You people are crazy, but in a good way

I always thought you Mobile Home Park owners were crazy! Now that I look into the business I see that you are crazy… crazy like a fox! Very nice numbers, potentially very profitable. But what am I missing? I come from a single family and apartment rental mindset. I read on here to “value empty spaces as zero and the POHs as almost a liability”. If I could buy an empty lot with all utilities in place for $20k and put a dwelling on it for another $10k to $20k that I could rent out for @ $150 to $200 month positive cash flow I would do that ALL DAY LONG! I must be missing something or else you Park Owners are just spoiled -lol, and consider fantastic returns normal.
So I’m looking at a park to buy that if I look at the numbers from my apartment ownership /management viewpoint it looks like a great opportunity, but if I look at it from the criteria I am learning here at MHU it is “run, run away quickly”. It would be greatly appreciated to have your feedback, thank you in advance. Here are the specifics: First, some presuppositions: My team is experienced in renovating affordable housing and managing low income tenants. We do not want to consider an out of the area park for our first park investment. This trade area has substantial unmet demand for low income housing. We are a rural community. The park in question is on city services. I am working through the MHU DD manual but let’s assume for this discussion that the infrastructure etc., posses no problems.
The deal:
73 space park, built in 1976. 10 of these spaces are RV, 10 spaces are sized for double wide, the remaining 53 are single wide spaces. The “story” is that the original owner/builder is in his 80’s and has let the park slowly decline in occupancy for a long time. 30 TOH’s pay $385 space rent with water, sewer, garbage included. 20 vacant POH’s in various stages of disrepair and included at no cost. All RV spaces empty, therefore 13 remaining mobile home spaces vacant. In this area 2 bedroom dwellings rent for $550 to $625 with w/s/g included. Our experience here is that as fast as a unit can be made rent ready we can fill it with acceptable moderate/low income tenants which we are used to managing. Estimated cost to renovate POHs $10k each. Estimated cost to bring in decent additional homes $20k each ($5k for the home, $5k to relocate, $5k to renovate, $5k fudge factor).
Here is the big dichotomy: The price is $1.4 million, $250k down, seller financing at 5% 30 year amortization. This works out to @ $20k per space. The current income will cover expenses and also the seller carry Note payments. Now I expect the experienced Park Operators to respond with “You are paying $20k for empty lots? Are you insane?!” My viewpoint is “the existing business self finances so there is no carrying cost nor negative cash flow, also each additional dwelling unit only costs $10k to $20k to place into service”. A $20k POH will rent for $550 (after sub metering the water) which is a 21% return (500 X 12 Months x .7 ÷ 20k = .21).
So what am I missing?
It is analogous to a developer with a half empty sub division willing to sell me lots with all the infrastructure in place and sewer hook up fees already paid for $20k AND I can place a rent ready dwelling on said lot for only an additional $10k to $20k that I can then rent out for $550. All day long… I’ll do that all day long, every day, as often and for as long as I can!
So what is it I am misunderstanding? Any thoughts?

You have taxes, maintenance, vacancy and insurance on each home you own coming out of the rent - lot rent. You have a high lot rent so there is almost no spread there.

The big thing that caught my eye is that you’re willing to spend 20k on a lot and 20k on a house for 200 month. That’s $2400 a year return on 40k. That’s only 6%.

20 poh’s are nice to have in place but will cost you 100-200k to get ready which is great if you can manage it however with that current vacancy rate your expense ratio will likely be off until you finish Renos and rent or sell them.

That lot rent seems really high for comparable 2 bedroom. From what I’ve seen, you would usually have 700+month 2 bedroom rents to warrant those lot rents.

you are basically being a life saver for the seller giving him full price for ranged goods

That’s my initial thought from a junior member here.

If the vacant lots were so easy to fill then they would be filled. It indicates an underlying issue with the business, whether it’s a market or management problem is irrelevant. That’s why diligence is so important in this segment.

Commercial properties are valued based on the income they produce (with lot rents in this case), and that’s how banks appraise them. If you pay 20k or whatever per vacant pad on top of that, this money comes out of your pocket and cannot be used as leverage. Owner financing is an option if a bank won’t give the loan, but you need to understand the incremental risks you’re taking on that a bank wouldn’t.

There is a whole chapter on this in the MHU Due Diligence Manual. At the end of the day you can pay whatever you believe is appropriate that meets your investment goals.

Good luck and have fun!

