Market Research Red Flags?

mobile home university
1

Here’s the situation: I have 1 park under contract and am negotiating with another owner. Both parks are in the same metro area (about 10 miles apart) and are on all city utilities, so I’m getting rolling on due diligence for both at this point and would like to hear if any of this info is a red flag.

Metro Stats
Population = 105,000
Unemployment Rate = 6.2% (US = 6.3%)
Household Income = $37,000 (US = $53,000)
Median Home Cost = $120,000 (US = $170,000)
2 Bedroom Rent = $640/mo (US = $957/mo) - Is this a red flag? Seems crazy low to me, but then again I rent my basement studio for $1,500/mo.
Vacancy Rate = 15% (US = 12.5%) - Is this a red flag or still in the ballpark?

I found about a dozen nearby (within 20 miles) parks online, but could only find a phone number for 2 of them. WTF? They are all relatively small (15 to 60 lots) and the 2 I was able to contact are completely full and have no POHs. The rents at these 2 parks are on par with the parks I’m looking at (mid $200 lot rent/mo + water/sewer). Also talked to a MH dealer and he said they hadn’t moved any homes into parks for a few years, but had put about 1/month on land. He said the parks stay pretty full and one of the nice ones close in to town has a waiting list.

Will start running a test ad on Friday to get a feel for demand. In the meantime, I would appreciate any thoughts/concerns you might have about the info above. Personally, I’ve always lived in pretty big cities like DC and LA, so these smaller places are out of my comfort zone.

Appreciate your thoughts, thanks!
-Drew

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Nothing on the surface is a red flag to me. I would be curious the “vacant for rent” % as that’s a closer indicator for what will reflect your test ad in many cases. Some towns have a skewed overall vacancy % because of vacation or otherwise abandoned homes… The 2 bedroom rents are low for many markets but also normal for others, so in my mind not a deal breaker.

Some people like larger metro population, but it doesn’t bother me as much. Assuming your purchase price is good I would say continue to proceed and see what the test ad and other remaining due diligence reveals.

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I don’t see any red flag except vacancy rate – You don’t say how many lots you’ll have. Are those dozen “relatively small” 15-60 lot parks good comps for you? How many larger parks are you competing with in addition to the “relatively small” ones? What are their lot rents? What is the comp “lot” rent?

I feel like 2BR rent for a 3BR home is a good comp to draw people from apartments into MH’s. I know others have different views on this. It is better if there is demand for a 2BR home product but in our markets, 2/1 and 3/1 are a LOT harder to flog than 3/2 or 4/2. We deal with “affordable housing” park, not “lifestyle choice.” Which I think is an important axis to keep in mind. If your market is retiring seniors choosing to move to a MH, your situation may vary.

If the comps are full, it’s a pretty good bet that there’s demand for their product. Do you have the same product? Can you offer that better than the current owner? At least as well as the competition?

We walked away from a deal on which the owner told me, candidly, “oh, there’s no way to get people to move in unless they’re moving from another park.” There were a few other parks in the county and certain of them people were fleeing from or heading to, depending on what the standards / enforcement of rules / management were. (If you get kicked out of a rental MH in one place, where do you head? To a place that doesn’t care).

But you want to be able to capture apartment tenants who see the value in MHP versus apartments. In this sense, it is a “lifestyle choice” to choose MHP rather than section-8 (or similar) apartment.

How big is the county and how far are people willing to commute? What are rents like in “comp” markets? Would you rather own a MHP in this city/county/political subdivision or one in another political subdivision of the same metro? Or the next metro over?

$640/mo is on the low side but probably ok. I walked from another deal because it was more like $550 when I got looking at comp rental homes (detached housing). I’d like $750 better – I know I can bring in a new home for $40k and sell it for payments of about $400 per month on 10 years. Add lot rent and utilities to that ($350) and that seems a pretty good way to stay healthy even if I am renting (not selling) the brand-new home.

If your market can’t afford $400 per month on top of lot rent, what can you do? You can take a smaller margin and sell new 3/2 at $650 ($250 lot rent, you can source new homes for $400 per month for 10 years), or you can find cheaper (used) 3/2 and sell at $650. The hardest part for us is to hire/find/be/train an expert in mobile home repair at costs that make sense.

We looked at 10-12 “metro areas” searching for our latest purchase, and after seeing many in person during DD trips, you get a feeling for the intangible “market research” red flags. Remember you’re looking at “median” numbers on the computer screen. You still have to drive around and see the actual market prices on comparable goods (small homes for sale in similar condition to homes in your park).

Brandon@Sandell

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