What to look for in a Mobile Home Park

[Ethan Yuan]

Hi everybody,

I recently found a listing for small mobile home park in my neighborhood. The park has 12 mobile homes, 1 SFH, and 1 duplex. The park is for sale for $800k and one of the mobile home park vacant is a 2/2 and the landlord is asking for $1,100 a month.

The numbers on the mobile home park makes a lot of sense. I have traditionally only invested in SFH and currently exploring small multi-families. Would love some insight on what you look for a good mobile home park in addition to just the numbers. What are some good lessons learned and what to expect (pain points) compared to SFH? Any advice of managing mobile home parks and how it is different to SFHs?

Thanks.

[Jack Martin]

@Ethan Yuan to respond to your comment: Would love some insight on what you look for a good mobile home park in addition to just the numbers. 

Personally, we look for parks that have existing cash flow, but are underperforming in such a way that when remedied will offer significant upside in value. These are commonly referred to as "value add" parks. Property executed, a value add strategy will result in higher cash flow while you own the park and higher value when you sell.

Regardless of whether you are seeking to do value add deals or not, the most important criteria is always location, which ultimately comes down to the MSA or the city where the park resides. Certainly, within a city there will be better and worse neighborhoods, but if the city is not growing and there is no demand for housing, it will be hard to add value. IMHO, good location will trump almost everything else.

After location, the criteria that are important to me are the size of the park (number of total spaces), quality of the park, density of the park (spaces per acre), infrastructure & utility solutions in the park, age of homes in the park along with the number of POHs/vacant spaces, and of course the price tag:)

If you are focusing on value add parks, the upside you can create will come through lowering expenses and raising income so it will be important to seek parks with enough upside in those areas to accommodate your investment goals. Some generic examples are high expenses, rent lower than the market, vacant spaces, vacant park owned homes, and unmetered utilities paid by the park. There are additional value add items related to development of additional spaces, but I would avoid those kind of parks unless you have experience and patient money.

Keep in mind, all parks are not created equal and the strategy for each one will likely be different. Even parks in the same neighborhood can behave radically different, due to the many variables that exist.

As it relates to your comment about lessons learned, here are a couple of the main ones:

• Small parks are great to learn on, but as quick as you can, focus on acquiring parks with more spaces. Larger parks will give you more economies of scale and better management solutions.  
• Avoid the distraction of building your own park.  Existing parks with value add opportunity are way better and afford you the luxury of income immediately when you acquire the park. 
• Get good at POHs.  Most value add parks you will find will have them. If you can't solve POHs, it will limit your opportunity or simply slow you down. 
• Get good at asset management. Your most valuable asset will be your onsite management team. Hire the best you can afford. 3rd party management of MHPs is rarely a good solution.

As it relates to your question about the main differences between SFR and MHP:

The major difference that separates all other residential rental asset classes from MHPs has to do with tenant ownership of the mobile homes. SFR tenants are renters, so they tend to see the home as a temporary solution, while MHP tenants own their mobile home, so they tend to have more of a homeowner mentality. This single characteristic drastically effects the frequency of turnover and favors MHPs as a more stable cash flow asset, which becomes particularly attractive during a recession.

Also, SFRs are more mainstream and tend to have a wider variety of solutions for property management. MHPs tend to require more specialized knowledge and can be slower to execute a value add strategy due to filling up vacant spaces with homes and all the requirements associated with home sales, and because of that, 3rd party management rarely works well.  

Having syndicated value add projects across all the residential asset classes, I can say that MHP's are more difficult, but I still prefer them because of the stability they can provide, and once you have a park stabilized, they really can be cash machines.  

All the best,

Jack