Converting Park Owned Homes

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Hello,

I am a new investor looking into a property that currently has ~100 pads with 57 of them occupied by tenants with tenant owned homes, while the remaining pads all have vacant park owned homes, at varying levels of livability. The price of the park is based off the NOI of the 57 occupied pads with a 10% cap rate and no value is attributed to the other 43 vacant POHs. Basically any warm body I can get into the vacant POHs will add value to the park, so instead of fixing up the units, I was thinking about just selling the existing POHs for next to nothing and charging lot rent. Is this a good idea or is there something I am missing?

Thanks for any help!

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That sounds like a good idea! Make sure that the home meets minimum habitability standards first and be sure to screen your tenants thoroughly (don’t get just "any warm body). Turn that POH into a TOH, focus on improving the park infrastructure, and instill pride of ownership.

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Be careful. Assume the units will remain in their current condition, and continue to deteriorate over time, then be abandoned again. Before selling them for a song, at least fix up the exteriors to meet your park rules. Be aware of the cost of removing a dilapidated unit; in CA it cost me $4800 between labor and dumpster fees.
Our park currently has 5 abandoned homes, purchased 3 years ago by a Lonnie dealer. He has done nothing to fix them up, he pays space rent, and now he is trying to sell them in their current condition to any ex-con willing to buy. Its a battle all the way. 3 of the 5 homes are now beyond repair due to roof leaks and ceilings caving in. These old mobilehomes are like a cardboard box sitting out in the rain.
If you sell them as is, be sure to screen your tenants carefully and equitably (have a written resident screening policy that you follow). Before completing the sale, write up a list of repairs required, including minimal habitability and exterior appearance per your park rules, with a timeline that the buyer agrees to. Make the space lease month to month, ending at the end of that timeline. If repairs are not completed, you will have the option of requiring the buyer to remove the home, as they no longer have rights to the space. These homes are not worth moving and you will likely end up battling it out in eviction court, and getting the crappy unit back.

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Our experience has been that those old homes will attract quite a bit of interest. Everyone loves a deal and most will have good intentions of buying a cheap home and then fixing it up themselves. But honestly, I’ve never seen it happen. The “handyman specials” just sit there, looking exactly how they did when you sold it.

Additionally, we get flooded with inquiries about the “cheap trailer I heard ya got.” When people call, asking if you will “rent-to-own” the $2,000 home, it is a struggle to keep yourself from just hanging up on them. However, every market is different so perhaps you will have a different experience then us.

The other question to ask yourself is, “how much money do I need to put into the home to attract the tenant base that I’m looking for?” My opinion is that there are quite a few ancillary benefits of fixing up that home. When tenants see that you have painted that old home, installed new skirting, added some landscaping and stained the porch, they will start doing some of those things to their home. By spending some money on the homes you own, the park, the tenants and the owner all benefit exponentially.

The reaction you see from your other tenants is similar to the reaction your own neighbors will have when they see improvements being made in the sub-division they live in. For example, one of my neighbors installed a pool last year. Since then, 3 more neighbors installed pools and two more told me they have submitted orders for next spring. Just because your tenants live in a mobile home park does not mean that they don’t want what their neighbors have.

Again, every market is different and setting a reasonable budget for mobile home repairs can be challenging. Plus, finding reliable and skilled people to perform those repairs is probably the bigger challenge. But, each owner has to determine what their long-term goals are for their communities.

Our goals are to attract quality residents who pay their rent on time, don’t cause trouble, follow the rules and are good neighbors to the other tenants. So for us, fixing up the homes is a must.

Good luck!
Jon

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We’ve had good results in giving homes that are in need of heavy repairs away to handymen who pay rent while fixing them up. They are not allowed to move in and get a schedule of repairs and when they must be done by. They don’t receive title till everything is done and have to sign off on paperwork stating all this so no issues down the line. But like it’s been said have to be very thorough with who you let in. We get pictures of previous work and even referrals to prove skill set is there. We have them start outside with new metal pitched roof, new vinyl siding, and windows, and only when that is done do they move to inside work. Homes look brand new when done and doesn’t cost park anything. Good luck!

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