It Is The Little Things

A year ago when my Husband and I purchased our second MHP we received the “gift” of multiple, old Park Owned Mobile Homes that were rented to Tenants.As time has progressed most of the Tenants have moved out (which is a good thing) and we are renovating these Mobile Homes to rent them out again.Now I understand that some of the MHP Owners Business Plans on this Forum do not include renting Mobile Homes.  I totally respect that.However, for us (until we can get a MH Dealer License) renting Mobile Homes is not only necessary but profitable.Now we just renovated a 1969 3 Bedroom / 1.5 Bath Mobile Home (12 x 60).We renovated with the following:-  New Exterior Paint-  New Exterior Underskirting-  New Exterior Stairs-  New Kitchen Cabinets-  New Black Refrigerator-  New Smooth-Top Electric Range-  New Bathroom Toilets-  New Bathroom Tub Surround-  New, Vinyl, Wood-Looking FlooringWe advertised this Mobile Home on Craigslist and literally had at least 60 individuals contact us concerning this Mobile Home through email.We just had a New Tenant move in yesterday.He wrote us an email this morning thanking us.We thought for sure that he was thanking us for the New Refrigerator; or New Range; or New Toilets.However, what he thanked us for was a Pottery Barn Shower Curtain & Liner that we had purchased at a resale shop for $5 to help protect the floor from water.We would have never guessed that Shower Curtain would have that kind of impact.Sometimes it is just the little things in life :-).

Back to brick and mortar business model basically like owning apartments except very depreciable and ending up with little value that will appreciate.       It is nice there are options that park owners have and some owners from the beginning do not want to deal with the extra issues of basic house keeping vr renting spaces.    My question always is WHY are rentals there–is the market weak for new tenants with new homes or  the former owner could only fill the spaces with rentals.      We have never had rentals in our properties nor bought parks with rentals since too much time is spent with very little ACTUAL return for time (5- 10 years)    One long term problem with parks in general is the obsolescence that many parks are going through since when was the last time NEW homes are entering parks by tenants and the level of renters is descending with some properties looking ???  and the drug people fine a new place to reside.      Yes, I know there are owners that try to be good landlords but with mobiles over 30 years of age and high utilities costs to tenants we might be in mine field of problems.    Just another view point, please take no offence just because some parks are for sale we are VERY picky buyers and choosey about our residents. 

I agree that when stuck with POHs there may be no alternative but to rent as giving them away would end up with very undesirable tenants. However they are defiantly not profitable over the long term. Short term perhaps up to 5 years but only after you get back the initial investment plus repairs along the road. You might make money for a couple of years but only if you have no repairs, excellent tenants and no vacancies.One of the glaring things I experienced in the brick and mortar business I was once part of was inexperienced landlords expounding about the positive cash flow they were experiencing. It was always based on that months or years income verses expenses and never extrapolated 20 or 30 years down the road. Calculating cash flow is not about last year or last month it is based on long term hold and is at very best only a educated guestimate.My long term guestimate of your cash flow on POHs is negative. For now cross your fingers and hope you get back your Reno costs then unload the properties as quickly as possible keeping in mind they depreciate every year.

Carl & Greg, thank you for your comments.Carl & Greg, I respect your Business Plan that you do not have Park Owned Homes.However, for my Husband and I our Business Plan does include Park Owned Homes.  Please respect our Business Plan.Carl, it is my understanding that part or one of your businesses contains a RV Campground.  Personally, I would not select to have a RV Campground as part of my Business Plan.  However, that does not make a RV Campground a bad Business Plan nor would I criticize your decision.My Husband and I have found that our POHs DO have a POSITIVE Cash Flow from Rentals.  There is a large delta between the Lot Rent and Mobile Home Rent.  Thus, this provides a wonderful POSITIVE Cash Flow from Rentals.  There is absolutely NOTHING wrong with rentals.  There is obviously positive Cash flow for rentals, such as apartments.  If there was not positive Cash flow for apartments, then the Investors would not invest.  However, there are lots and lots of apartment Investors out there.If a MHP provides a better and less expensive alternative to an apartment, you will be able to get some great Tenants for POH.For our area there is a HUGE need for nice, basic, affordable housing.  When 60 individuals respond to one Craigslist ad (never renewed) for a renovated 1969 Mobile Home and are begging to rent it, you know that there is a HUGE rental need.Not everyone has the down payment or cash to purchase their own Mobile Home.  Just because an honest, hard-working person does not have a large sum of money saved up, it does not make them a bad prospective Tenant.  In fact these are the ones that make great Tenants.This post was not meant to be a discussion on POHs.This post was simply intended to say that ‘The Little Things’ (whatever they may be…Nice Park Sign…some beautiful Flowers…just a little something more) are noticed by your Residents and Prospective Tenants.

