MHP NOI for Future Refinance or Sale

[Diana Walcott]

I have a question for experienced MHP investors. Many parks I'm finding are majority, if not all, POHs. If I were to buy one of these MHPs and transition it to mostly TOHs, my NOI drops significantly, therefore when I plan to refinance or sell in 3-5 years, my property value is significantly lower and I have less equity. Am I looking at this correctly? What am I missing? Here is a simple example:

10 POH x $1k/month home & lot rent = $120k/year x .75 Op Ex = $90k NOI / 8% Cap = $1,125,000 property value

vs.

10 TOH x $500/month lot rent = $60k/year x .75 Op Ex = $45k NOI / 8% Cap = $562k property value

[Mario Dattilo]

So that is a very logical way of looking at it. The issue is that it was never valued based on the home portion of the rent anyway. To protect yourself from big losses you should value the park based on the portion of rent that can be allocated to lot rent and if you have to value the homes then value those based on shell value or what you can comfortably sell them for. 

Typically lenders, appraisers, and sophisticated mhp investors do not value the home rent cash flow. So if you’re financing it going in your business plan to the bank will show your sell off plan. 

Lenders lending on MHPs want to real estate as collateral and MH’s are not real estate they are chattel similar to a car or other personal property. 

If you’re seeing a lot of parks with all park owned homes it’s likely the geographic area you are looking. Parts of the southeast have high concentrations of POH communities. Before buying one with the plan to convert it to TEnant owned homes make sure the market will support the lot rent model as many don’t. The 2 main reasons for POH communities is the market or the owner doesn’t understand and just wants the higher rents. They miss the points stated above about value and the fact that it is much less marketable as a POH community. It’s also a lot more management intense and your expense ratio is higher, similar to an apartment building. In that case you would rather own an apartment building.