currently. There are also 24 park owned homes (50/50 split between straight rental and RTO) and only 3 of them are Post-HUD, so as the rentals die off and the RTO crowd washes out and don’t convert, most of these homes will need to be removed and backfilled with newer homes as well. I’ve received very encouraging feedback from the 21st Mortgage folks about the CASH program and the manufacturer I’ve spoken with has very acceptable, new entry level 2 Bedroom homes that I can affordably offer (in alignment with my test ad).

Sorry I know this was a long post but I wanted to provide as much detail as needed to get accurate feedback. Thank you all in advance for your thoughts.

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Fair warning, but an in-fill project, that has almost half POH, is very hard to make work… How are you financing it? Is the cap rate going in good? Maybe it sounds more encouraging after getting those details.

2 bedrooms, to work, depends on the type of metro you are in… What are the median home prices and 2 bedroom apartments? Are the type of employers or people in that area families or retired people? What are the demographics? If it’s all families, 2 bedrooms are harder to sell.

How are you advertising the test ads and where? What’s the price point and wording? That could affect results, so maybe you have more demand than you think…

Bottom line, you want to make sure the project makes sense before we even worry about the size of lots!

But yes, lot size can be a problem, completely dependent on your market. If it’s a competitive market for families and there’s lots of other parks in the area, you may not be good to go. In other areas I’ve bought 2 bedrooms fly off the lots, and in others, they sit there for a while.

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Thanks for the feedback Gonzalo. I’ll try to hit all of your questions:

How financed: the local bank that the current owner used is willing to do the loan at the new price point. I’ve also reached out to Security Mortgage Group for an opinion and waiting to hear back.

Cap Rate:10.8% going in based on Frank’s formula for $350 lot rent and park paying water/sewer (40% expense ratio). If we kick that to a 50% expense ratio due to the vacant lots and smaller size of park, it is a 9 cap.

Median Home Price: $98k

2 BR Apt Rent: $715, with a lot of old stock (I have the test ad priced at $725)

Demographics/Jobs: Good mix of health, gov, and education. 43% are married and average household size is 2.41

Advertising: Facebook Marketplace (automatic reply directing them to call the burner number) and the major metro newspaper.

Newspaper ad is: [CITY]: Brand New 2 Bedroom Mobile Home for Sale or Rent. Pets ok. $725 / month – Includes Lot Rent. Call [NUMBER]

FB ad text is below and the pics are a rendering of the home, an actual shot of the bedroom, and the floor plan (side note: manufacturers REALLY need to step up their picture game. I could get no pics of the actual home I got quotes for from the manufacturer]
"BRAND NEW, direct from the factory, 2 bed 1 bath mobile home in established community.

-780 square feet
-Black Fridge/Stove
-Washer/Dryer hookups
-Price includes lot rent
-Tenant pays own utilities
-Small pets allowed

Calls/Text only please: [Number spelled phonetically to get around FB’s asinine filters]

When you call, ask about how you can OWN this home for the same price as rent"

Frank actually owns one of the other parks in the town. They are bringing in a ton of homes, mostly 3 bedroom, but the manager told me that when they get the occasional 2 BR, it gets sold quickly.

My lot rent is at least $50/month under any other park in town, with Frank’s park being over $100 higher so the idea was to capture the entry level crowd with the 2 bedrooms.

Thanks again.

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  1. That sounds excellent and likely your best bet, as mortgage brokers tend to not work with that many POH’s.

  2. Excellent! Sounds like a fantastic deal, well done.

  3. This is also a good range on the market and employment, perfectly fine.

  4. I think this is why you’re getting less calls. We established 2 bedroom apartments are 715, so you’re coming in higher than apartments (despite being a new home). How are you calculating the home payment? How expensive are the homes and what % down are you calculating the home payments? The typical rates I see are 5% down, 15/20 year amortization, 10-12% interest rates. What if you tried a used (but nice home) at say, 20,000/25,000 range, where the home payments would get me to 250 for 10% interest rate, making lot rent + home payment 600. You could advertise it at 600/mo for a 2 bedroom, that may get you to beat apartments!

  5. You likely will suffer due to short lots, as an experiment, try doing what we did above, but do a 3 bedroom for 600/645 mo and see if you get more calls for those… we’ll be able to establish if the issue is the bedroom quantity or the price point. I think it may be both.

  6. How are the other operators advertising homes? what price points and rates? maybe pass as a customer or pay someone off craigslist to find this out for you, maybe the successful guys are doing something you are not in that area. Each area has some sort of wrinkle. For example one of the parks I own is a bit higher market rent, but because it’s within a mile of all the schools, I can charge a premium the other parks cannot.

  7. Your idea to catch “entry level” is good, but you aren’t doing it right - by getting to that price point, it seems to me you’re out pricing your market. Try the lower price point I mentioned and see if the phone rings more often.

Let me know how it goes, I’d love to hear back. Best of luck!

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I’m following your logic on lowering the price and doing used homes instead but I am just not convinced I could locate that many used 2BR homes to make it worthwhile. Remember I’ve got 16 vacant lots right out of the gate and I’m positive that of the remaining park owned homes, half or more will be replaced in the next couple of years. On a heavy infill project like that, handicapping myself further by only being able to provide used homes (and 2 bedroom ones to boot) does not seem like a strong position to be in.

The home I based the math on was a no-frills Harmony home for $31k (fees and freight included). I ran the numbers two ways: one as a straight sale to the tenants (21st Century’s B2C loan) and one financed as a community home (21st Century’s B2B loan, which can be converted to a consumer loan within 3 years).

For the B2C, the loan terms are calculated on their website and include an $8k setup assumption (lot prep, movers, connections, etc.), taxes, fees, etc. 10% downpayment and 3 points and total financed is almost $43k. 20 year term at 9% rate brings the total price to $385/month. Add in $75/month for taxes/insurance and $350 for lot rent and total monthly is $810. This is obviously not ideal.

For the B2B side, 21st charges 3 points bringing total financed to about $32k and 12 year terms with a 7% rate, bringing total mortgage to $330. Lot rent at $350 and $75 for taxes/insurance brings total monthly outlay to $755. I am willing to eat $30/month of the payment AND the $8k lot setup to get it into that $725 range. The play would be to identify people who want to own their own home but just don’t have the downpayment/credit right now and offer them rent credits during their rental tenure and convert them to a B2C loan within the 3 year window.

What may I be overlooking here?