Mobile home Park investment

[Tatiana Spence]

I want to get started in mobile home park ownership. I have read several books on mobile home park investments. I wanted to ask someone that's been in the mobile home park business some questions. I would like to know if you are able answer some questions for me.

What are the common motivations for MHP owners to sell their park? Why do they?

I am also trying to better understand how to assess the numbers in a deal to determine if it is good or bad?

In addition, I have learned that searching for deals outside of my current area is a great idea. What are some key data points that will help determine a good out of town market?

Thank you for your reply,

Tatiana Spence

[Daniel Ryu]

@Tatiana Spence & @Darnell Simon

Best of luck on your mobile home park investing journey!

I worked with a private equity group buying mobile home parks and oversaw purchase of about $30m in assets across the midwest and southeast.

To get a better sense of where the gaps in your knowledge are, let's say that a mobile home park had 100 Lots and was 100% full.

Each resident owned their own home and was paying $300 / mo in lot rents.

Based on reviewing the seller's books, you determined that about 30% of revenue would be going toward expenses.

Let's assume 100% collections and 100% occupancy going forward. There's no cap ex needed and no closing costs. 

After talking to brokers, you found out that typically mobile home parks in that area are valued at 10% Cap Rate. 

• What's the market value of the property?
• What would your cash on cash return be for Year 1 of ownership?

If you can answer that question, then the next step would be to add in a few factors:

• What happens if half the residents are renters and paying an additional $300 in MH rent each month, on top of lot rents?
• How do you calculate an IRR, assuming a you sell in 5 years at 10% Exit Cap Rate with 5% Year over Year increases in lot rents?

In general, underwriting mobile home parks is similar to underwriting any asset. 

The biggest difference would be in how to treat the MH income streams, as appraisers and banks don't give them the same value as they do for the income generated through lot rents (and neither would sellers).

I also have a YouTube Channel where I post about the industry. A lot of the content I've posted is geared more toward general news and insights but starting next week I'll be posting more info on how to underwrite mobile home parks, the difference in how MH income streams and lot rent income streams are valued, finding deals, etc. Hit subscribe if you'd like to stay up to date.

Ps. There are many 'shortcuts' to valuation - ie. multiplying number of occupied lots x lot rents x a value multiplier (60-100). Those methods work but all valuations in investment still boil down to one basic principle: How much should we pay today for future cashflows? Calculating that requires use of some basic finance metrics (such as IRR or discounted cashflows) to compare apples to apples.

Hope this helps!