If a mismanaged park is the easiest turnaround and a park with lots of empty lots is the most difficult, where would a park with a high percentage of park owned homes fall in the spectrum? I assume it is between, but is it closer to a mismanaged park than an empty park?
It depends on the condition of the homes. We’ve acquired properties where the POHs are in really rough shape, and have required ~$5k each to rehab, and we’ve acquired properties where the POHs are in very good condition, and the renters have been eager to transition to become homeowners.
You should try and get into as many of the homes as possible. Of course at least see them from the outside and peer in the windows if you can. Also get from the seller the occupancy and lease date on all the homes. Homes that have rented in just the past few months to single guys, or roommate situations are likely to be trouble. Homes that have rented years ago to families that are still in the homes are likely to want to become owners. One final variable is the number of bedrooms. 1- and 2-bedroom homes are likely to turnover and need more rehab than 4-bedroom homes, which are harder to come by and therefore tend to have more stable tenants.
Your mileage may vary,
What kind of spread or delta do you like to see between 2 br apartment rents and either POH’s or lot rents?
We like to be comfortable that 2br apartments are not in competition with our mobile homes. If you assume the average MH rents for $550 or so across America, then you would like to see a 2br rent for no less than $600-$650. There are very few areas that wouldn’t qualify on this metric. For our parks, the 2br rents are almost all above $800 in each market and it works well for us. We don’t look for this exclusively, but that’s presently how our portfolio happens to look.
I would have thought there would be a bigger spread between 2 br apartments and the average mobile home park. The bigger the difference I would think means there is potential for raising lot rents.
If you put a 2 BR mobile home in a park head-to-head with a Class C 2 BR apartment, the mobile home always wins. The mobile home offers a yard, no neighbors up banging on the walls, the ability to park by your door, and a sense of “community”. There really is no reason for the mobile home and lot rent to be less than the Class C apartment.
However, most park owners like to stay under that amount, just to make our attractiveness a perfect 10 on a 1 to 10 scale.
Once the mobile home is paid off, the difference between the apartment rent and the lot rent is around $700 to $1,000 per month in most urban markets. Mobile home park lot rent has massive room to increase – and must go up substantially in the coming years to keep many urban parks from being developed into apartments. That’s already happening in most metro markets. The choice for tenants will ultimately be higher lot rent or homelessness, as those parks that don’t make large upward movements in rents will be torn down, just as you’ve seen recently in Palo Alto, CA and Hollywood, Florida and St. Louis, Missouri.
As a sit note Sam Zell one the of largest owner of parks is spending 5.4 billion dollars I believe on 233,000 apartment units in the next 2 years. I wonders WHY he is not into more mobile home parks or is he???
Zell is actually selling 23,000 apartments for $5.4B, not buying them. Apparently they are all in suburban markets, and he wants to focus on the bigger core urban markets.
edit: it’s also interesting to note that he sold them at around a 5.5% cap.
Sam Zell is selling $5.4 billion of apartments he owns (roughly 25% of his portfolio). Here’s the link to the article:
Zell is claiming that he is getting rid of his suburban apartments to focus on urban apartments. But I imagine that his story fools no one, as he is well known to sell at the top and buy at the bottom, and my guess is that he thinks that apartments are overvalued right now.
He has sold none of his mobile home parks, nor does he have any on the open market to sell. He spoke at the NCC event in Chicago a couple years ago and declared that he had no interest in selling the mobile home park properties as he thought there was still plenty of room to raise rents. We could not agree with him more. We think that rents are 50% of where they should be in most U.S. markets.
Zell is currently the largest owner of mobile home parks in the U.S., through his public company ELS. They own around 140,000 lots.