Should you own the MHP mobiles?

Question

I am looking at a MHP with 20 mobile homes not owned by the renters, we would own them. They are 35-38 years old and are not in the best shape. As for the water/sewer it is in good shape. I have put it on paper and it pencils out. I own other rental properties, but the age of the mobile homes have me concerned. Any helpful info would be appreciated.

Diana Wasneuski · Answer

The homes are not worth anything especially at that age. You should only be making an offer on the land not the homes since there is not value in them. You make your money on the lot rent not the homes. The numbers have to make sense & if you have homes that old & they are park owned then you will have many expenses in continuing to keep them up & in livable shape. You would have to get the land at a good price in order for it to make sense & then add value to the land by getting homes that you can sell to buyers so you don't have be a landlord for the home.

Paul Sofia · Answer

That should be a concern but there are many other variables when dealing with a MHP.  How much education do you have in the MHP space?

Rachel H. · Answer

@Ed Wharton You'd have to assess each home to see what has been done to them over the years to maintain them. Just because they're old doesen't mean it's a deal killer. If people living in them have took care of them and/or items have been replaced and routine maintenance done, it may be worth it to keep them. Best of luck with your inspections!

Jack Martin · Answer

@Ed Wharton good advice on this thread so far.  A deal like that will come with quite a bit of work, so make sure you negotiate a deal that makes a ton of sense before you pull the trigger on it.

The best part of owning MHPs is the fact that the residents own the homes. With all park owned homes, you lose the power of the "homeowner" mentality and essentially have a lower quality apartment with high maintenance requirements, and the tenants can pack up and leave anytime. That is not recession resistant, nor is it very fun to own and operate.

With that said, acquiring a park with park owned homes is not a complete deal killer as long as you have a smart strategy to convert the homes to tenant owned and the experience to renovate and sell them. As mentioned in the post above, you will definitely want to value the park based on lot rent only and not the rental income, particularly if you plan to convert those all to tenant owned.  You certainly don't want to pay for income you plan to trim off:)

If you decide to take on this deal, make sure to do a demand study for the sale of the homes before you proceed.  Call the other parks in the area and find out what their current lot rent is and what else is included.  Find out if they have any rentals in the park and how much those rent for. (if all the parks in the area have all rentals, this is a bad sign)  Find out if they have any homes for sale in the park and what the details are, and how many homes have sold recently. Do they finance? How much do they require down? What kind of credit do they require? Ask them if there are any vacant spaces in the park and what incentives would they offer if you brought your own home into the park. From those calls, you will have learned what your competition is related to lot rent, the sale of homes, how many POH they have, and what incentives you may have to offer as you sell homes.

Next, you can advertise a home for sale yourself as a "test ad". Place ads on every platform you can where home buyers could be looking for an inexpensive home. The goal of these test ads are simply to find out how much interest there is in the market for the homes you will be selling once you purchase the park. Make sure to advertise in all the available channels you can find so you can perform a true test. (craigslist, FSBO, zillow, etc. as well as placing signs on the street corners in the area) And keep in mind, since they are all older homes, you will have to sell them for cash or carry the paper yourself, so when you get response from your test ad, make sure to find out what the prospective buyers capabilities are.

Take the time to do this right and you will be glad you did.  If you get positive signs from all those efforts, then it's possible you have a good opportunity on your hands. And of course, you may get lucky and be able to sell the homes to the existing tenants, but you don't want to have that be your only strategy as they may not have the capacity to buy them.

All the best,

Jack

Jerry Lucker · Answer

@Diana Wasneuski

Excellent reply and advice. Spot on.

Calvin Ozanick · Answer

From what I know about MHP is that limited CAPEX expenses if a huge benefit of the deal. If you own the MHs then that benefit is out the window, especially with how old they are. I would say your best bet is to find one in which you simply own the land and fixtures.

Should you own the MHP mobiles?

Most Popular Reply