What CAP rate do you look for in a Mobile Home Park?

Question

Account Closed · Answer

Account Closed alludes to ( rules start going out the window in CA/FL/Pacific Nwst.

This will depend on how large the park is , what market, what the utilities are compromised of, are there any homes, lot sizes.  There is a strong preference in the industry for parks where the tenants own their own homes.

Once you start getting looking at 200 plus space parks that are 4-5 star , there is a lot of money going after those which will be reflected in the cap rate, say 6 cap.  There is not really a grading system of ABCD like multi fam, its more of a star system which not everyone goes by but some brokerages do.

Sweet spot for owning a park is 100 plus pads but there is a lot of interest on those so I would say the sweet spot of looking for deals is 50-100 because a lot of the larger owners won't look at 100 and below ( but don't think those deals are easy to find!)

If you are in a decent area, 80% occupied homes, 100 pad site,  city utilities, you may be looking at a 9 cap.   Its really a broad niche which requires tremendous research and valuation will be very property and market specific.

It is a competitive asset class but I feel you can generate returns that are exceeded by multifamily. Typically, you will have lower cap X ( i.e. no roofs, buildings etc) and your expenses will run lower ( say 30-40% ( can also be higher) as opposed to multi family which could be 40-60% .

City utilities will be preferred over private. If you are going to buy private, i think there really needs to be some other great stuff ( i.e. great market , great size) to offset the additional exposure to private utilities and your future buyer may want a little discount on the purchase of your park.

Thats a pretty basic summary. I would be reluctant to attempt a syndication without really investing into education first. Parks can be great investments but buy the wrong one the wrong way, it can be crush you.

Jay Hinrichs · Answer

typical risk/reward.. I have owned F parks and solid B.... F to C- youi want mid teens to above 20.

A and B depends on where your at.. out here in our area those will trade from 3 caps to 6 caps.

Mike Dymski · Answer

You may want to check out Kevin Bupp's podcast on MHPs...he syndicates as well.  I have no affiliation with them...I just listen to his apartment podcasts, which are good.

Account Closed · Answer

I have partnerships with investors but I have not done any type of syndication. I have been involved in ( owned, partnered on , or assigned my interest ) in about 11 different parks.   I like the 20-50 space.  I think there are a lot of good deals that can be made there when certain parameters are met. One thing I would note, is most of the parks that are advertised as 12-15 caps are junk or lies, or a slew of other things.  Example, we have bought at a 9 cap and getting the park to 20 cap within a year by trying to get closer to mkt rents and normalizing expenses.  Thats the big upside is can you run it better than the current guy?   I try to really focus on off market deals as on market is really competitive and there are a lot of great buyers you have to compete with which is really putting pressure on caps , thus making it challenging for smaller guys to get any type of deal.

Account Closed · Answer

Syndication is a major interest to me.  My clients have done these for years.  I am now looking at how to execute these on my own.  Thanks for the input Jack - do you do a lot of these?  There are some smaller 20 - 50 units advertising 12 - 15 caps in GA but still vetting those

Account Closed · Answer

@Shital Thakkar  Lot rent only is a superior investment compared to park owned homes in my opinion ( but I would say this is for most)

Typically you CAP the lot rent only and at a value for any park owned homes or wholesale value, or discounted value for any mortgages the park may be carrying.    A park with a lot of park owned homes that is not properly run will typically sell at a discount.

There are banks that provide loans for parks.  Your deal size will dictate who you need to contact.

Building a mobile home park is not a very feasible investment due to an array of factors.  Park Street Partners has a good podcast breaking this out.

Check out mobile home university.  Anything Frank and Dave should be a great intro to the business.  If you get serious they have a due diligence manual to use when you buy your park or offer a bootcamp which most attendees would say was good money spent.  George Allen has a good book, how to buy manage and sell a mobile home community.  Ray Alcorn has the deal makers guide to parks. The industry has changed over the years so some material will be outdated or parts are different so I would try and get the newest editions .

Most operators i am familiar with self manage or have a management company that handles ONLY their properties.  I know there are some that state they do 3rd party fee mgmt but have only heard bad ( but not to say the good is not out there......) . Typically you will have a manger at the park level who reports to you if you are a one park person operation or as you grow to multiple parks they can report to someone else depending on property size.

Shital Thakkar · Answer

Account Closed,

Details you provided are very helpful, Please help me understand few more queries...

• MHP with pad sites only is better investment in comparison to Park own homes?
• Is there difference in Cap rate for Tenant own or park own MHP?
• Banks provide loans for MHP?
• How hard is to build new MHP after buying piece of land?
• Please provide list of good resources to lean (websites, Books etc..)
• Do you use property manager?

Jay Hinrichs · Answer

for me personally I don't like parks that don't have city utls.. I got screwed on one in central Oregon when septic system went bad... it was a nightmare.  never again for me personally.

Andrew Syrios · Answer

It depends on a whole host of factors, as the area and quality will effect the cap rate greatly, so we would need more info on this one.

Shital Thakkar · Answer

HI @Mike Dymski, yes i am following up his multifamily, i just download his MHP... let me catchup with his podcast to get more insight. Thank you.

What CAP rate do you look for in a Mobile Home Park?

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