When you calculate the expense ratio of a park does than include the mortgage interest expense or is that added back? Also, what are your thoughts on buying a smaller park (30-40 lots) that is next to some very large parks (300 or more lots)? Will the large park act aggressively in taking your tenants and so forth? It may be very hard to ever fill lots because the very large park has more resources and is in need of filling lots themselves.
Generally if it is a good deal they would have bought it… Where we are any park that comes up we scrutinize the numbers carefully and will accept a lower cap since we could have more efficiency of size and of management. Side note–we are trying to buy more parks and the one comment we keep hearing–their are many more buyers than sellers and the nice properties command a low cap rate just like apartments and thus enlarging your prospective as to type of income property needs to be possible challenged. The parks less than 90% occupancy and or rent to own high percentage show a major problem we did not have 25 years ago since back then people were buying NEW homes and LOOKED for a park to place them. Why are people not buying NEW homes to be brought into parks??? instead just to TRY to fill parks offering a rent to own program which involves time and more money for the park owner. As owners our parks are 95% occupancy plus and ALL tenant owned homes. since when we sell the park we receive a premium (that is the kind of parks we buy from the start). I believe that the rent to own and lack of full occupancy is part of the dilemma of the park industry since hardly no new parks are being built ALL parks should have a waiting list of new home owners wanting a place for their home—something to ponder. Selling is great right now–will it continue and maybe time to see their are many different income sources to consider! since the market is over heated!!! As a buyer looking at a bunch of homes from the seventies and older is gut wrenching to see the general atmosphere go south–just my humble observation from 30 years of experience.
OK, you have several questions their rolled into one.1) When you calculate the expense ratio of a park you do NOT include mortgage interest (or principal), nor do you include depreciation (which is a goofy fantasy number created by the IRS but is instead replaced in your budget by the very real number of “reserves” which is what you need to save to afford the capital costs of the future).2) We own many smaller parks near larger parks. There is nothing wrong with that. Most consumers could care less if the park is large or small, as long as they get their lot, the neighborhood is safe, and the park is well run. I some cases, it’s actually beneficial because you get the marketing power of the big park bringing customers to the area which you can then siphon off for your homes, or the power of the big park to fix any potential city hall actions against mobile home parks.3) Parks stealing each other’s homeowners is not very common. The general rule is that you don’t try to “raid” a park unless it is much weaker and can’t fight back. In addition, most larger parks (if owned by a REIT for example) have age limitations on homes that probably make your tenants toxic. As long as your rent matches or is lower than the big park, you will find that many people like the “small town” environment of the smaller park as opposed to the giant one.4) The only way any park – big or small – can fill lots is to bring homes in themselves. The big park has no advantage over the small park in this regard. Any park owner can now buy factory direct and the prices are the same. The only exception is that some manufacturer’s park finance programs require a minimum order of homes.