is there a "sweet spot" for MH Park size and type?

Question

Looking to invest in MH parks in OH, PA, and maybe WV and MI (within a 3 hour drive of Akron, OH)...

1. Is there a size range that tends to have the most upside potential from the perspective of cashflow and resale value?

It seems the REALLY small parks, under 20 spaces, are difficult to finance (aside from owner financing) and it takes a lot of them to make the cash...if one were 3 miles away, I might do it, but across the country doesn't seem as worth it.

Over 200 spaces or so seems to have lower cap rates, probably due to the fact that once you hit that size, you start getting into the Institutional Investor crow. However, a low-occupancy park of this size could be a great turnaround project to resell to an institutional investor...

My gut says 50 - 100 spaces is the "sweet spot" but am I wrong?

2. What are the pros/cons of "Over 55" parks? Do they tend to have higher or lower cap rates? Are they more or less management-intensive? I'd assume you have to keep your grounds better and have more on-site amenities, but, at the same time, since seniors are less likely to let auto parts build up outside, or throw parties, they may actually require less direct management...

Just looking for feedback.

Thanks!

Bill Gulley · Answer

If I got or built a park, it would be on 40 to 50 acres off a decent highway within 10 miles of town,it would be restricted to doublewides, 2000 or newer. It would be for 50+. I'd have a C-store gas at the highway and office at the gated to the park. Small club house and shallow pool with a BYOB bar. That would give everyone about a 3/4 or just under lot. The HOA would take care of lawn maintenance. Garages and outbuildings would be controlled. They homes must be owner occupied and the lots rented. That would be for starters. There is one similar that cash flows nicely for the owner. Streets, storm water and city water/sewer is there. Any MH park is hard to finance, nice ones are much easier with low vacancies. I would not look at any with it's own water system and/or sewer treatment as the regulations just keep comming and they are very expensive to maintain even worse to replace. Good luck on your quest, but I really dislike cans on wheels.

Joel Owens · Answer

"new MHPs are not favored by many municipalities as the personal taxes they are collecting from the MHs does not make them much money." This is the number one reason in my state of Georgia in most urban core and suburban areas you do not see new parks.They have restrictions against them and also the people at the park tend to be more transient. The local elected officials get constantly bombarded by complaints from home owners about the parks being eye sores and attracting crime. I have seen some counties enact laws where you have to buy a minimum of five acres to have a trailer on it. This keeps people from buying tiny parcels and dropping trailers on them everywhere and impeding the county and cities land use plans. I would look at a park where it is sitting on premium land for commercial development.I could sell off all or parcel out smaller pieces over time to extract more money per acre. My mom's friends in their 70's and 80's have owned about 45 trailers or so for 40 years.Every time a trailer burns down or something grandfathered in goes out the city hits them hard with paying for new connections etc. that cost thousands of dollars. Believe me cities and counties do not like these things in my state.There are of course rural counties where they do not really care about such things except for right in the town.The county or city will sometimes allow a temporary conditional use for a trailer while someone is building their house on the land but the put a time limit on it.

Dale Osborn · Answer

Joe Smith here is my answers for you: 1. Hot spot: You were about right on with your 50-100 spaces gut feeling. These fall under the radar of larger investors and to have a manager in place I feel 50 is a better minimum than the 35 to make it worthwhile. 2. Pros of having a 55+ MHP: Curb appeal - seniors keep their yards like mini golf courses. Rent collection - done by the 5th while in my family MHP we are still collecting till the 24th. Rarely will you collect any late fees from a 55+ MHP - is that a pro or a con? 2. Cons of having a 55+ MHP: When a unit is for sale - I am not sure how to go about marketing it. With a family MHP it is open to anyone who qualifies. With a 55+ MHP you are somewhat limited as to who you can market to. I did get one from a mortgage company and sold it to a Lonnie Dealer to rehab & sell. After he had fixed it and put a tenant in place, he then sold the note to me so they can pay with lot rent. I have 2 MHs in my 55+ MHP that have been for sale for 3 years and owners keep paying the lot rents even though they are no longer living there. It is a real problem finding someone to sell the homes to. 3. Single Family Homes: My family MHP has 2 houses in it. For insurance purposes they assigned a value of $117K to the 3-bed & a $97K value to the 2-bed house. Both were built in 1975. I sold one house minus the dirt and now treat it as another mobile home paying me lot rent. If other unit ever goes vacant - will do the same with it. When the one house was dropped from my insurance it saved me quite a bit. Tod R. new MHPs are not favored by many municipalities as the personal taxes they are collecting from the MHs does not make them much money. They would prefer them to be torn down and apartments, hotels or casinos built there as they bring in a much higher tax base for the city/county. However, MHs are the last affordable housing out there for people to realize their dream of home ownership. Warren Buffet owns 15 of the manufacturing plants and 3 of the major loan companies that hold loans against just the mobile home without any land attached. If he is willing to make an investment into the product - the millions that will be looking for homes in the future may have a wider choice of Manufactured Homes to choose from.

