I’ve been investing in rentals properties on Long Island, NY. As an investor and realtor the area has become unaffordable to purchase and hold. My previous purchases we rehab properties in a low market with the intention of holding and they are doing well. Future properties are not realistic to purchase and hold unless we see a major correction going forward. The rental rates are high, but the purchase end is out of reach to cash flow. I’ve been playing with the idea of a mobile home park in other areas of the country. I would seek parks that have good financials, no park owned homes or very little POHs that can be converted to TOHs. The condition of utilities are also important for the park. My goal would be to deliver a comfortable sheet and affordable park while increasing my cash flow. This is my philosophy locally and something I strive to continue. I have read some books and will continue to do so to expand my understanding. My concern is distance management and the reason why I’ll for us on TOHs and not POHs. I can always go to the park when needed, but will not be managing the daily details of the park. A few questions to help with further guidance:
Do many park owners operate at a distance from the location (out of state?) if so, what are the challenges for those with experience in this area?
it appears most local governments are no longer permitting to open new MH Parks? It appears buying an existing park will allow immediate cash flow anyway?
what are your largest ticket item repairs for TOH parks? Water, waste water, electrical , paving …?
Do you typically do better with returns on parks that are a “Diamond in the rough” verse those that are ready to go? I mean a park that may need to upgrade sewer lines ( orangeberg pipes), empty pads and so on?
more of a risk with a smaller park or larger? A 20 pad site compared to a 60 pad park?
Has the MH parks increased in sales price similar to SFH across the country? If so, is a correction expected? Have the cap rates been increasing or decreasing over the last five years from your experience?
Here are some answers that I know personally to your questions below…
Yes, it is very common for owners to be out of state hence why they would need to use a property management company like myself to manage the park. The challenges only arise when things are not done professionally, any emergency repairs or any vendor based work needs to be done by vendors with insurance and contractor licenses. Having someone on site that can be your eyes and ears for a small rent discount can assist with that, its ok to have a management company and an acting manager that lives in the park to oversea any work taking place, taking photos of issues and sending them to management etc.
It’s not impossible that buying already pre-existing parks will allow immediate cash flow, we all know the goal is to get your ROI but as with any large purchase that won’t be immediate but having a good monthly cash flow is very possible.
Largest ticket items are definitely cap-ex expenses, plumbing, new streets, sewer system maintenance if you have one and its needed. concrete, etc.
If you purchase a park that still has Orangeberg pipes for plumbing, RUN, no, just kidding but an upgrade to PVC or Copper will definitely be needed which kind of answers your question number 3. That is a large ticket expense but well worth doing, empty pads are also a headache consider the price of transport and the wait for new home delivery, if you can get a good deal on a park that already has those larger ticket expenses already done, DO IT!!
Depends on the parks NOI and space rents, some parks that have 20 spaces may only pay $500 a month in space rent, that is only 10K a month, after the parks monthly NOI and other small office items, internet, phone, management fees, office supply, If there is need for it will lower that monthly as opposed to a 60 unit park that may pay 100 in space rent, depending on the state, after a certain amount of spaces some states require you to have on-site management or a responsible party nearby to handle emergencies, so now you may be looking at payroll and still have the other office expenses and things I mentioned previously for a 20 unit. NOI is a key factor along with space rents to factor in while park shopping, Cap rate is a huge factor as well, I wouldn’t use it as my only metric system to define my ROI but it does play a big factor when shopping around.
From my experience, they have been up and down, SFH are a completely different animal than mobile home parks, again, depending on where you make the purchase you can always increase the rent annually which will alter the cap rate but you won’t know that until you make the purchase. In regards to a correction, I am not sure of that but parks are increasing in sales probably because previous owners have increased the rent previously which allowed them to either get closer to their ROI or break even.
I’m less than 30 days into my first MHP, so I may not have the market experience you are looking for, but I think I have enough to give a basic reply.
It feels as though you’re looking at MHPs through a single family investor lens. SFR has a lot of competing use, so there are market forces that adjust the prices accordingly. MHPs are commercial in nature, and they live and die by their financials.
I’m operating out of state and it is nerve-wracking… but I don’t think it will always be this way. That is just the jitters and seeing how things go. Once I get a feel for the market and have a few curve balls under my belt I think I’ll settle in just fine. A lot of my free cash went into this deal, and it came with 3 brand new homes. So its been two weeks and my brain is screaming “WHY HAS NO ONE BOUGHT THESE YET!?!”… clearly I need to calm down and give it a bit of time. If you’re going to operate out of the area then you need good systems and a good park manager. You’ll need to compensate for the worse of those items by making the other one stronger.
I think you need to rephrase this question. Most urban areas do not want more parks. That is unrelated to a business being cash flowing. If you were to buy a McDonald’s, you would only buy one that makes money (or you had a good plan to make you money). Same applies here.
What would you say if I asked “what is the biggest ticket repair item in rental properties”? My park is all city, so I have no “big ticket” items. That means that the biggest items are likely to be the water lines. In general, if you own the sewer systems and roads in the park they will likely be something you’d want to budget for.
As with almost all things, your “Risk/Reward” continuum applies to MHPs as well. You can buy a destroyed MHP for a song… can you polish it and make it profitable? If so, then it will have amazing returns. If not…
This will be similar to your multi-family equations. A big draw to multi-family is that you have many people paying vs. a single person paying. That spreads out your risk. Larger parks demand more from on-site staff (in general). I still think this is the wrong question though… each park is different, and so the circumstances of the park in totality create the risk.
MH park sale price is (mostly) based on the income they produce. As they produce more income, they sell for more. Based on this, I would not expect a correction to occur. Cap rates have been compacting in all sectors. I think MHPs were slower to catch up, but they are more compressed now.
Very informative information. Certainly the housing markets are higher around the county, higher incomes derives the mobile home parks and the cap rates have compressed as expected. I’m certainly a numbers guy so I can work numbers to find good investments and willing to walk away from bad deals. I’ve only had to walk away from one deal at the closing table at this point as the seller and my very own attorney weren’t being honest so I decided to walk away after signing 3/4 of the docs and checks were being cut.
Anyway, I’m curious if you have taken the course or boot camp offered by Mobile Home University?
