All park owned homes?

[Charlotte Dunford]

Is it feasible to buy a park with all park owned homes? And then slowly sell the home to the tenants on rent to own terms? What are the risks related to that?

[Frank Rolfe]

We do that all the time -- many owners do. The biggest risk is that you'll fail to sell it to whoever currently lives in it, and then have to fully renovated it before you can put it back on the market (at a cost of around $4,000 per home). Even worse, there may be some homes you cannot renovate, and these will cost you $2,000 to demolish and cart away in addition to losing your lot rent income on that space until you can refill the lot.

On deals like that, it's important that the homes be renting at an amount that is at least $100 per month more than the cost of ownership [lot rent at full market value + mortgage]. On older homes, you may be better off simply giving the home to the current resident to help keep costs low and encourage them to take ownership.

The big advantage to parks with lots of park-owned homes is you can reset the underlying lot rent to full market on day one, since the resident does not know or care what the split is between home rent and lot rent. For example, if the mobile home is renting for $700 per month, and the lot rent is $200 per month on the privately owned homes but the market is $400 per month, you can reset the lot rent on the rentals to $400 and sell the home and the tenant is happy because you've dropped their monthly cost from $700 to $400 ultimately. In this manner, some parks have a two-tier pricing system because it may take years for the lot rent on the privately-owned homes to catch up to what were the rental homes.

Remember that only the lot rent is "real property" income, and the mobile home is "personal property", so you always want to skew all revenue to the lot rent.