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For example, if you can calculate or estimate the average electrical cost per day of an RV in the park, then you can take the actual power bill from the electrical company and divide through to see how many nights of occupancy there really was. You then multiply by the nightly rent and you should have a number that ties to that on the financial statements. CBRE Manufactured Housing encompasses investment sales, debt & structured finance and appraisal services nationwide for both manufactured housing and the closely related RV resort sector. I rode the MHP investing wave to the top, until inevitably the cat was officially out of the bag that MHP investing was highly profitable, proven, sustainable, reliable and repeatable. Prior to 2018 I was one of the only MHP Investors at any given real estate meet up or networking events, to which I heard a common response to this asset class “MHP’s are profitable?
Proportional amounts are unforeseen repairs or necessary renovations that are not recurring. It is wise to give the allowable rent increase each year so as not to fall behind. The rent increases not only increases your net income but also adds value and will serve you well when it comes time to sell. It reflects on the cap rate which in turn determines the value of the park. Have the seller carry the financing and you can escape the lending racket altogether. This allows you to get lower rates and to avoid a tremendous amount of stress.
Mobile Home Parks: An Overlooked Gem in Real Estate
If in a well located area the land value alone is always a good investment even if the cash flow from the rental income were to completely stop. This would not be the only reason for buying a park but certainly must be considered. A park located in an area where employment is strong will most certainly guarantee it will most always be fully occupied.
With most multifamily projects, a majority of the operating income comes from the tenant rental income. However, mobile home parks’ income can come from a variety of sources. In today's economy, many financial institutions, investors and owners are faced with non- or under-performing MH/RV Communities, particularly in the wake of the ongoing credit crisis. MHG satisfies these unique client needs with a fully-integrated platform that specifically addresses the valuation/broker opinion of value, management, workout, restructuring and recovery of distressed MH/RV loans and assets. #1 is 4 to 5 star MHP’s that people choose to live in for non-financial reasons. These parks are often gated, even guarded communities that have paved streets with curbed gutters, amenities such as pools or community event center, and lot rents typically above $500 a month.
DON’T: Apply Cap Rate to Mobile Home Rent
I knew I had to laser focus on one asset class and one asset class only if I was to have the highest possibility of success. So, I looked at as many real estate asset classes as possible and looked at real life profit and loss statements for each of the main asset classes and noticed an unfair advantage that MHP’s had over other asset classes. Due to the incomparably high cash flow while owning a MHP, and the exciting proportionality-large equity payouts at the end of a MHP investment cycle it became clear very quickly that MHP investing was a wise move. When purchasing a mobile home park that has vacant lots which are ready to be occupied, what value, if any should you place on these lots?
With the uncertainty of actual repositioning expenses, future market rents, new construction starts, rental concessions, and absorption times, this can represent a large risk. Historically, value-added investment real estate made sense only when buying at below market value. As a mortgage banker that has made loans on rehab projects since 1997, the largest risk I see today is overpaying for a building and then going over your rehab construction budget. And then compounding the problem taking too much time to complete the construction. 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.
Investing in Mobile Home Parks
The Securities have not been, and will not be, registered under the Securities Act, or the securities laws of any State of the United States or other jurisdiction. Learn more about how our real estate analytics software can help you become the next Zell, check out our previous blog The Need for Asset Management Analytics in Commercial Real Estate. Take advantage of STRATAFOLIO’s innovative software, and operate your portfolio like a modern-day Zell. With a team of analysts, accountants, and managers that work for him, Zell is able to read the summary data from his investments regularly. Reduce your management responsibilities You are also no longer responsible for the interior capital expenditure liabilities .
The national average lot rents run around $250-$300 per lot per month with trash pick up included. I like to use $300 as a more conservative average, as rents are consistently trending upwards. Depending on the set up of each park, tenants may also need to pay for utilities (gas, electric, water, sewer etc.) Let’s be ultra conservative and say that with utility expenses included, $300 expands up to $500 a month. What if we experience some type of financial meltdown or correction in the future?
What are Modular Homes?
However, if this upside was easy to obtain, then the seller would have most likely realized it before selling. In another example, suppose the park has an NOI of $80,000 and is priced at 1 million. Also, suppose that the park is currently paying for water and sewer and this expense is running approximately $30,000 per year. You know that you could install water meters and pass this expense on to the residents. You could very well purchase this park and realize the return you want very quickly in situations such as this.
Items like replacing all the water lines or sewer lines for older parks, resurfacing the roads, topping all the trees, are large expenses that can occur in the future and they should be budgeted for. While they are not expensed for income tax purposes they are capitalized and depreciated over 15 years or so, and are therefore real costs. I would include at least 2-3% of gross income as a Reserve for Capital Improvements in your numbers when determining the value. Manufactured homes are built using high-quality insulation, which helps with both heating and cooling the space efficiently as well as minimizing sound transference. You can consider the possibility of your park being rezoned for redevelopment at a future date. This has become popular with old parks built in town centers that now have land values far in excess of the cash flow value.
Yes, the homeowner can lose their home to the mobile home park if they are often in default for more than one month. Therefore they have a large incentive to pay their rent on time. Large Potential Equity Payouts at Sale of Asset – MHP’s have historically had high purchase caps in the double-digit range. This means those who purchased at 15% caps could later sell at 12% caps, those who purchased at 12% caps, could later sell at 9% caps and so on. Manufactured housing parks boast consistently higher tenant occupancy rates than multifamily investment properties like apartment buildings.
It’s not that I didn’t like education, in fact, I’m obsessed with growth and education. It’s just wasn’t a fan of traditional schooling which I felt held me back from my creativity and full capabilities. I wasn’t excited about option #2 either, although that seemed the less of 2 evils, so I chose one of the top paying blue-collared professions, steel fabrication & welding. For example, there may be a pad minimum – commonly 15 pads or more are required to be eligible for financing.
We just came up with the value we are willing to pay based on the NOI and the cap rate we are looking for. So, unless these homesites will fill up with minimal effort and investment, I would not place much of a value on them at all. In fact, having empty homesites that are hard to rent out will end up costing you money in terms of monthly maintenance and time. I would definitely point this out to the seller as a negotiating point. Many sellers like to say there is upside on all the vacant spaces.
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