Jim Johnson · Answer

1. Is there a size range that tends to have the most upside potential from the perspective of cashflow and resale value? A- parks that are too small for out of state buyers to operate will trade at a higher CAP rate- but if your just looking at the upside- if you buy with the higher CAP, and sell with the higher CAP- your upside is pretty constant. Once you are over 100 pads, your really flooded with the larger players nationwide. It seems the REALLY small parks, under 20 spaces, are difficult to finance (aside from owner financing) and it takes a lot of them to make the cash...if one were 3 miles away, I might do it, but across the country doesn't seem as worth it. A- good observation. Small parks are very hard to finance- except for smaller, local banks. Over 200 spaces or so seems to have lower cap rates, probably due to the fact that once you hit that size, you start getting into the Institutional Investor crow. However, a low-occupancy park of this size could be a great turnaround project to resell to an institutional investor... A- I think that number is 100 pads- though the real driving number for CAP rates is economy and prevailing interest rates. It is very true, larger parks will tend to have smaller CAPs, but some areas will have high CAPs no matter what size the park, and some will have very low CAPs. My gut says 50 - 100 spaces is the "sweet spot" but am I wrong? A- I find that number should be 35 - 100. You can pull off a out of state ownership operation with 35 pads and do well, and over 100 and your competing with bigger players. 2. What are the pros/cons of "Over 55" parks? Do they tend to have higher or lower cap rates? Are they more or less management-intensive? I'd assume you have to keep your grounds better and have more on-site amenities, but, at the same time, since seniors are less likely to let auto parts build up outside, or throw parties, they may actually require less direct management... A- So the problem is keeping them filled. You are in a federal protected development now, and to change out you would need a huge number of the residents to ok the change- which you will probably not get. Now in some areas of Texas, Florida, California, Arizona... etc... there is still a pretty strong demand for over 55 housing. Personally, I am not in a strong 55+ state, and the closest I come is my parks in southern Texas. The problem there is- many of the 55+ parks are second homes, winter homes, summer homes... and after 9-11 the numbers have been dropping in that segment of the market. anyway- that is my take...

Joe Smith · Answer

I have seen some parks with a SFR on the premisis, probably where the original owner lived. Are these valued differently?

Tod R. · Answer

They call me Captain Obvious!

Bill Gulley · Answer

You are a fsat study...LOL, not that could not be a nice park in town, being just outside away from city counsels would seem to be safer to me. I was the Commissioner of a large public housing authority here and I chaired a redevelopment commission for the city. We had a slum trailer park in town.....it does not exist today....enough said on that! Zonning will restric you for any future development for expansion, probably won't happen in most towns unless the land to be acquired is worse than the park. Counties are more forgiving IMO.

Tod R. · Answer

How are new parks received these days by local governments? I would guess you may have to be outside of city jurisdiction?

Bill Gulley · Answer

No, not every market, I'd guess populations (the GSA) of 250K+ unless it was a retirement area like AZ, Tx or FL or in a vacation destination area, like Branson, Mo. Any 50+ property needs to be around activities, good health care centers, shopping and employment for seniors as many will be working if not full time, part time...IMO. You'll need to do your due diligence of areas as well as any park.

Tod R. · Answer

I get the over 50 restriction, but do you think these types of parks can thrive in most markets?