I do respect your plan but still maintain you can not have positive cash flow on POHs in the long term. Multyplex rental units operate with expenses in the 30-50% expense range, single family homes in the 50% plus range and mobile homes north of that number. The difference is brick and mortar appreciates where as mobiles are a depreciating asset. Until you recoup your investment you are at negative cash flow. Once you reach that point you still need to recoup the expenses to that point plus pay for all the running costs -  new repairs, vacancies, hydro when vacant, insurance, legal, advertising, evictions, general up keep etc.  POHs only keep the lot rent paid.You may see different numbers but you do not know the actual numbers until you either sell the home or sell the park.  

Kristen, our RV’s are on yearly leases and really we make MORE money per area than mobile homes PLUS 30% of RVers buy new homes or existing homes since they become very aware of our amenities.      After 30 years we have tried most avenues to make money in parks and yes I respect you plan but as Greg says it generally will not add to your bottom line vr. all the money and time put into the homes.     One example in one area we could have 6 mobiles at $250 per month or 12 RV’s at $210 per month–we experiment still but know when a buyers see yearly leases on RV sites that is workable and having Net profit is what this ballgame is all about.     My comments are really bases only on our experience not to hammer someone to death–hoping someone realizes learning from someone else experiences is very important and this site has a tremendous wealth of experience vr. walking a road that is failure lined or at best a very low return on time.     I personally am still learning from others and especially the new trends in ownership of parks.

RV parks are a gold mine far exceeding the income of Mobile home parks but a completely different management scenario. Long hours in the summer here in the far north.Up here if you have a established park on a lake you can operate a 250 site park(3X the density of mobile homes) for 6 months and spend the rest of the year doing nothing or in the Caribbean. Income $400,000 per year with expenses lower than a mobile home park.Back on point. It is nice when tenants notice and appreciate your efforts. I always assume they all do but they simply neglect to comment.  

I’ve gotta side with Kristen’s business model on this.  I entered this business in 2013 so my experience only stretches that far.  However, what I have noticed is that after sending out nearly 10,000 direct mail pieces, looking at hundreds of leads from bird dogs and brokers, and cold calling at least 5,000 owners; you are not likely to get a great price on a park unless you become a problem solver.  POH’s are one many problems that exist in our industry and therefore, we are seeing our best pricing come from parks with a large volume of POHs.  The ideal is to have none, but you are likely going to pay a premium for that type of park.  So, if you can stomach the throughout of dealing with POHs, you have a much better shot at fining a 10-12+CAP property in today’s market.Once Kristen gets this park repositioned as a lot rent only park, her exit (based on the market conditions present in nearly every major market) state that her exit will likely be in the 8 CAP range.

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Charles we have experimented since 1976 and had parks from  south Texas to Mi. and between from snowbird parks to family to retirement parks to destination RV parks on lakes.     The bottom line is MONEY and TIME.   When just starting POH are a personal choice and have at it we just find our time and money is more valuable than working on 1969 homes.      Charles we have never paid under a 11 cap rate on parks with no rentals.    Like Ari said get out on the road and talk to owners the reasonable parks are out there.  Charles I thought an 8 cap is to pricy to pay for a park.

Isn’t the GOAL in any business to make money? If you can make money with POH’s minus the maintenance cost what difference does it make if the park owns them.

Here in my area Chicagoland mobile homes rent for $600-$700 per month. Lot rent is $250. I’m just sayin

What you are saying , based on national averages, is that with rent at $650:Long term expenses @50%: $325/month (real world 60% or $390/month) Lot rent: $250/monthDepreciation on home: $50/month (re reno every 10 years) Opportunity investment ($7500 @ 4%): $25/monthThat brings your rental income to $0.00 on what I consider conservative numbers. Any unusual expenses like a long vacancy or overly destructive tenant and you immediately go negative. The question is whether the time and effort you put into maintaining such a property is worth nothing in return.  

