Small park...should I pay for moving in TOH?


#1

I am about to close on a 10-unit park with 3 vacancies… all are tenant-owned. Should I pay for the $4000 to new tenants to move their homes in?
Wouldn’t that make the most sense?
I really don’t want to buy, rehab, and sell homes,and the cost is gonna be higher that way anyhow.
Rents are currently $125, they pay everything direct billed.

Please share your thoughts?


#2

Those numbers are tough. Your annual gross income on a lot is only $1,500. Being so small, I hate to guess what your expense ratio is, but if you pocket 60% = $900, meaning such a move in would cost you 4.4 years of a lots production. That is a tough call, like I said. But one thing I have learned as a park owner is that you always need to be filling lots or the vacancies will accumulate and things start to get bad.

This is not 100% true, but it serves you to think of it as if it is: the profits are all in the last few units in your park. Or maybe a better way for me to say it, think of the lot rents in the last few lots as all profit and the other lots’ rents going just to support the expenses. Sure it is not 100% true, but it is close and helps motivate you to fill lots and retain homes. In your 10 lot park when filled, you might think of it as in loosing a home you loose 10% of your gross income, but more importantly you are loosing, say, 25% of your profits.


#3

@banjoman15

Ill just start with I believe its always preferred to keep yourself out of the home equation and prefer that 10 to 1.

I hope you are getting a pretty good deal on the 10 spacer as i feel they are not as desirable or trade as well as bigger stuff.

Your lot rents are low , is this market or is market like 250-300?

4000 is kind of a high number. Usually the actual move might cost 1600-2500 ( single section ) depending on what it is , distance, market etc. The other costs are utilities/skirting/stairs that get it to 4-5k.

Now that being said , can you get homes to come into your park by doing a small spiff instead of picking up the whole tab? Can you minimize cash out lay, i.e. we will give you a free year of rent to offset your move cost ( we have done this and to minimize the risk space out credit every other month… ) .

Can you offer to pay for the move (2,000) but have the tenant pick up the tab for their skirting and deck /stairs ( just make sure the actual work gets done so it doesn’t come back to bite you by looking rough…

As randy says, there is not tremendous cashflow. In theory… you will make it up on equity but unless you actually go to sell or refi, thats only theoretical.

Plus the $$ is going be skinny. If in fact market is 125 , lets assume 50% expense ratio at the park, via a 10 cap , each lot is worth $7500 ( again , this might be more or less than what it actually will trade at). So you will def want to keep that in the back of your head on the opportunity cost of capital for where your investments dollars will be best placed.

Good luck


#4

Your lot rents are not high enough to warrant the expense. With only 10 lots @$125 you need to do the absolute bare minimum regarding expenses and beat the bushes to find home owners willing to move their own home.
I hope you are getting this for at killer price and that market rents are at $250.


#5

Well, the price for the park is just $58,500. The market is a bit higher than 125 as others are charging up to $165, I understand.
It’s all quite nice, and the biggest issue is gonna be getting the lots filled. Seems that if I am dealing with people that have little money, how are they gonna afford skirting, hookups, etc? anyway?
The alternative seems like empty lots. Not a great choice, so I would like to do something?


#6

What are your plans for the park; hold for the income or reach its economical potential and then sell for the capital gain?

And is it in your backyard so you don’t have travel expenses?


#7

My wife became ill and will be quitting her job, I am already part-time self employed, so I plan to use this as income property.
It is far away 10 hours by car. I plugged travel expense into the formula as well.
with a few tweaks; such as trash costs, rent increases, a home or two to move in, we could be at 20% cash return; maybe two years?


#8

Is it a high enough quality park to warrant you setting the market rents for the entire area. Is it possible within two years to push lot rents to $200 and continue to move up annually after that. These people generally do not move due to rent so the likely hood is that the market rents are simply too low due to a reluctance on the part of park owners to push the limit.
What do surrounding 1-2 bed apartments rent for.


#9

Area rents for apartments is not very high, sadly… you can get a nice apartment for $600 2 bedrooms
I don;t think I can be the high-price leader… after all there are only 3 vacancies…

Consider this: if it cost the full $12,000 to move in 3 homes.
the adjusted sales prices becomes $70,000 with 10 rental lots at $160 = $19200 gross x 70% (tenants pay all but mowing at $35 per mow)
that $13400 / $70000 = 19% ???
isn;t that the goal?


#10

Hummm…this is an interesting intellectual problem but with the family dimension, a compellingly human one and one that has to be gotten right.

So let’s say after showing your park a little TLC you can push the rents $175 without too much grumbling from the residents. And let’s say that you fill the park (hopefully without too much outlay of capital, but most likely there will be some 10’s of thousands of dollars tied up in the moved in home .)

So this is what we have:

$175 monthly lot rent X 10 lots x 12 months = $21,000 in gross income.

Now let’s say you run a tight ship with expenses at 40% of income giving us $21,000 X 60% = $12,600 annual income, which we will call $1,000/month.

I look at that and am struck by the fact that that is less then what my managers make off of my parks and they have no capital tied up in them and they don’t do a heck of a lot as far as I can tell. And I wonder if a more conventional property type closer to home could give you a similar income. Have you run the numbers on having a fourplex or two with some leverage; something you could get on a fourplex but unlikely find on a park with 7 homes (unless there is owner financing and if that is the case, if you ever want to bail from the park, you may well be the poor guy who has to be the bank to the new buyer.) Being closer to home perhaps you could take on a fixer upper on a small apartment building and actually come out better then this park. I know we are all MHP guys around here, but one of the big advantages to park ownership is the ability to control many units and thus have a larger multiplier when raising rents. But your park does not have that advantage. I think we are all real estate investors before we are park investors, by which I mean if we were not park owners we would be landlords in other classes of RE. I would encourage you to explore small apartment buildings within a 2 hour drive before committing to the park. Not knowing your market, I don’t know if that is a good idea or a crazy one. But I will say, when I first started out without a lot of capital, I was able to find beat up small apartment buildings in Fresno CA that were not expensive and after I rollled up my sleeves and cleaned them up, they produced returns of investments so high that when I told the numbers to seasoned investors they thought I did not know how to do the calculations (which I did.)

There are a lot of experienced real estate investors on this forum and most of us have owned many classes of real estate besides parks and would be happy to help analyze deals even if they are not parks.


#11

Understood.
I compared this investment to some local offers. My area here is so expensive! A little rental house (that I must care for) costs at least as much as this tiny park, and these are usually in need of serious work, too.
So, if I buy a house for rent, at $70,000, the rents will be about $600 I’d say, and the maintenance costs would be high. The taxes here are 20 mills! That’s $1600 yr right there.
Insurance here in Florida is high, too, ($900) whereas this tiny park is $500 yr.
My health is to the point that I’m not really crazy about doing any of the work myself any more… so I would be hiring expensive contractors? No, this seems like a bad idea.
The appreciation here would be better, but I think the income would be worse.


#12

The fact that its 10 hours away and so small (relying on you to operate it ) i would pass for sure. You should theoretically be at 20% cash on cash right out of the gate but when you do cash deals that makes it a bit trickier to squeeze those numbers. Would hate for you to try and do something to better your family given your wife being ill and then have this not work out and be 10 hours away to deal with …

Sorry, wish i could offer some help .


#13

thanks all
much appreciated!


#14

I concur with others. The park is too small, cash flow too slim and the distance too far to make this a worthwhile investment.
Risk too high.


#15

Dress up the lots and flip to long term RV. Have to change the utilities… but may find immediate demand for the space and a higher monthly rate.