What is the min size of a park that will still be effective?

mobile home university
1

I’m looking at some smaller parks, 10-12 units on city sewer/water. Assuming the numbers work, is there a good reason to avoid parks this small?

2

While I have owned a 15 space park before, I think you should set your sights on something a little larger as a minimum size. A 25 space park would give you much better economics due to better scale, and would have more exit options. Let’s assume that you bought a fixer upper 25 space park for $10,000 per space, or $250,000. Then you increase the rent, cut the costs, clean it up, groom it at every turn, and build it into a 20% cap rate, which you then sell for a 10% cap rate or double your purchase price. At $500,000, the buyer has an asset that has enough return to warrant the investment, because a 20% cash-on-cash with 20% down would mean the buyer would put down $100,000 and get $20,000 per year. On a park half that size, the return would only be $10,000, and that’s not enough for a normal buyer to get interested in it.

3

I would say that depends more on you than on the park. Most of us have some scale and are focussing on parks with 50+ spaces.

That said, we just purchased a 20-space park because:

  1. it was close to one of our other parks and could leverage our infrastructure in the area (repair crews, management, etc.), and

  2. it was poorly managed. Between billing for water and fixing a few abandoned homes and raising rents, it could nearly-effortlessly become a 20% cap park inside of 90 days, and

  3. we got 100% bank financing, so it was a ‘free’ park(!), and

  4. we don’t ever intend on selling the property, so we were not concerned about buying a park that was too small to be easily sold down the road. As Warren Buffett says, “I only have an entrance strategy, not an exit strategy.”

So you need to think about if/what other properties and people you have in the area (or if none, how close the property is to your home because you will be traveling there), and if/what your exit strategy is. If you have little capital, then get started small. If you can afford more, go larger. Just get into this business one way or the other.

Best,

-jl-