Park vs. Resident Owned Mobile Homes

[Kamran Javadi]

I'm currently looking at a 74-unit MH park in the South-east that is selling for 1.4M. I have just visited it and the park is very well kept, clean, safe, and in a good location with ample low-income jobs around. The previous owners have had the park for 14 years and are looking to retire, thus want to sell. The issue I'm having is that 65 of the units are park owned. I know the dogma seems to be to own parks with resident own mobile homes. This park is cash flowing approximately 11k/month, the owners have an onsite resident who acts as the manager (collects rents, shows units for rent, communicates with owners daily) and also does most of the day-to-day maintenance. They compensate this guys with a 50k/year package that includes free rent, salary, bonuses, etc.

When I asked the owners why so many units are park owned they told me they can make much more money this way. Doing a quick run of the numbers it doesn't look like they would fair much worse off if all the units were resident own, especially when considering the time spent running such a park.

I have two questions:

1) If I purchased this park and left it as is (ie majority park owned) what's the big deal with hiring an PM company to run it? How is this different than buying a 70-unit apartment building and hiring a PM company to run that? In my case, I figured I can replace the current property manager (tenant) and use that extra cash to hire a decent PM company to provide near full-service so I wouldn't be involved with day-to-day operations. Worth noting, I will not be local and cannot keep my eyes on the property at all times.

2) If I decided to take the park in the other direction with the plan of "renting to own" these homes, doing this for 65 units would take years. Would this even be worth it?

This would be my first RE investment. I am looking for a deal where I can be largely hands off and do not need to physically be at the property to run it. I would appreciate any thoughts or criticism. Thank you.

[Frank Rolfe]

You cannot compare a mobile home park with rental units to an apartment building. Mobile homes are classified as "personal property" and will not be used as collateral by a bank or counted by the appraiser -- they are essentially valueless from a legitimate debt perspective. Apartments, however, are "real property" and they are counted and can carry debt. This is problem #1.

Problem #2 is that mobile homes make lousy rental property as they are not hardy and the repair and maintenance will eat you alive. 

Problem #3 is that mobile home renters have little pride of ownership and this is reflected in properties that have little appeal or stability. Mobile home owners stay an average of 14 years and mobile home renters stick around maybe 1 year.

If you want to sell off the homes, you have three options: 1) sell for cash (over $1,000 and you'll never pull that off) 2) sell using a third-party bank such as 21st mortgage (but the units will have to be 1990 or newer and the price at least $12,000) or 3) rent using a rent/credit construction that is a rental under the SAFE Act but gives a pathway to ownership. The first two sill take the homes off your books fast, but the last one will take years, if at all.

The only advantage to the scenario you are talking about is that you can re-set the lot rent to any level you want internally on POHs as the customer only knows the total home and land rental, not just the land rental. You should be able to adjust the lot rents to full market levels day one and the customer is still happy because it's lower than what they were paying typically.

Another benefit is that at least you know the homes cannot be repossessed by the home lender because you are the home lender.

We buy deals like that all the time, and there's nothing wrong with it as long as you understand the risks and what the strategy is for success.