Why MHP and not SFR?

[Watson Smith]

I caught the mobile home bug while talking with a family friend who lives in a rural part of town and owns around 100 mobile homes and lots. I like the idea of all the rentals in one area for convince factor... Plus I live in Atlanta and this gives me an excuse to get out of the city. My question is why do people say mobile home parks are so "lucrative" or call them "gold minds"? I've run the number against my SFR's that I rent and it doesn't look that way to me. Am I missing something? I've listed an example below. My main concern is the ROI.

Mobile Home Park

-14 lots at 100% occupancy each rent for $225 separately metered. 

- $225 (rent) x 14 (lots) x .70 (exp) x 12 (months) / .10 (cap rate) = $264,600

Lets say you bought it for that price and put 30% down @ 5.5% 20 year fixed and the banked loaned the other 70%.  Your PMT is $1,274 (excel)

Net = $11,172 yearly or $11,172/$79,380 (.30 down payment) = 14.07% return on your cash

The more cash you spend the worse the return is.

2 SFR's

-Cost of house and complete rehab $90,000 (45k each) - No loan

-Both rent for $800 a month

- taxes, ins, exp total = $3,520 for both

- Net 15,680 yearly or 17.4% return on cash

The SFR will appreciate in value... I don't know how much a mobile home park will or won't.

I know the first thing someone will say is my expenses are to low for my SFR's. I've been fortunate and haven't seen anything more in the last 8 years with my properties so thats what I'm going with.

What am I missing? Even if I increased the expenses on the SFR's and decreased it on the MHP you'd still be at the same return.

[Curt Smith]

Hi Watson,  I see you are near by.  A few of us are members of GaREIA.org and have put together a group who's bidding on mobile home parks.  We went to mobilehomeuniversity.com boot camp etc etc.  We might chat some time.

So who's saying MHP's are gold mines? The bigger guys... Blackstone the hedge fund with the largest number of SFR's under management via Renovation Properties has such poor management performance on their SFRs, vacancy etc etc that I bet their cash on cash is way below 10% (after their leverage). Where a park that is above 100 pads should cash on cash at least 20%. And should improve over time as one expands and fixes what ever was broke that caused the seller to want to sell.

20% to the big guys is a gold mine. Plus they can affort the CPAs who do cost segregation and they depreciate the homes on a very rapid schedule. So MHPs with park owned homes throw off alot of depreciation. But you and our park criterial is low to no park owned homes so less depreciation and less cash on cash. BTW we'd never offer on a park at less than 25%. Offer at better than 25% and the goal is to close at or above 20% COC.

Medium to large apartment buildings are running 6-8% cap rate...

Today in Atlanta with sky high prices for SFR raw materials it's hard to do more than 12% and new purchases much less than 12% cap rate. With leverage your return on cash will go up, but I doubt if it'll exceed what a park should be, over 20%.

We've not bought a park yet but we've looked at enough to know that owning and running a park is NOT like owning SFRs.  :)