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If you want a 10 cap on a property priced at a 7 cap, it does not necessarily mean you should pass on the deal. For instance, what if the park has rents that are $50 under market and through your inspections and due diligence you know you could raise the rent to market rates in 2 months. In most cases when you review a sales package for a mobile home park for sale it will not mention any reserve for capital expenditures. This really should be addressed in your evaluation of the park and in the due diligence phase.
Current lending rates are at an all-time low so it is an ideal time to borrow funds to invest in this type of opportunity that offers returns of 5% to 9%. Lenders are now seeing this as one of the more secure lending opportunities due to the steady cash flow and debt serviceability. These are considered land improvements and are typically depreciated over a period of 15 years. This increased depreciation over the first 15 years is a major tax benefit for many investors. Since the value of mobile home parks is tied to their income, it is significant that lot rents have been growing a pace far higher than inflation for the last decade. It is important to note that mobile home park lot rents are insanely cheap at a U.S. average of $280 per month, and could double and still be cheap.
Real Estate Books
You must also build in the cost of borrowing during construction and all the way to when the park is fully occupied. There are a little over 44,000 mobile home parks in operation in the U.S. The vast majority of these are owned free and clear by mom and pop owners that bought them in the 60’s, 70’s, and 80’s and are currently looking to retire from managing the park or parks that they own. There is currently little but increasing consolidation in regards to who owns mobile home parks, but this pattern is changing as large institutional owners have been buying mobile home parks from these original owners.
The next thing to do is to come up with the anticipated expenses based not only on how the park is currently operating but also based on how the park will operate with you as the new owner. For example, if the current owner is managing the park, then you need to plug in an amount for management and payroll taxes and workers comp. If the park has vacancies and there is no advertising expense, then you need to plug in an amount for advertising. And then, of course, you have the sellers who actually have not been doing the required maintenance, and that’s why there’s virtually no expenses on that line item.
Park-owned vs. tenant-owned homes
There is always a possibility that the cost of a mobile home park is different for different buyers. For example, the price of the same mobile home can be $5,000,000 and $5,100,000 for different potential buyers. You should treat furnace cleanups like you would a dentist appointment. Regular check-ins for cleaning and maintenance are important as they will not only preserve your furnace but also save you on energy bills in the long run. So in reality, a certain mobile home park will have a different value to each and every person. The idea is to decide what you want or will require in terms of your investment and then work to make the deal fit these requirements.
Lowering this temperature setting can save you anywhere from 4% to 22% in energy savings. If done correctly, the process should only take you around two hours to complete. Regardless of whether you own or rent a mobile home, you will need to budget for infrequent expenses. These include things like pet expenses, insurance, cars and more. When it comes to your mobile home, you should also plan for irregular expenses like repairs and upgrades.
Taxpayer Advocate
Estimating the value of a mobile home park is relatively simple, as it’s all based on income. Most mobile home parks sell for a range of 8% to 10% cap rates, which equates to roughly ten times the annual net income. Going back to those earlier examples, that means that the ugly trailer park with 50 lots is worth over a million dollars, and the 250 space park is worth over $5 million. Mobile home park rents remain affordable, while providing investors a reliable return on their investment. The typical expense ratio for mobile home parks is 30% to 40% of the gross revenue. Since mobile home park owners are typically renting land, they do not have to budget for repairs, maintenance.
The upside is investors are collecting additional money rent on each home, plus space rental. The downside is that conventional financing is difficult when park owned units exceed 20%. It is typically accepted that the average operating expenses for a mobile home park are usually around 35-40% of the gross income as compared to apartments which have in the 50-60% expense ratio. One of the biggest advantages of mobile home park ownership is not only this decreased operating expense margin but the reasoning behind it. Financing mobile home parks in the past was somewhat challenging since most lenders only understood them as being very low end housing. Most lenders will still expect the Buyer to put his own cash of 30% to 40% down and they provide the balance required to complete the purchase.
Mobile Home Parks Versus Apartments & Other Real Estate
If you can create a win-win transaction scenario and be easy to work with they just might sell you their park. If each occupied lot is worth an additional $10,000 then in addition to the profit from the home sale itself you have just made an extra 10k in equity. I actually had someone who was a few months late on rent, decide to hook up to their 14 x 70 home with their ton pickup in an attempt to move it down the road a few miles to a different park. They made it out of the park with the home but about a mile down the road the mobile home separated from the truck and they not only flipped the home but destroyed a truck. You may use this form to volunteer income and expense information for mobile home or RV park property.
A park located in an area where employment is strong will most certainly guarantee it will most always be fully occupied. The mobile home park is an industry that is not overly visible and seems to be somewhat uncommon as part of one’s investment portfolio. Don’t let this fool you since I have come to learn that major corporations and wealthy individuals are now buying as many of these parks as possible. It has many advantages and the following information will explain some of them to you. His books and courses on community acquisitions and management are the top-selling ones in the industry. To learn more about Frank’s views on the manufactured home community industry visit
You can save an additional 7-16% annually by insulating your water heater. Blankets or pre-cut jackets for insulation can cost around $20, so it’s possible you may not see savings the first year. This can still be a worthwhile investment and not very difficult, as insulating your water heater should take you under two hours to complete. Not every tank needs insulation – newer models usually have this feature already. You can detect a lack of insulation by putting your hand on the tank. One of the biggest differences with mobile homes is their underbelly.
The area should also be dry so as to avoid sealing in moisture. You’ll want to have a putty knife ready in case some of the caulk comes oozing back up. Learn more about what type of caulk to use and how to apply it in this guide. In some cases, you will be able to fill up the homesites with minimal investment and effort so you may place a value of 25-50% depending on your comfort level.
No matter the economic conditions, there will always be a demand for low-cost housing. The US Census Bureau estimates the population of Florida in July, 2017 at 20,984,400 persons , and the median household income at $48,900. In Florida, recent statistics show that 1,401 households or just less than 20% of the population have incomes less than $20,000 annually. They also report 1,538,949 households have incomes less than $20,000 annually. The biggest reason for the low home turnover is that it costs so much to break down, move, and set up a home.
There’s also less worry about capital improvements that are required for other property types such as apartments, etc. A simple way to think about the cap rate is that it is the return you will receive year one based on the current projections if you were to pay cash for the property. If you put $1,000,000 cash into a CD, you can expect somewhere in the 5% range for your money.
Since they do not obviously send a bill to themselves or get on the park’s payroll, their labor cost falls off the radar screen and they conveniently forget that it needs to be reflected in the park’s operating numbers. Of course, others remember but leave it off because it makes the park look more profitable that way. If we look at the ratio of housing costs to total income of say 28% — these families can afford less than $467 per month. The median price of homes in Sarasota, FL at the time of this blog post was $273,200 according to Zillow.Certainly beyond the means of folks requiring affordable housing whose housing budget is around $467 per month.
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