Hello all, I think I found a pretty good deal here. On the surface it looks like a no brainer, but have yet to dig deeper.Current rent is 215. 2br rent is $850. Median home cost is well over $150K Every other stat also looks great, employment, wages, size of city, etc. POH is minimal. I’m thinking if I raise rents to $300, that’s still a good deal for them, and it’s not like they can go somewhere else.Thoughts please???
Coach62, my Husband and I own 2 MHPs. What are the Current Lot Rents for comparable Mobile Home Parks in the area?If you raise the Lot Rents from $215 to $300, that is a 40% increase.That would be a pretty high one time increase. I would vote to at least break up the Lot Rents into 2 separate increments and keep the Lots Rents just below market.However, I know that Frank likes to do one, large Lot Rent increase to get the Lots to market.Frank is correct that being at market is a good thing. However, I would vote to be ‘just below market’.At one of our MHPs (where we are still under market) we selected to do multiple, small Lot Rent increases. Since ‘hindsight is 20/20’, I would not recommend this method. I wanted to do a $25 increase. My Husband voted for half of that. When we selected to have a $12.50 increase, this just rocked our Tenants’ worlds. Our Tenants had the hardest time paying the correct amount. They would pay 50 cents less or 50 cents more. I would highly encourage having the Rents be whole dollars. Now even my Husband would agree to that :-).If the MHP Lot Rent comps are indeed higher, you definitely need to raise rents. It is just a matter of how to get there.We wish you the very best!
Kristin, Thanks for sharing!Brandon@Sandell
I agree with Kristen, especially about checking rental rates of comparable mobile home parks. Don’t forget that ‘comparable’ is the operative word here - you want to make sure your park comps are apples to apples. Some local parks might have rents a lot higher than yours and that could be because they’re including utilities while your park does not. You’d need to adjust it accordingly. What did you look up on BestPlaces - just the city and metro area? Those can be good indicators of the overall health of the area. You should look up the specific zip code too though to get a more accurate idea given the location of the park. Lets say your park is on the south side of Chicago. On the surface the metro area looks phenomenal, and when you take a closer look by searching zip code you realize it’s right in the middle of one of the biggest slums in the country. Extreme example, I know, but if you’re not familiar with the city you’re searching you won’t know what parts are good, bad, complete war zones, and so on.Sites like Zillow and Rentometer are useful for that too so you can see approximate home prices and rents for the immediate area around your park instead of just using the medians for the metro as a whole.
Good point about looking at the zip code, I just looked at the city and metro. Thanks for the input Kristin. I would only do that large of an increase IF I was still well below market rents. Like if market rents were 375 or so. If 300 is market, then I’d do it in 2 increases most likely. It just depends on how the DD plays out.
Check out rentometer in addition to best places. The two sites will often differ on rents, so in those cases just use the midpoint between the two. In rentometer, do not just type the name of the city, actually type the address and that will pull apt comps from the area immediately surrounding the park - many cities will see significant variations in rent between neighborhoods. Also go to Craiglist and see if you can get an intuitive feel for what median rents are.A word to the wise on best places - they will frequently use data from the county seat and then replicate that across the entire county. I once hauled half way across the country to look at a park predicated on the assumption that 2BRs were renting for $700 and median SFR prices were $100k. It turned out those were the correct statistics for the county seat. The park I was looking at was 20 miles from the county seat, and 2BRs were renting for only $450 and SFR median prices were closer to $50k - obviously not a community in dire need of affordable housing. I ended up passing on the deal.Different opinions exist on the coefficient to apply to 2BR apt rents to come up with fair lot rents, the range seems to be about 30-50%, and I think the midpoint of 40% is pretty fair, and long term you cold probably push it closer to 50%. Remember the threshold for people to actually move their home is almost impossibly high, the bigger worry will simply be tenant pushback. If 2BRs are going for $850 and SFRs are $150k, you can easily pull $300 dollar lot rents and still be the most affordable game in town.You can push rent all at once but it will probably be less of a shock to your tenants to do it in two or even three one year incremetns. If you have a lot infill program coming up I would leave lot rents slightly below market, but long term you want to push them slightly above market, particularly prior to selling the park.To your continued success…
Thank you, great points. I’ll check out rentometer.