Jhutson: Exactly. That is what’s bothering me. The park is way over priced when I use the metrics I’ve learned on this forum and the DD manual, but… when viewed “in another way” there aren’t any rentals (rehabs, bare lots, etc) around here that can match the upside returns on this overpriced half empty mobile home park. If I was willing to invest outside my local area it seems common to find much better deals on already filled TOH parks. But since I want to stay local (for the time being) I’m chasing fewer and fewer good deals on single family/mutiplex/small apartment buildings. Good point about “if it could be filled it would be filled”. The “story” about the elderly owner as the reason for the low occupancy… well, possible but not very plausible. I’m just starting the due diligence and haven’t obtained enough info to even make an offer. All the info I have so far is from a “bird dog” and a brief conversation with the owner so their assertion that the current income would cover expenses and the new debt service will need verification. Thank you for your insight. I see your replies on a lot of posts and appreciate your time and willingness to help.

Louvie: My apologies, I didn’t express myself all that well. You are of course correct about the 6% return. I didn’t explain that a return of this type ($200 per month on a $40k investment) is better than apartment rentals around here and I was using that as an example. It is common to have apartments costing a unit price of $50k or more and only have a positive cash flow of $200 so I’ll take that 6% as often as I can get it. However, this overpriced half empty mobile park appears to offer much higher returns than that. I’m sort of “cheating” by intentionally not viewing the property as a whole but simply that if (a big IF) the existing income covers all the expenses (debt service, utilities, taxes, insurance etc) then any additional unit brought on line for $10k (POH rehab) or even $20k (used mobile brought in to be a POH) the returns are astronomical. Anything “to good to be true” worries me, so thank you for your thoughts. The space rent of $385 seems high to me also. Of course I need to call all the parks around and do a market survey. I do know from talking with a fellow member of the local Landlord Association who owns a mobile park that there are very few empty spaces and most parks are full around here.
I have some under-performing assets that just break even and they have no upside. I could sell those assets and roll that money into this park. I would then have an under-performing asset but now it is an under-performing asset with 43 unused spaces of potential upside. This is what I meant by “when viewed like an apartment investment or like empty sub division lots” this is the best deal out there by far. When viewed like a mobile home park investment it sucks! -lol. Hence my consternation.
If (there’s that big IF again… more due diligence required), IF the existing TOHs cover current expenses which include the debt service on the empty lots AND I factor in 30% expenses on any additional income, THEN any additional unit brought online would have a 23% ROI ($550 rent X 12 X .7 / $20k), or a ridiculous 46% for rehabed existing POHs ($550 x 12 X .7 / $10k) The “X .7” is the adjustment for additional expenses like insurance, utilities etc., for the additional unit. So my initial $250k down payment just “buys me into the game by swapping one under-performing asset for another” but it thereby allows me the “privilege” of being able to earn an excellent return on any additional investment. It is sort of like a bank saying “deposit $250k and we’ll pay you 1% interest, however, on any additional money you deposit we will pay you 21% interest”. It irks me, though, that I would definitely be buying “damaged goods” as you stated. I will update when I get more info and can discover accurate income and expenses.

My head hurts, when does the fun part start? - lol

When the entry price makes more sense. :smile:

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Touche! And point well taken.

Your first step is to stop thinking like a brick and mortar investor and start to understand how to think like a MHC investor.
If any one of us is only willing to pay XXX for a park and you are willing to pay
XXXXX for that same property because you evaluate it different than the experienced professionals do then you are over paying. It makes no difference what you see as a upside if our industry does not view the business that way. If you continue to view this business the same as brick and mortar business or try to compare It to brick and mortar investing I guarantee you will lose money and be selling at a loss in 2 years. One of us will buy it from you at that time for what it is really worth.


You have exposed my biggest fear; making a bone head decision! Not due to lack of info but due to misinterpretation of the info since I’m new to this industry. An even bigger fear is that if I do have to sell in just a couple years not only will I take a loss but it might be virtually unsaleable due to the proposed business model of having a lot of POHs as rentals. From what I hear not only do many MHP buyers shun this the potential lenders also frown on it.
I like the idea of running test ads immediately to check out market demand. I sure don’t want to be running this ad later: “moronic know it all needs to dump an upside down dog, any takers?” -lol
I sure appreciate your thoughts. I never would have thought there was so much to “renting dirt, grass, and pavement”!
Looks like it’s time to buy the MHU home study course and also be “off to boot camp” Nov 18.

Just another opinion but we have owned hundreds of POHs over the last 15 years and as a profit center they are cash flow positive especially after the friends and family loans of approx 5 years are paid off. Yes there is more work involved, but we consider it a necessary step to get our parks full.