Manager Wants To Buy A Double Wide

Buying a small 37 lot park  Lot rents are $150/ month.  Manager and his family currently live in a single wide.  They have four kids and his mother also lives with them.Current park owner gives him free lot rent and $599 a year in compensation so she doesn’t have to issue him a 1099.  He cuts the common area and small maintenance projects in the park.The lot next to his recently came open and he wants to buy a double wide and place it there.  Originally, I was offering to provide him with free lot rent plus $10 per lot per month.  When he brought up the idea of buying the double wide, I informed him that he could do so, but since he is now taking up two lots he would have to pay the lot rent of $150 / month for the additional lot.  The original compensation plan would remain as is.He and his wife are good managers.  I want to be fair to them, but I also have to run the business properly.Looking for feedback from you guys.  Have I made the right decision?

We do not charge double rent on any double-wide. Unless your park is 100% full, and you have a waiting list of people to bring in trailers, that extra lot isn’t worth anything. A double-wide increases the value of your park to a future appraisal or buyer as it makes it look classier. If the guy buys the double-wide, he has became a major stakeholder in the property and will be even more involved in keeping the park nice.I would proactively try to get him to bring in the double-wide, not charge him a thing extra for that lot. The potential $150 x 12 x .6 x 10 = $10,800 of value that the one extra lot would be worth is more than offset in higher valuation as a result of the double-wide. This answer is predicated on my assumption that the park is not currently a knock-out and filled with double-wides.

Park is 95% full, in a good area with great demand.  I could easily rent it.  People here can get loan approval to purchase homes, but do not qualify for a mortgage to buy land, so they buy the home and move it into a park.  Great for park owners.  That’s my dilemma.  I want to be fair to him and motivate him to stay for the long term, but I also want to maximize the profit potential of a small park so every lot rented counts. I agree the doublewide will add appeal to the appearance of the property and will bind him to the property, which I like.  The current appearance of the park is very good.  All tenant owned homes.  They take pride in ownership and keep the property clean.  Paved road.  Not a five star, but a nice community.We have an extra 1.6 acres that comes with the park.  Water, sewer and electricity are already availble on the undeveloped portion.  Met the Head of the Planning Commision about expanding the park by adding another 11 lots and he has agreed to back the expansion when we bring it to the Planning Commision for review.  I explained to the park manager that I would increase his compensation when the new lots come on line and I would always keep his rent for the one lot frozen at $150/mo and never increase it whenever we have a rate increase for the rest of the park.   Do you think this is fair to both he and I, or would you still offer both lots free of charge plus $10 per lot?

I would not be concerned of his commitment to the park. Based on his request to bring in a double wide he is defiantly committed.If demand is high I would be charging him for the second lot and go ahead with the rest of the compensation you are suggesting if this is your prefered method. I would however not make any promises regarding freezing the $150 lot rent. You can obviously choose to not raise the rent in the future but the future being always uncertain I would defiantly not make promises.
Having said that I personally would not be offering any free lot rent. This complicates the employer/employee relationship when issues arise. I would have him pay full rent on the double lot the same as all tenants but I would adjust his remuneration accordingly to compensate. This would allow more flexibility on your part in the future when you sell the park or need to change managers. I offer nothing for free choosing instead to pay fair wages that can be easily adjusted.

There are too many factors for this to be a right or wrong decision. Why don’t you have him hold off long enough to see if your expansion is approved – there is probably a lot on the expansion land that that is irregular and would allow a double-wide without losing a lot. I’d see if he can delay his purchase for a little while to see how this develops.

Frank,In a case like this with a nicer looking park but with few/no double-wides, about how much value is actually added by bringing one in? Like if it were appraised at a 10 cap, with an additional doublewide it’d go down to a 9.XX? cap?

That’s an impossible question, as appraisals are extremely subjective, but there’s no question that a double-wide in a community is an asset as far as getting the top valuation. Since double-wides are the most expensive type of mobile home (not counting triple-wides which are rare) they exude an air of confidence that “this park is so hot that someone would bring in a home that expensive here”. Let’s look at it in a different industry. Let’s say the guy who appraises RV parks pulls into a rough-and-tumble RV park, with no amenities, back-in lots and poor aesthetics. And then, right at the entrance, is a brand new $1 million motor-home. Is he not going to thing to himself “there must be more to this park than I thought because it looks like a dump, yet this guy brings in this $1 million motorhome. This park must be more desirable than I thought, or this RV would not be here”. 

Yeah, the increased value definitely makes sense. I guess I’m just surprised that it so easily exceeds the value of the filled lot based on the additional lot rent collected plus the actual profit accumulated over the duration of holding the park. Is there any kind of “breakeven point” at which you would NOT give them the free lot rent? Such as the park having lot rent of $300 instead of just $150, for example.

How mush you give them in free lot rent is directly related to what there total compensation pack amounts to. If there total monthly compensation amounts to only $200 then that would be close to the maximum lot rent that could be written off.
The problem arises when a manager is not doing a good job and free lot rent comprises a major portion of his compensation. There is less motivation on their part to work hard and very little you can cut back. This is why I would prefer to only give financial compensation to managers as opposed to free rent plus money. 

Frank, your suggestion to wait until the expansion has been approved might just work.  I think I will have an irregular shaped lot that will accomodate a double wide.  Thank you for the suggestion and thank you all for you input.