Thoughts on Capitalizing Lot Rent payments on POHs

I have a broker telling me he has a bank that would put the lot rent payment from a Lease/Option Home (POH) into the revenue formula and capitalize it? Any thoughts on this?

There are a handful of banks that do this. I think one problem would be when you want to sell it, the buyers lender probably won’t accept POH income in revenue formula. Then you may have to consider seller financing/all cash deal to sell. At the end of the day there’s a very good reason most lenders don’t capitalize POH income and I think most people on this site would agree.


I am sure that there is a bank that will finance POH’s somewhere. However, I have heard this story from brokers many times and they have never been able to tell me who the bank is and they also have never been able to sell the property.

Yes, I think the key distinction here is “LOT RENT” payment. Meaning, the portion of the POH rent that is actually lot rent and not home rent.

It works like this: If you have your POH in a separate LLC from the MHP, then when the POH entity receives a monthly rent check for the home, it turns around and pays the MHP LLC a lot rent payment. That way the income from the POH is being divided into lot rent and home rent. The lot rent portion received by the MHP should be capped in the revenue formula because it is legitimate income on real property. But to do that, you have to formally separate it (in terms of your bookkeeping) from the POH rent. Your accountant can help you make sure you do this correctly. It is worth doing though because it obviously has an impact on the MHP value.

Now, the tenant is probably not aware of any distinction about how much of their monthly payment is for the home and how much is for the lot. It may be written into their lease (and probably should be), but they probably won’t notice and don’t have any reason to care. They write one check and the total amount is what matters to them. Frank has talked about this quite a bit on the weekly calls, and I believe in the MHP course book and/or the audio portion of the course. So you might refer to those.

Maybe some MHP owners who are actually doing this will chime and provide some more details.

Thanks for the response.

That is exactly what I am thinking about this broker. Again, I have to remember they are Sales people trying to sell.
Thanks for the feedback.

That sounds like an advanced play, and would work I think given the time to put the pieces in place. Thanks for the detail and feedback.

I do what Jay suggested. Running Rent Manager the tenant has two leases. One for lot rent and one for POH. The POH is actually owned by a separate entity. Tenants make their payments online via Paylease and Paylease automatically deposits the money in its respective checking accounts. Takes an hour or two to setup correctly on the front end and not a single bit of work once it’s arranged in Rent Manager. It’s also an effective way to artificially push lot rents.

I have heard of banks who will underwrite the home rent portion, but I’ve never actually met one that has at the end of the day. I’m sure they exist, but good luck finding them. The best play is to minimize the value of the park owned homes and RTO notes by allocating as much of the purchase price to the land.

As mentioned above to maximize the value of the community, you want to maximize the portion of the rent payment associated with the pad. If someone is paying $700/m for pad and home, make the lot rent $500 and the home rent $200. Some operators make the mistake of making it closer to 50/50, but think of it this way. If you have 100 rentals, that additional $150/m allocated to pad rent at a 9% cap rate adds seven figures to the financable value of the park.

The bottom line for this discussion is: how much more are buyers going to value your POH when you decide to sell–the general opinion is??? Perhaps most of the plus income on rentals will add a 10% value, perhaps 25% or maybe ZERO. How many would rather buy an all tenant owned park or lots of POH’s, and if ALL tenant would that be an added value. Personally we place no value on rentals since the reasons we got into the business what to rent lots and buy parks.


Great discussion here. Below is an interesting scenario that I’d be interested in getting feedback on:
I came across a park comprised of mostly POH’s. The seller doesn’t have the rents broken out by pad / trailer rent. My plan is to purchase the park and begin selling off the homes to tenants and implementing a distinction between lot rent and trailer rent via a rent credit program. General deal / market fundamentals below:

AVG In Place Total Rent: 650 In Place Pad Rent: 0
Proposed Pad rent: $400
Proposed Trailer Rent: $250
Market pad rent: $300

The issue that I have with this strategy is that the park does not pencil at the market pad rent of $300. I have to inflate the value of the pad rent to make the numbers work on a pad rent only analysis. How does one find comfort in the fact that you’re charging a lot rent $100 above market? My concern is that when all homes are sold off and market lot rents are in still in the $300 range, tenants will up and leave the park.

Any feedback or input would be super helpful.


How do the other parks compare?
Will the other parks raise their rates when they see what you are getting?
Will you be able to place new homes at $400/m assuming you sell the home for cash?
How do apartment rental rates compare?

Remember, someone has to set the market rate for pad rents and most long term owners do not tend to raise as they should to keep up with expenses. It isn’t a bad thing to be the one setting the market rate as long as you provide a product that is worth that amount.

Have you subtracted the money gained from selling the park owned homes from the purchase price?

An extra $100 in lot rent is $1200 a year. If it costs $4,000 to move a mobile home a person can spend $4,000 to save $1,200 a year which is a 26% return on investment. Buy having above market lot rents you are encouraging anybody who has enough money or can borrow enough money to move. It seems like a potentially risky proposition if there are a bunch of vacant lower rate lots around.

I think this is best applied when you have TOH with below market lot rent and then some POH rentals. You can move the POH “lot rent” to market rate day one because you control the ratio of Lot rent to home rent on those. That raises the capped value of the park right away, and then over time as you bring the TOH lot rents up to market, the value of the park increases even more.

But it sounds like you are talking about paying the Seller for both of those gains in value upfront, before they are realized. Why should the seller benefit from your knowledge and efforts? Even worse, what if charging the above market lot rent on the TOH is not achievable or sustainable? (because People start moving homes out)

In my opinion the right way to apply this is to buy the park based on where it is currently performing, and then use these techniques to force appreciation quickly for your benefit as the new owner.

I am surprised that not everybody does this. We have done that on every park that we have ever purchased. I would never not do this. Every bank has accepted it every time.