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

[Mario Dattilo]

Welcome! Your question is very broad but some things to consider are occupancy, type of utilities, who pays the utilities (park/tenant), demographics of the location, improvements needed, market lot rents, how many homes are park owned vs tenant owned, etc. 

I’d recommend surfing through bigger pockets a little and you’re going to get a lot of insight on the basics. You can also check out my profile for a bunch of resources for new MHP investors.

[Dave Rav]

Hi Janine!  Like you, I also have what I call a “hybrid” multifamily property.  It’s a mix of houses, MHs, and land/lot.  In addition, I also have an MHP.

In looking at MHP deals, many things to look at.  Here’s a list, which provides a good start:

-Developed vs Raw land (meaning infrastructure, lot/pad delineation, utilities in place, etc)

-# of filled lots?

-Are homes TOH vs POH?

-due diligence.  Include presence of formal leases on all units.  Find out who paid, who’s behind, and any evictions in-process.  Ask for prop mgmt records.  This includes seller’s  tax returns, if they’ll release them.

-Homes.  If POH, be advised typically very little value is placed on these homes.  Unless they are aged less than 10-15 years old (and 3-4 bedroom, in my opinion*) value per home is limited.  You can’t really take the retail value per old home and add it to PP; this isn’t the industry standard.

-Know your market.

This should start you off.  I can provide more 1-1 help if desired.  Inquire within.  All the best!!

[Janine Sharma]

Thank you very much! This is helpful :)

[Janine Sharma]

What are TOH and POH?  

[Mario Dattilo]

Tenant Owned Home / Park Owned Home

[Paul Moore]

Hi @Janine Sharma! Congratulations on this opportunity!

Mobile home park investing, like any other commercial investing, can be quite demanding an expensive. Mistakes can be leveraged and cause a lot of pain and financial problems. Value adds and good decisions can also create a lot of wealth. 

Given the high stakes of what you might be undertaking, I recommend you get all the training you can, as quickly as you can. Read The Mobile Home Park Manifesto. Acquire or attend https://www.mobilehomeuniversi.... Join a group of like-minded operators. And if it is possible, and you think you want to continue down this path, I recommend doing your first few deals with partners. People who know what they are doing and have teams, track record and a history doing this and who can help you along. Good luck and happy investing!  

[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

[Janine Sharma]

Thank you so much for your very thoughtful reply, there was a lot of great info in there!

[Janine Sharma]

This is very helpful! Thank you very much!