Expense ratios

mobile home university
1

The rule of thumb for mobile home parks seems to be that once stabilized they run roughly a 30% expense ratio if utilities are all billed to the tenants, and roughly a 40% expense ratio if the park pays for water and sewer.

I’m a newbie in this industry, but I have yet to come across a park I’ve looked at that I could project running a 30% stabilized expense ratio. Every park I look at seems higher, and most parks I would project having a much higher expense ratio.

I’ve gone ahead a copied the chart from pages 30-33 of Frank and Dave’s 30 Days of Successful Due Diligence below with a few minor modifications:

Based on these expense ratios it would be an almost herculean effort to reach the bottom end of every single expense item. One of the major expense ratios seems to be unrealistically low as well, with property taxes listed at the range of .5-3%. I’ve seen many nice parks where the property taxes push 10% of gross.

So why is a 30% expense ratio standard here? Are stabilized parks actually consistently, year in and year out, hitting the very bottom end of these numbers?

2

Yes. We come in at around 33% of gross receipts most years. Our best year (unusually low maintenance and a few other things) clocked-in at a 28% expense load.

A few of the expenses you list that we don’t have are:

  • Offsite Management

  • Reserve for CAPEX

  • Gas

And a few of our expenses we have that are definitely at the low end of what is shown above:

  • Electric (just security lights)

  • Advertising (CraigsList is free, newspaper is relatively cheap)

  • ‘Maintenance Labor and Repairs’ and ‘Repairs: Property and Equipment’ seems duplicative. Combined they should be around 5%

  • Onsite Management - definitely not more than 5%

Good luck,

-jl-