What is your prefered strategy?

Hey all,

My first post here so I hope it’s not too far out of turn. I have been researching MHP strategy for lack of a better term and I have come across 3 primary operational methods and am wondering which is best (if any?) in your opinion.

  1. Rent the pads and don’t have any POH’s (Pad Rent Only)
  2. Rent the pads and convert some or all of the park into Lease/Purchases POH’s (Pad Rent, Monthly Lease until Purchase)
  3. Rent the pads and fill with POH’s (Pad Rent and POH Rent)

I know that these can a bit subjective and also can be mixed and matched as needed. I guess where I am getting a bit off in my thinking is the value of the park is different in each scenario or is it?

If I’m making 10K per month pad only but if filled with POH’s maybe it brings in 30K per month. That’s quite a bit of difference. So how do you balance that out when looking at a park to purchase or putting together your Pro Forma so you an set your targets and track progress?

I know you add headache and expense with POH’s and to some extent with Lease to Own but I’m really only looking at the overall cost/value aspect and how that differs or is the same for each strategy type.

Thanks, James

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Hi James,

I have been wondering the same thing for a while now. I have heard time and time again that lot rent is the way to go, but I have yet to see a quantitative analysis of the overall cost and time benefits when there are tenant-owned homes vs park-owned homes.

To my understanding:

  • When the park owns the home, the owner is required to make repairs and maintain the home to habitable standards. When the tenant owns the home, the tenant is responsible for maintenance (aka no toilets for owner to repair). However, several park owners I have spoken with prefer to own the homes since they take little/no time for maintenance and they can still charge home rent.
  • There is little to no money to be made selling the homes compared to how much you can get in lot rent. When you factor in the cost of rehab and finding a new tenant, plus evictions if necessary, you often lose money on park-owned homes. The flip side argument is that tenants have more homeowner’s pride if they own the homes instead of rent.
  • If all of the homes are tenant-owned, the MHP owner to my understanding would only pay real property taxes and get great depreciation for the capital infrastructure. MHs get personal property tax, and lenders are less likely to finance if there are a bunch of POHs.

I think there might also be an economy of scale argument. POHs may make more sense with a small park of 5-10 units vs. a larger park of 100-200 units. If they were on lot rent, they’d take around the same time and effort to manage.

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I really depends on what you want. If you want the most money possible than POHs are the way to go, however, they come at a cost. Home upkeep is significant. It requires you to hire staff to maintain the homes.

To be as brief as possible, personally, I have tried to keep my POHs to a minimum. I would rather take more of a set it and forget it approach. MHPs are an amazing source of income with zero POHs. Why complicate matters?

If you are interested in the POH approach, you should really think about buying an apartment complex somewhere. You may find a better financial deal.

I hope this helps!