We’re looking at a park about an hour from Sioux Falls, SD. On paper, the town checks every box: average 3-bed apartment rent is north of $1,300, home prices start around $200k+, unemployment is almost nonexistent, and it’s a strong local economy with a healthy business base. Population is around 25,000. Rental inventory (both apartments and homes) is very tight — every property manager I’ve talked to confirms it.
Twenty miles away, we already manage a park in a town with nearly identical metrics, and we’re getting $500/month lot rents there.
The wrinkle: every other MHP in this new town is an old, run-down mom-and-pop operation, with lot rents ranging $200-375. Only one had a vacancy — I called on it and the resident said it had just sold. It was a 1970s single-wide listed at $25k, sitting on a $225/month lot.
The park we’re evaluating has lot rents at $300 and is owned by a local operator. For this to be a strong deal, we’d need to push rents to $450 over the next few years.
Has anyone been in this position — the first professional owner coming into a market where you need to disrupt the going lot-rent rate for the whole area? How did it go, and what would you watch out for?
There were a couple streams on hear cover g similar points. The just of the replies seems to focus on 1. Making sure your park is responsive to the tenants needs - do a quick survey of all tenants for biggest needs / wants of group and see what makes sense. 2. Provide options Ie take rents to market but give discounts for 1. Longer Term Leases, 2. Paying electronically, 3. Having a s fanfare start date…
Provide additional bulk value for items others don’t or won’t and that actually help you make the park better A. Take over lawn care for entire community. Bulk rate may only be $25 a unit per month, value to tenant is $50 a cutting. value to park is no more uncut lawns. B. Provide bulk wifi. Some fiber optic vendors will bury fiber to each home for a 5 year contract w 1-2gig for min 30 homes & $30. Do a sign up special at $50 (<1/2 of mkt for same) and break even at 20 units. You can then get rid of all the coax wire hangers who are constantly creating problems..
Ask what they want/need do this annually
Explain the need to properly maintain community - rates need to increase.
Move to market with options and discounts
Look for places to provide both tents and park savings / value
Each park is different
If all folks see is greed, and no value add or choices, increasing rents may be more difficult
Practice annual rent increases even if a small amount
I would not overthink the situation. The current owner is selling because it is not worth it for him to keep it. If the park is nicer than those other dumps in town I would buy it and raise the rent $75 right out of the gate. Another $75 next year and then $50 in year three. Annual smaller increases thereafter. Make some small improvement s but don’t feel compelled to justify your rent increase. Taxes and insurance costs are rising. Tenants complain about inflation, but it is hitting us too. $500 per month space rent is not unreasonable in any market anywhere.
You have nothing to lose. If you don’t raise rents immediately your park will be as run down as theirs and you will have everything to lose. I would go from $300 to $395 now and then to $450 next year, which is only 1 year to hit your target. Tenants will not move to the lower priced places because they don’t have vacancies, and nobody wants to move to a dump. In fact there is a real marketing strategy to choose to be the highest priced competitor to cause perceived value (e.g. Tiffany’s).
If there are 1 or 2 people who leave because they prefer squalor over quality, you probably don’t want them as tenants anyway.
To sustain the premium price position, I would be sure to keep your grounds nicer than the competition.
Lastly, and perhaps the best you have going for you is that the competition becomes your strategic acquisition in the upcoming years. Anybody paying a “fair cap rate” of 5% to 10% will undervalue them, yet you can “overpay” and put the whole market in a professional position.
Yes, I had a similar challenge but with a much smaller park that I purchased (20 member owner homes, lot rent only). The average lot was renting monthly for $225, the market was $500+.
After taking ownership, I sent out an letter to all residents introducing myself as the new owner. In that letter, I discussed the current market for lot rent and my intent to raise rates to $500/month. I softened the news by offering to lock in monthly lot rents @ $400/month for 18 months to any residents willing to tear up their existing lease and sign a new one with my company, the one caveat being that at the conclusion of the 18 month period, the monthly lot rent would go to $500. Any resident who chose not to take advantage of this opportunity would experience an increase straight to $500 at the conclusion of their current lot lease agreement.
Of my 20 residents, 12 took advantage opportunity, 2 sold their homes (the new owners signed new leases @ $500), and the remaining 6 residents experienced lot lease renewal increases to $500 at different times during my 1st year of ownership. The 18 months passed at the end of July, and all my residents are now paying market lot rent
I agree with others here too. We started buying parks in a market in 2016 with average lot rents of $210. The MSA has about 2,500 lots total and we currently own 1,500 of them. We are the leaders in pushing market rents (our average is now $420) and regularly get new organic move ins because we are the cleanest and strictest parks in the area. Run a good park, be realistic with your lot rents, and people will pay to stay.
Thanks for all the info and glad to hear that my thinking was along these lines. Weve raised rents at our other parks pretty aggressivly and never had any pushback. Our goal on this park will be to make it the nicest park in town that nobody will want to spend 5k to move their home to a dump just to save $100 a month in lot rent.
