Am I crazy? If I do not include any value for the park owned home is there a reason to inspect? I guess you want to confirm that there aren’t any junkers that have to go since that would actually cost money to dispose of. Beyond this, is there a reason to inspect?
In the audio tapes, Frank says he assigns POH’s a value of one dollar. I honestly don’t know if he is being facetious since according to some other threads here it seems like he at least in some circumstances does place some value on the homes. I am curious how other folks value the POH?
You would be unwise not to inspect POHs. We inspect all homes occupied and vacant. The reason is that you are valuing the lot rent as stable even in the $1 per home model. If the home becomes vacant, you still need to know what it will take to get your $1 home to produce $x of lot rent. We scrutinize these homes very hard even when we are paying nothing for them.
The value of park owned homes is completely contingent on the geography of the park. Where home prices are higher, so is the value of POH stock. In a market in which the SF median home is $250,000, you will get a better class of customer living in a MH, so they are more credit-worthy and have more discretionary income. They can buy a 1980s home for $10,000, make every payment, and be thankful they found it. If that MH is in Gary, Indiana, where SF median is 59,500, $1 may be all that you’ll get for the home as everybody is broke and there’s no demand for mobile homes since all the housing is cheap. I am the eternal pessimist, and that’s why I’m always saying in the CDs that you should value the homes at $1, because I don’t want people to get into trouble by overpaying for them, and I’m not sure that somebody new to the business can be a good judge of relative home values. But the truth is that you can get $100,000 for a MH in a park in California and never have any problems collecting, if the surrounding houses are $1 million +. In fact, you would have Pam Anderson as a neighbor if you’re talking the parks in Malibu, CA. It’s the location of choice for stars on their way up and their way down.
Additionally you need to know if the homes that are occupied are actually up to safety codes and habitable and as Charles points out if a home goes vacant you could be facing considerable expense to make it rentable again. This allows you the opportunity to closely scrutinise the present renters you have and determine if some need to go. Renters once in place may be seriously neglecting the home and if the present owner did not do regular inspections there may be leaking pipes, rotten floors, no smoke alarms and many other issues the renters have not bothered to report which could actually make the home unrentable with a turn over.
There is a lot of grey area between Malibu and Gary IN. We have had positive cash flow on all of our POH portfolios over the past 12 years. A lot depends on your rehab crews and what you are paying in turnover costs as well as how often the units turn. We have found it to be a nice addition to our cash flow especially after any debt on your POH portfolio is paid off.
Well I am an inspector so you know where I fall on this
But seriously some of the homes may even have negative value depending on age. In other words it may cost more to fix than it’s worth. But without an inspection you can’t know the true value of it.
I agree with Brian_Z. Treat each rental home like a car rental company treats their cars. Create a simple layout/plan of the home and do a walk through with the renter prior to handing over the keys. Have them identify any issues they see and put a note on the copy of the layout/plan similar to how care rental companies do. Each month have your manager inspect the homes and if there is a new issue in the home require that the renter correct it.
Just to be clear, I meant inspecting the homes in the due diligence stage if I am excluding the rental home income from the valuation. Obviously, the homes will need to be inspected periodically to ensure working smoke detectors and that the renters aren’t tearing the units up.
