Hi All,
New to manufactured housing and have a question regarding POHs and TOHs that you might receive back due to evictions, tenants moving/leaving, etc.
POH: is there a general rule of thumb, if underwriting selling POH or using a rent credit system, about underwriting how many homes you might receive back? My thought is, if you don’t have extra money in your budget, you might not have the cash to renovate a home you get back, before you resell/rent credit it. What I am struggling with, is how should I think through this when underwriting/budgeting.
TOH: Similarly to the above, how much turnover in TOH should I be underwriting each year? And how should I be thinking through having enough cash on hand for potential renovations/rehab before being able to resell/rent credit the home?
Lastly, for TOH, is there a general average length of stay, across the industry, that is good to use for underwriting/budgeting purposes?
For POHs I generally assume about 30% turnover. Obviously the type of park plays a big part in how I adjust this and many times I will use a bigger number in the early years if I think I need to change the tenant base. I generally budget $2-3k per home.
For TOHs, again the current tenant base plays a big part, but in an ideal situation, once a park is stabilized you will be taking very few homes back from tenants as they will sell them to a new resident resulting in no turnover loss. Rehab costs are driven by the market and what you can sell a home for. In a large metro where used homes sell for $100+k you are going to spend 5 figures on a rehab, but you will only want to spend the bare minimum in lower cost markets. Many people have found luck with selling homes as contractors specials, but they will spend a small amount to fix up the outside to improve the look of the park.
As to length of stay, I’m not sure there is a rule of thumb here as all communities are different. In a stabilized all-ages & 55+ communities, people generally are there for life, but when you are dealing with transient populations due to the type of workforce (ie: fracking) or a low income area you are going to see people in and out ever few years on average.
I don’t have POH, however for TOH find a good Lonnie Dealer and have them buy any homes a Tenant leaves behind. Make sure they catch up all over due rent as part of the purchase of the home. I wouldn’t touch/rehab a home - just not my cup of tea.
In my one 9 unit (yes very small) park that is all TOH, I’ve had 2 homes move out in the last 10 years or so. One was burned by a mad girlfriend and one I evicted. No one has moved on purpose in at least 10 years.
My other park we haven’t had long enough to say either way.
Does anyone have advice for creating an excel formula or a template they can share (or the logic of their template) which factors in leasing up POH and than having a percentage of your POH default? Next, for the POH that continue paying rent and don’t default, transitioning over to TOH? I imagine if I am buying a park with some POH, I need a model which can assist in predicting my cash flows going forward and how they will adjust. I am not counting the additional POH income into my cap rate, but I have been having trouble creating a formula which streamlined the conversion from POH to TOH in excel.