CharlesD & Ty, thank you for your comments!CharlesD is correct.  A lot of Mobile Home Parks out there have Park Owned Homes.  CharlesD, you obviously are very aware of what the current MHP market is offering, because you have sent out nearly 10,000 direct mail pieces, looked at hundreds of leads from bird dogs and brokers and cold called at least 5,000 owners.  Way to go!  CharlesD, that is awesome that you are very actively searching for MHPs to purchase.  A person needs to really ‘Know’ the market so that when a great deal comes along they can tie it up immediately with a contract that has lots of outs (if need be). As CharlesD stated if you desire to purchase a MHP, you may end up with Park Owned Homes in your deal.Is this a bad thing?  No.  Even if you have to fix them up, you do not have to worry nor pay to have them moved from another location to your MHP (approximately $2,000 savings).Thus, at the bare minimum you have a shell of a house that you can renovate and rent out.  If you renovate it nicer and a make the rent a bit cheaper than the other Mobile Home rentals in the market, you could pull some great Tenants.As the saying goes:"When life hands you lemons (POHs), make lemonade (profitable POHs)."Ty, is also correct.  The GOAL of any business is to make money.We are in South Carolina and we have similar rents as Ty in Chicago:-  Lot Rent:  $240-  Mobile Home Rent:  $700As per Frank if the Delta between your Lot Rent and your Mobile Home Rent is $400 or more then the Rental becomes profitable.Both Ty and our area have a Delta of over $400.Now we are blessed to have found a State Licensed Mobile Home Contractor that has been renovating Mobile Homes for 20 plus years.  Our Mobile Home Contractor is fast and charges reasonable rates.  Thus, we are now able to do nice renovations for low prices and have any other issues fixed quickly.If you do not have a good Mobile Home Contractor and you are not able to do the repairs yourself, I would not recommend Park Owned Homes.However, if you willing to do the work for Park Owned Homes and you are in a large metro area, POHs can bring in a good profit for you.This particular MHP we purchased 1 year ago.  It is a turn around.  It was created and owned by a ‘Mom & Pop’.  Sadly, Pop passed away and then Mom passed away.  It was then trapped in an Estate for multiple years, which lead to disrepair.  We are slowly turning the ship around.  It is work and it takes time, but that is how you eventually make some great profits.  Our current breakdown of our MHP is:-  Total Lots:  65 Lots-  Vacant Lots:  37 Lots  -  Tenant Owned Homes:  18 Lots-  Park Owned Homes:  10 Lots

I don’t think anyone is arguing that renting mobile homes is a money maker. The point is that filling vacant lots IS a money maker. In most of our parks, the lot rent is $300+ per month. Assuming the tenant pays water and sewer (which they do in 90% of our parks) then the expense ratio is roughly 30% and each occupied lot is worth $25,200 at a 10% cap rate. Before we bring in a home, that vacant lot is worth -0-. After we bring in the home, that same lot is worth $25,200. The only way I can fill that lot is by buying a home, bringing it in, and either selling for cash or on a rent/credit system (unless you want to get SAFE Act licensed). Do we want to bring in homes? No. Do we want to rent them out?  No. Do we want to fill 20 lots and make $500,000? Yes. The homes are just the conduit to getting lots filled – nothing more.

Frank, thank you for your comment.Frank, I understand and agree that by bringing Mobile Homes into your Park you then increase the value of the MHP.  That is a great thing!However, I also have to argue that when the Delta between the Lot Rent and Mobile Home Rent is high enough, then there is also profit to be made on the actual Mobile Home Rental.Now I am NOT saying to fill your entire MHP with Rentals.However, there is a number by which you can keep a nice MHP and still have some nice POHs (that make nice profits).

Kristin,I’m not saying that it’s not scientifically possible. I just wanted everyone to understand that the whole point of the exercise is to make money with the land. If you can make money on the homes (and we do, also, in some markets) then that’s fantastic. But even if you lost a little money on every home you bring in, you’d still be a winner in the macro value of your investment.That being said, everybody has to go with what has worked (or not worked) for them in the past, and I can understand some people hating park-owned homes and others liking them. It all depends on the market, the delta, the management structure and your appetite for excitement!

Frank, thanks for your comments!