Lot rents compared to apartment rentals

haven’t I read where some of you use the area rates on apartment rental rates to determine what you should charge  for lot  rent?

We use 1/2 of apartment rent as a guideline in approximating lot rent levels. For example, if a two-bedroom apartment rents for $800 per month, then we would estimate that a good lot rent ceiling would be around $400 per month. Of course, this is not set in stone and, in fact, many REITs and others might charge $550+ per month under this scenario. But the point is that lot rents have to tie back to economic realities, and you can’t have a $400 lot rent when apartments rent for $300 per month. What all of these measures point out is that to have in-demand affordable housing, you have to be significantly cheaper than apartments and SFH. Some people think that you can have a successful mobile home park in a city in which SFH sell for $30,000 and apartments rent for $300 per month (read about my exploits in Louisiana for a real-life case study) – but the truth is that you can’t. That’s why you want to focus on expensive areas for housing, so that your park will have a ton of demand and you can charge a large lot rent.

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Is there a guideline to approximate rent for a POH?

We are doing a major study now comparing lot rents (net of utilities and services) to the median 2 br apartment rent nationwide. After gathering data on almost 1,000,000 pad sites the national average is 51% with the range being anywhere from 80%-20% depending on the submarket, so 50% is a pretty good rule of thumb.

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This is consistent with another rule of thumb which is lot rent approximately equals POH rent and when you put them together a 3BR POH should total (lot+home) rent for about the same as a 2BR apartment.


Brandon, if a 2 br apartment rents for $2000+ per month then what should lot rent be for a TOH? (water/ sewer/ lawn maintenance are not part of the factoring due to individual meters and billing).

What market are you thinking of?

To elaborate on my previous post, I am no economist but economics 101 is not a hard science and neither are rules of thumb. Market rates are dictated by market economics.

If a two bedroom apartment rents for $2000+, as it does in the SF Bay area where I live, the local economy likely has very high costs of doing business, including high labor costs, high regulatory costs, high land values, high insurance costs, and usually some form of government market intervention e.g. rent control.

Otherwise apartments would be cheap to build and housing would be cheaper.

Since factory-built housing is stigmatized (but can be excellent in quality), and extremely cost efficient to build, the general rule of thumb I mentioned is to suggest that 3BR MH rental rate will compare favorably to local 2BR apartments as they will be approximately economic “comps” but, --as Frank has said–, “no shared walls, park by your door” and an extra bedroom to boot.

The breakdown between the “market rate” of pad rent versus the “rental rate” of the home itself not including the pad will depend on how much it costs to purchase and maintain the home versus how much it costs to purchase the park with the pads and maintain them. The latter, by the way, is vastly underestimated by most people without years of experience in this business (e.g., private equity investment managers).

In any event, to the extent there is a surplus in the market rents, the division of the surplus between landowner and homeowner (a) is completely dictated by local market factors and (b) can be estimated to first order as a 50-50 split.

Nevertheless it is true that the landowner has most of the bargaining power and this tilts the playing field, but if you’re going to take up arms against that, the place to intervene is through public policy and by the way, in case you hadn’t noticed, little unorganized poor folk are always at a disadvantage when facing off with the monolithic power centers. Consider how hard it is to fight for your rights against the insurance company, or the tech industry, or city hall, or Big Coal or Big Ag or Big Business like the railroads in days gone by. Little people always get screwed and the power they hold is in collective action, starting with the ballot box.

My point is that this industry is (probably) on average no better or worse than any other. There will always be bad actors to point at but it is unfair to paint everyone with the same brush. What’s different about MHP is the stigma. There are bad actors and unethical people everywhere, but underneath it all, MHP ownership is a business like any other. EXCEPT, the stigma makes a niche that not everyone will want to explore, and this is why there is (sometimes, if you hunt for it) a “3-point spread” between the cap rate and the cost of available capital (as was mentioned in a recent post).

At least that used to be the case, and that used to be why investors could make disproportionate returns in this space relative to the risk and aggro.

I do not think that is the case anymore. Market prices now are vastly underestimating the risks of investing in this space (and the aggro!) and I think a lot of investors are going to regret purchasing at today’s prices when maintenance and management costs are averaged out in the long term.

The private equity firms are playing with OPM. It doesn’t matter to a Wall Street analyst if they underestimated the risk because they get paid no matter what.

And finally, before I step down from the stage, I want to remind everyone that “high” returns don’t exist in a vacuum. They are correlated with and must be considered with risk (and aggro). By themselves, high profits are not necessarily evidence of anyone’s being taken advantage of.