I’ve been looking at a small park with POH’s. Lot rent in the area is appx 150 per month, so the home portion of the rent would be 325 per month. What percent of the home only rent would be a safe amount to sit aside for just maintaing the home and vacancies? I feel 60% should be fairly safe but all I have to base this off of is a couple of stick builts I own. Anyway I will appreciate any and all comments. Thanks
We are in the process of ramping up the number of homes in our portfolio, so we don’t have a really firm idea of what our “stable” profit margin would be, but we count on 100% of the “home” income going to cover home-related operating expenses & vacancies. In other words, we hope that the “home” part of the business just breaks even (eventually!). The return on the “lot” portion is enough to keep us in business. If we do better, that’s great, but we don’t count on it.
Brandon , does the 100% include debt service on the homes. I may have to rethink the park I’m looking at. It is really small and all POH’s so I would need the homes to cash flow at least a small amount. Thanks for your post I appreciate it.
Fortunately or unfortunately, we are unable to finance our (used) homes, so that does not include debt service on the homes. The “park” operations cover debt service on the “park” portion of our operations.
Basically, we look at the homes business as a necessary evil to be tolerated because it helps fill lots. In reality we probably do a little better than break-even, but it’s not much – and the “homes” portion is sometimes pretty cash-flow negative. Other months do balance it out, though.
I’d be interested if other people here make money renting homes – more than the “lot rent” amount, that is?
Our long-term average maintenance cost on homes is 33%. We then loose another 33%, on ‘fixed’ costs (insurance, taxes, and we also allocate most of our management expenses to the homes). That leaves 33% as profit.
This is on homes that have an average age of 1999, and are 3/2 16x80s. They rent/RTO for an average of $400 ontop of lot rent that averages $200.
Given that it costs an average of $100 - $133/month to maintain a home, one needs a home worth at least $200 more than the lot rent to have any hope of making money. Any ‘beater’ home that only commands an additional $75 or $150 above the lot rent needs to be either 1) given to tenants free, or 2) rehabbed and sold for as much cash up front as possible to filter for the best-quality owners. Do not remain in the rental business for 1970s beater homes that only bring in, say, $325/month when FMV lot rent is $200.
I’d be especially interested to hear from Frank & Dave on their cost averages…
Dave is on a park drive, so we’ll have to wait a bit for the mathematical accuracy, but I can tell you in general terms that the success or failure of the POH business model has a lot to do with the quality of your tenants. I’ve seen brand new homes that are completely destroyed in 6 months and 1970’s homes that are still immaculate. The tenant has a lot to do with this – maybe all. When I had POHs in Louisiana, I could count on a total renovation after every tenant – they were that rough on them. In Wisconsin, you can walk in a home that has been vacated after a three year rental, and all you have to do is vacuum it. So we have to realize the human side of the equation as well – park owners are all going to have different experiences with POHs based in many ways on their tenants. If you say POH in Mississippi, I cringe. If you say POH in Pueblo, Colorado, I’m not that worried.