How is your expense ratio effected by picking up the large ticket repairs on POHs? Do you find that your overall ratio is 35%, 40% or higher by doing so?

You pick them up one way or the other. Expenses grow and become larger problems down the road if you don’t repair them now for your RTOers while they are still ‘small’ problems (small roof leaks grow into large roof leaks plus floor damage you will only discover when the tenant moves out, unless you let the tenant know you’ll fix them while they are still small).

Our expense ratio for our homes (half RTOs, half rentals) has been averaging 29% of the home rent (e.g. not including lot rent) for the past 5 years.

Your mileage may vary,


Thank you Jefferson.

I agree completely, its like the Fram commercials, “you can pay me now, or pay me later”.

So if I understand correctly, you are running the park as two separate businesses; the land business and the home business.

With the land business, I am assuming your expenses are in the 30% to 40% range.

With the home business, you mentioned that your expense ratio has been running at 29%. So that I understand, if you are charging $500/month total rental with $200 going to lot rent, your gross from rentals is $300/mo. Are you able to net 71% from the rental of the homes? That would equal around $213/mo in the above example. I was always of the assumption that the home rental portion of the business would net a small margin at best and would most likely just break even.

Under Jefferson’s example – and let me know if I’m wrong, Jefferson – that proposed $213 per month is going to paying off the home investment that brought in or renovated the home in the first place. On the homes, the norm is that there is virtually no cash flow after the home “payment” to yourself (or others if the home was financed), but not that you can’t net a single dollar over the lot rent with the park-owned home. But even that analysis varies based on two factors: 1) the age and condition of the home and 2) how much is the lot rent vs. the home payment. If you have a “spread” between a lot rent of $450 and an “all-in” home rent of $600 – about $150 “delta” – then it would be hard to provide any type of home other than a really cheap older home and break even. Here’s an example. We can bring in a brand new home for around $30,000. It goes on a 10-year rent credit agreement. The customer can save up enough credits to buy it, if they want to, in 10 years. As the home is brand new, it needs virtually no major repairs, other than minor ones that the tenant makes themselves. The rent is $700 per month, and the lot rent is $350. We have a $350 delta with $50 per month in insurance and taxes, so we net $300. That covers our perceived note on the house, and everything is fine. But there’s very little left over each month from that home. So the home business looks foolish as a stand alone model because it’s not making any “profit” over its obligations. But the park business looks like a genius because it created $30,000 in real estate value by simply filling that lot. That’s why you want to be in the land business and not the home business – not because the homes are a disaster (although they obviously require more management) but because the big money – virtually all the money – is in the land business model.

One more item that needs to be pointed out is that the $700 per month in that example could be 100% allocated to the home – we are internally saying that $350 goes to lot rent. But the reality is that you have $700 x 12 = $8,400 coming in against that home, simply by putting it in the park. That really pays the home off in 4 years or so. So when we talk about the tight spread that our “home business model” faces, it’s really an internal item that we have chosen, no different than the interaction of depreciation into your financial statement for the park. We are mentally deducting out the lot rent as opportunity cost, but there really is no opportunity cost because unless we bring in the home, the lot sits empty forever.

Mark -

Yes, definitely keep your books for the land separate from your books for the homes. This will require two separate LLCs, and two separate bank accounts. The separation is not really that much more administrative work, and the benefits are:

  1. helps you ‘pilot’ your related, but different businesses to maximum profitably,

  2. helps you refinance (your bank will probably want to see land-only cash flow numbers for appraisals and re-financings),

  3. allows you to charge two late fees if a resident is late with both payments

  4. improves asset protection

We actually make a bit of money on our mobile homes. Of course we prefer the land business, but the mobile home business is ‘OK’ for us. As Frank points out, much depends on your lot rent and the delta up to your house rent. Our lot rents average $225/month, our home rents average $310/month (our residents pay $535/month total on average).

For 2012, here is what our home-only business looked like for an average home in an average month:

Home Rent: $310


Administrative $0.37

Insurance $29.67

Management $15.00

Marketing $1.82

Accounting $7.83

Legal $30.96

Repairs $87.01 (this is the 29% to which I was referring)

Taxes $25.67

Total Expenses: $198.33

NOI: $111.67 (36%)

At the margin, every lot we infill with a house brings us $225 pure profit because nearly all the land expenses are fixed (although our overall expense load for the land business averages 30%, so on average we show a 70% profit). Plus we make about $110 in our home LLC. So at the margin, for every home we bring in, we generate incremental monthly cash flow of $335.

Our average mobile home is a 2000 16x80 3BR/2BA, which in Oklahoma costs us $22,000 to purchase, deliver, set, and rehab, etc. We typically take $2,000 down, so our net investment is an even $20,000. By clearing $335/month we make a 20% cash-on-cash return.

NB: We’ve purchased about 20% of our housing inventory in-place in the MHPs we own. For these homes, the profitability is even higher, because we are not paying for transport and set (and sometimes not even rehab). Those homes have cost us around $15,000. We still make $335/month (27% annual cash-on-cash).

NB due: The last 4 homes we’ve purchased have all been 4BR/2BAs. In our market these homes rent for $725/month total. We’ve found they do not cost more than 3BR/2BA homes to purchase, move, and rehab. We believe our expenses will be similar to our 3BR/2BA homes, so we expect the monthly cash flow on these will be $190/month higher ($725 - $535). We’ll show this profit in the home LLC, so that will boost our monthly NOI to $110 + $190 / ($725-$225) = 60% NOI, or ($335 + $190)*12/$20,000 = 31% overall annual cash-on-cash.

All of this is a detailed (long-winded? 8-)) way of saying that your expenses to operate a mobile home are probably going to be $200/month. So if your delta is not at least that amount, then you definitely need to sell that home to a resident and not bring in any homes with a small delta like that. We are focussing now on the 4BR homes where the delta is $500. With those kind of numbers, you can make money in the home business.

But still, the land is really where it’s ‘at.’

To your continued success,



Thank you very much for the in depth details! This really helps take some of the guess work out of the numbers behind the expenses associated with the home side of the equation. I know each case is different, but this is a great guide to work from.

Thank you also to Frank and to Brandon@Sandell for some of his recent detailed responses to the Forum’s questions. Its great when you guys share detailed information like this. Very helpful and much appreciated!


How are you doing the RTO since the Safe Act has been implemented?