Sweet spot for park size

mobile home university
1

I’m curious what people on this forum would advise as the “sweet spot” in park size?

There are a number of reasons a larger park would be better:

– Conduit lenders and investment purchasers want to deal in bigger parks, which pushes down the cost of financing.

– larger parks have more spaces over which to amortize fixed costs (manager salary, etc)

– parks that come with a significant number of park-owned homes may require full-time staff for maintenance (& turnarounds) & supervision of maintenance crew – larger park can afford better management, etc.

– easier to shop for & buy 1 big park than 2 small parks?

But then there are the counter-arguments. For the same amount of investment:

– two smaller parks might have better cash flow/cap rate than 1 bigger park

– two smaller parks, if within driving distance of each other, can provide some redundancy (if one manager goes on vacation or must be fired, other manager can cover & train replacement, if equipment breaks there is nearby backup, etc)

– two smaller parks may be less risky (w.r.t. disasters such as windstorms/tornadoes, or with respect to tenant and/or fill-up or economic problems)

– smaller parks probably don’t need full-time managers at all.

Assuming the money is available for 1 big or 2 small parks, what would you look for?

I suppose I’m thinking of 40-80 lots as my “small” and 120-250 as my “big” in this case. I know my “small” is big to some, but even small operators have big dreams and if the money were there, what would you want to purchase and why?

2

I once worked for a company that was purchased by a business investor who bought and sold many companies. He told me it was almost the same amount of work for him to own a smaller company as it was to own a big so he always looked to buy big. We now own both small parks and larger parks and I tend to agree, although the upper end of your small range (80 lots), is still a nice size.

The single biggest reason I prefer larger is that we always seem to have more wiggle room in our operating budget. In a small park a major water line or sewer repair can be a big hit to your cash flow.

A second reason is that our bigger parks have more upside because we had more empty lots to fill. So now we can create more equity and wealth without having to go buy another park.

Bret