POH -- to renovate or remove and replace

Have a dilemma and would appreciate people’s opinion on the issue: Trying to decide to: i) remove vacate homes from the park and replace them with new homes via 21st Mortgage’s Cash Program; or ii) leave the home in place and renovate them.

With the “Cash Program” there is no out of pocket cost but the park does not receive the income from the home payment either. Whereas with the park paying for renovation, the tenant will pay lot rent plus home rent plus a down payment of about $2000.

As an example, we have a home in our park that has been vacate for about 2 years (after being lived in by a couple for many years). The couple had the title to the home and kept the outside in nice condition yet when they left without notice (“in the middle of the night”) the home’s inside was trashed. Apparently they had been living in the home for months (maybe years) with several leaks (in the roof as well as plumbing).

After the couple left, the home became a park owned home (POH) and we put a new roof on it to stop the water damage. The plan was to renovate the home however it is still vacate.

The home is a 1976 50 x 24 (1200 sq-ft) double-wide with 3 bedrooms, 2 bathrooms. A local contractor will completely renovate the home for $15,000 (new vinyl windows, new furnace, remove and replace all damaged sub-flooring, new floor covering, paint, ceiling repair, lots of plumbing, etc.). This cost could be reduced by not replacing all windows, and maybe the park serving as general contractor and hiring sub-contractors.

Here are the economics:

Cash Program: No out of pocket cost. Tenant and park get new home. Park gets lot rent of $300 per month.

Renovation: Cost to renovate about $15,000. Park would receive down payment of $2000 and then monthly $400 in home rent plus the $300 lot rent.

Would appreciate input from other park owners on this issue. Which way would you go? What issues should we consider? THANKS !!

I am not sure how many homes this applies to for you, but let’s assume it’s a small number to start the conversation.

If you use the CASH program you still have to haul away the old doublewide which is like 3-5K, which I believe they will not reimburse… You also take on the financial risk for the new home in the event that the Buyer defaults on their obligations and you cannot find a replacement Buyer. There is a low default rate to date with this program, but it’s still a risk like you co-signing for a car you don’t own. One of the benefits I like about this program especially if it were to be used en mass is that it helps change the visuals from an older Park to a newer Park, which brings different tenants and potentially higher lot rents.

On the other hand, rehabbing your 1978 doublewide is not a bad deal either. You would be out of pocket the 15K, but you get that back either using a rent credit program or highly regulated owner financing arrangement. I’m also not sure how strong your market is where you could find a cash buyer for the home and make some money on the deal if you were to sell it for 25K for example.

Summary: I think if you have an empty lot already prepped the CASH program makes sense. But you have a repairable doublewide and I wouldn’t haul that away if you can get the repairs under 15K and sell it to get your money back in a short period of time. My 2 cents.

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If I recall correctly you don’t have the cash program correct. You have to buy down the interest rate either lump sum or monthly payments.

I believe it’s a 5K buydown but can be financed with the lot rent or something.

That $15K seems pricy also. I’d shop that around.

I would go forward with the rehab and then sell to a buyer that will find their own financing for the purchase. There should be no reason for you to hold the financing on the home. I doubt that any other home owner in your community would hold the mortgage for buyers when they sell.
Community owners think that they must hold mortgages and will argue that is the only way to find buyers but this is not the case. Sell the home the same as any home owner would and break the mind set that community owners are only providing affordable housing. You will find far better quality residents this way and improve the quality of your community.

This assumes that homes are actually being bought and sold in your community.

$15k to do a rehab, seems very expensive. I would get multiple quotes from contractors. We had several trailers full to the ceiling with trash. We cleaned, sterilized, replaced sub-floor, plumbing, ceilings, paint, flooring, skirting, etc and can do it for less the $10k. If you were to go with a newer MH, consider lot size as well.

Also, shop around for MH being hauled away. We have a local company in central IL that will do it for $1.5k which is by far the lowest. Average is $3k to $4k but if you really dig you can find cheaper.

Our average rehab is $4,000 ($2,000 parts and $2,000 labor) and an extreme one is $10,000 (that’s a home that is a total wreck). $15,000 is way too much. If you drop that number to $10,000, then there are more questions that need answered:

  1. Is this a very visible spot in the park that needs dressing up, such as at the entrance of a “curve in the road head on” shot? That would make the new home increase the overall value of the park, and it’s not all about the price of the home.

  2. Does the CASH program work in your park? Don’t just assume it will, because it often does not. It’s based on bunch of variables that you don’t know until you test it.

Personally, I’d hold off on rehabbing the interior of that home, but just do the exterior for less than $1,000 and moth-ball it. If you want to test CASH, bring it into a vacant lot so there’s no immediate decision to make. If it works, and the spot is highly visible, then maybe put a CASH home on it. If not, then see if you can sell that home as a “handyman special”. Traditionally, you should devote your CASH homes to filling vacant lots – that’s where all the money is. Most any POH can be brought back to life for $10,000 and under, and it’s typically the better choice unless it’s a highly visible spot. In the absence of CASH, a new home will cost you more than $10,000 out of pocket, and you’ll be better off doing the rehab.

And I’m not even including the risk or having the city fight you on bringing in a new home vs. fixing the old home, or the site preparation costs in your state (if you’re talking Nebraska, swapping the old home for the new one will cost you around $5,000+ in site preparation).

As you can see, it’s a complicated question.

You will likely have 10k in moving out the old home and moving in a new home. That does not even include purchasing the new home. Most likely you should fix the old home unless there is something major wrong with it.

People much more experienced than me have already answered the question pretty thoroughly so I’ll just add two details:
-The CASH program isn’t totally ‘free’ as both the park and you are personally guaranteeing the loan. If you bring in a nice new home and the first tenant in there goes nuts and trashes the place and steals the furnace you’re on the hook for $25,000+. Bummer.
-The CASH program also has options for used homes, and if CASH won’t work for your park you can inquire with other lenders as well. You have the option of rehabbing the existing home, then using a lender to cash you out and finance the new tenant coming in.

Frank, how do you go about finding your contractors that do work for a reasonable price?

I’ve found a couple, but want to get the homes turned quicker so would like to find a couple more.


@Coach62 I have the same problem. I am basically testing oddball contractors (e.g. “I heard Bubba can fix anything!”) to see if they are any good on small projects and incrementing them up as they pan out or wash out.

The MH specific repair guys around here don’t want big projects for whatever reason. All the other guys are expensive. It sucks.

Couple of thoughts to add:

  1. Pre HUD (June 1976) homes are considered the riskiest. They are charged more for insurance and cause a disproportionate share of large liability losses (electrical fires, falling through floors, gas leaks, CO1 emissions…);

  2. Dilapidated homes affect the pride in ownership of other tenants too - and likely who is willing to live next door. Each market has its own economic realities, but nicer homes attract better tenants as a general rule;

  3. Use a Move In Safety Checklist for all your tenants. These are checklists where the tenant acknoledges safe and working conditions/systems. Have the move in tenant sign the form and date it, and keep it in your files forever; and

  4. When picking contractors for rehab, whenever possible, hire the insured ones. Thus, if they redo the wiring and there’s a later house fire that results in a teant’s death, you’ve got a layer of protection between you and the courthouse.