When analyzing a deal that has vacant lots, how do you decide from the outset how you’re going to fill them which in turn affects how much you need to budget for capex? Optimally, the preferred method would be the one that requires the least amount of capital: getting an existing homeowner to move to your park or getting referrals from a local dealer which is essentially marketing. The most expensive and what seems to be the most common is purchasing new/used homes and then reselling/rent to own. How do you decide which game plan to run with? I want to make sure I can fill the lots and raise the NOI, but I don’t want to underwrite myself out of a good deal because my forecasted capex budget is too large.
It’s been my experience it’s nearly impossible to fill lots without buying and transporting homes.
The first year I ran all sorts of “move your home specials”…none worked.
Variables influencing your purchasing strategy are: 1) size of the Park; 2) timeline to complete infill; and 3) available capital - and they all weigh against one another as part of a balancing act.
Large Parks can absorb the cost of a few new homes as part of operations (assuming this isn’t also a large turnaround deal), but that affects your profitability if you have investors expecting a return. This can be drawn out over time to lessen the impact, but this may not match your turnkey Park timeline or investor goals, etc. Knowing these will determine how much capital you need to purchase homes. If you don’t have enough capital then you need to lengthen your timeline or find a different Park.
I’m not even sure buying used homes makes sense anymore unless you have a very reasonable contractor pool (e.g. one of your tenants is a handyman and can put one together all in for 10K) - the new homes have become very affordable and less overhead (e.g. < $20K). See the other threads on this recently.
Assuming we’re not talking about a 4 star+ community in California where the typical home is over 100K…
Buying homes to resell has simply become the reality of the business. Your best option is to purchase a community with a tenant demographic in which your buyer provides their own bank financing so that you do not carry the financing burden. Wash, rinse, repeat.
This is the crux of why you don’t want to factor in the “future potential” when buying a park. Purchase for an adequate return on current numbers. Filling the park is the whole name of the game and it is where the “business” side of the business comes in.
I agree with everyone who said you have to bring in your own homes – it is rare someone else will put a home in your park for you (without you having to do anything). You can offer “spiffs” (free lot rent, etc) to the local dealers or go through the used/new process.
One thing I haven’t seen mentioned in this Forum too much is the difference between buying used homes and buying new homes – there are a lot of comments about how good it will be to buy new homes (with factory financing – little out of pocket).
Here are some problems with the used home strategy:
(1) You have to be an expert in all aspects of obtaining, transporting, installing, rehabbing, and marketing a used home.
Here are some problems with the new home strategy:
(2a) You have to be an expert in marketing to find prospects that will qualify for outside financing and not leave you in the lurch (will fulfill the 10- or 15-year contract). High demand doesn’t mean they’ll qualify for financing.
This takes significant time and aggravation (and perhaps some out-of-pocket capital besides – for down payment or whatever the factory financing doesn’t cover). You also have to coordinate with the manufacturer and the finance team which can be a hassle.
(2b) You may not find out that you have been left in the lurch, so to speak, until a year or two down the road. Or five. If the customer defaults under these new home programs, you are taking whatever loss exists, not the manufacturer or the lender.
(2c) Once you have been left in the lurch, you are back in case 1.
(2d) You are probably out more money in this case 2 because you have essentially purchased a “new” home to rehabilitate and sell it as “used” after you run into your first problem tenant.
So, you might think about biting the bullet and figuring out how to market used homes to begin with and there will be (perhaps) equal work but less risk.
Just something to think about.
We have no problem with new residents bring in new or nearly new homes. The last 8 months we have seen 10 new residents with their own homes. We try to be the best park in the area but also are owner-operators that listen to their needs. Owning 2 or 3 great parks as owner-operators will allow the operator to enjoy being an millionaire. We have had mangers but truly enjoy the business much more as owner-operators with parks within 2 hours of our home base. Owning 10-40 parks was never our goal and really enjoy our smaller but very profitable operations. One of our last park we owned for 18 years and added 50 spaces and sold for 3 times our purchase price–being a big mufti-park owner has its problems.
Where are your parks?
Midwest, north to south.
@carl we would all love to hear about some of the techniques you’ve used to attract people with their own homes. I know you have a very well run Park, but there has to be more to it than that… and the rental market also must be ridiculously strong for these types of numbers.
How many are new homes versus used? When used are they coming from other parks and how is the initial contact made? Thanks for more info.
90% new and yes some from other parks. Our residents are our best PR and they know we give them excellent value and service for their money. One new resident today said, “your park is so quiet, no junk, so neat, and no dusty roads.” Some people are tired of parks that are only money collectors that have no empathy for people’s needs and their safety. One of our policy is: we only buy parks that we would be comfortable living in and thus is much easier selling why you need to choose our property. As a side bar we have not had an eviction in 15 years with over 200 sites–check out new potential residents VERY CAREFULLY.