I recall a key lesson from the bootcamp was for a park owner to keep their home investment below the lot’s value. So, if a lot is worth $25K, then under no circumstance is is the park owner to invest over $25K into a home. How then can a park owner bring in a new 3/2 single wide, considering the invoice prices are approx $30K, which does not include home setup?
You can’t if you want to bring in new homes.
You will have to bring in older less expensive homes. But what you need to keep in mind is that there is a wide range of standards when you are talking about these types of communities.
Higher quality communities do not operate under the same principals. The principal of
home value being kept below lot value applies to affordable income communities where your primary goal is to maximise profits without upgrading the tenant base.
I do not operate a affordable housing community and therefor do not follow the principals governing house values. The buyers, sellers and the market drive the house prices not the community owner.
We have no problem keeping home cost below lot value when we purchase used homes. Of course, there is precious little financing for used MHs, so you just have to ‘bleed your bank account’ for these homes.
When we buy new homes, we run into the same budget problem you detail in your post. But I’d not worry about going over the lot value on a new home in that case. You probably don’t want to spend 2x what the lot value is, but we often spend 1.3x - 1.5x lot value on new homes. Keep in mind, these homes are financed, so your down is $0 - $10,000, and you are attracting a higher-quality resident than folks that take the used homes. We’ve also found that in the case of 4BR homes, you can charge enough more for them, that families end up owning them in 5 years, instead of 7-8 for a ‘regular’ 3BR new home. This is better for everybody - your tenants pay less in interest, they become homeowners sooner, and your liability (backstopping the remaining mortgage) drops below the lot value more quickly.
Your mileage may vary,
We invented that guideline to make sure that a park does not get lopsided in home debt. It’s not to be taken literally to that level. If the value of an occupied lot is $25,000, then you can definitely put in a $30,000 home with moderation. Particularly if you can place those new homes in very visible parts of the park that enhance the overall appearance and valuation by an appraiser.
Thank you all for your very helpful responses. I will maintain a close eye on the ratio, and try to minimize home debt to the extent possible, but at least won’t go crazy if I cross the lot value thresh hold (within reason) with the new homes I plan to bring in.