New Mobile Home Park Investor

[Janine Sharma]

Hi everyone,

I am a novice investor with one mixed-use multi-family building and have the opportunity to branch into an off-market mobile home park.  Does anyone have any advice on analyzing a mobile home park deal? What are some mobile home specifics I need to consider when looking at this deal?

Any info is much appreciated!

Thank you,

Janine

[Jack Martin]

@Janine Sharma as an owner/operator of roughly 1000 MH spaces, here are some of the items we have found to be important:

Acquisitions - Most park transactions take place off market, so if you are not "in the know" most of the time you wouldn't be aware when a park was available to purchase. You can always look at deals that are on the market, but that will only be a fraction of the deals that trade hands. If you are willing to invest time and effort to develop relationships with brokers and owners of parks in the markets you are targeting, you will be "in the know" when someone decides to sell. This requires a lot of hard work and patience and many times these relationships require several years to mature before a transaction occurs, but you'll see more deals that way. 

Location, Location, Location. There are many other key criteria within the analysis of a MHP, but none are more important than location. This is especially important with value-add parks where you are intending to fill spaces, sell homes, and raise rents. Buying a park in a poor location will cause more brain damage than it is worth, even if the price seems right. The right location with proper market demand will allow you to hit your projections, or better yet exceed them. Make sure to do a thorough market demand study and stay away from small towns that are not growing or producing jobs.

Conservative Underwriting - Leaving some "cookies in the pantry" is a phrase we refer to when we underwrite parks. The idea is not to stress the underwriting to the point that everything has to go your way to make the deal successful. We all know there are surprises that come up, so make sure to leave some cookies in the pantry to account for those surprises. Ask yourself questions like: What if we can't raise the lot rent as fast as we predicted? What if we can't sell homes at the pace we projected? What if interest rates and cap rates increase? etc. These cookies in the pantry are areas where you know you will likely be able to achieve greater results, yet you underwrite a more reasonable expectation. That way if an unexpected event occurs, or if the pace turns out to be slower, you have those areas of over-performance to offset any shortfall. 

Due Diligence - In general, we like to take a measured approach that breaks up the DD into 4 areas: financial analysis, initial walkthrough, compliance, and paid inspections/services. Begin with the items that require your investment of time. First, review the financials to determine how the park is currently running and to uncover the potential inefficiencies or value-add opportunities. Then do your initial walkthrough of the park so you know exactly what you have, along with the compliance items to make sure there are no deal killers. If everything is still a go at that point, then it makes sense to perform the physical inspections, surveys, contractor bids, etc. The idea is to allocate capital to the deals that have passed all the initial inspection requirements and are highly likely to be a deal.

Operations - First of all, 3rd party management does not work as well on MHPs as it does in other asset classes, particularly on value-add deals. If you acquire a park that requires major capital improvements, renovation and sales of park-owned-homes, filling vacant spaces, etc, it will be best if you oversee that yourself. Take the time to create a proactive asset management strategy that will allow you to keep your finger on the pulse of your park's performance, and to ensure that you are constantly moving the needle toward the goals of the park. By taking this approach, we have managed to outperform the projections on every park we own, including the parks where we encountered the most challenges. This would have been difficult to achieve with 3rd party management, as they are simply not capable of executing on the value-add component. 

Communication - If you are planning to use investor capital, it is extremely important to be proactive about communication. Create a plan that includes timing for regular communication, quarterly reporting, distributions, and delivery of tax documents. Be extremely proactive and deliver on time. What we've found is that those who take the time to create this plan in advance are the ones who deliver the best investor experience. 

Finding, acquiring, improving, and operating mobile home parks is not easy, but the dedication and hard work is worth it when you experience the cash flow and recession resistant performance. 

All the best,

Jack