I’ve been reading everything on this site, in books and on other sites. I like what I’m reading, but admittedly I’m a bit skeptical. I’m a multifamily investor by way of trade.What are the biggest challenges / downsides to the industry? Everything I read is so positive and that can’t be true otherwise more investors would be on it, right? Or has the market been heating up so much in the past few years as more real estate and private equity investors are looking elsewhere for yield, thus suppressing cap rates in the MHP industry?I imagine the MHP investing industry is at a near peak, similar to multifamily and the single family housing industry cycles, no?
I agree about the peak bit. Cap rates seem to be lowering. Who knows what the future holds, though. Is the “trickle-down” from public REIT valuations going to keep prices high?
Thanks for the comment, Brandon. I really like what I’m reading about MHP, but since most seems to be published by existing park owners, it’s overwhelmingly positive.Every business has it’s downsides, even those like MHP that seem pretty solid. I’m just trying to figure out what they are since no one seems to be discussing them.- hard to find good deals?- difficult to raise money from investors?- tough to get financing?- hard to manage?Just that kind of stuff.
Buying the wrong park is a definite downside. Areas with low demand, Park owned homes, utilities not on city service. Litigation possibilities.
That’s a few
Parks can be a headache to manage – everyone has stories. I’m sure if you ask you’ll hear quite a few. Hard to find good deals? Maybe. You have to get comfortable with what the risks are, which is something you will find out during DD. Your job is to know and mitigate those risks with your investigations and plans and management.Financing is available, although some banks are more comfortable with this asset class than others. It has to cash flow if the bank is going to finance it, of course. Homes that come with parks are, by and large, the biggest headache. They need to be rented, re-rented, renovated, sold, bought, brought in and tied down, repaired, and on top of all that it is very difficult to find financing for used homes.Just some thoughts off the top of my head.Brandon@Sandell
Three down sides I see off the top are difficulty of acquiring financing, low quality tenant base and too many park owners owning some or many of the homes in the park. The purpose of owning a park is to avoid the hassles of brick and mortar and then some owners go back into brick and mortar. Where is the logic in that.Being a landlord is difficult regardless of the asset class you operate but low income tenants are a real challenge. No pay no stay is the only way to manage low income tenants but having a policy does not reduce the headaches. Screening to get the best of the worst is the most you can hope for.
The challenge is the low quality tenant base. You have to make sure everyone knows the rules and keep enforcing them. Then there is the risk of sewer or septic problems which applies for any older commercial real estate.
But the upside is that there is not much to do on a daily basis and tenants know you will file for eviction right away if they do not pay.
So most people pay and the cash flow is very consistent. Right now the returns are very good but that can always change.
Sid23, my Husband and I own 2 MHPs.Yes, there are negatives in owning MHPs.As you stated:- Hard To Find Good Deals? Yes- Tough To Get Financing? Yes. However, Local Banks are a great avenue.- Hard To Manage? Yes. Depends on your Tenant Base.Do the positives outweigh the negatives? YesMy Husband and I love (most of the time owning MHPs. We wish you the very best!