For those of you investing in MHP's

[James Dickens]

I have been researching MHP strategy for lack of a better term and I have come across 3 primary operational methods and am wondering which is best (if any?) in your opinion.

1. Rent the pads and don’t have any POH’s (Pad Rent Only)
2. Rent the pads and convert some or all of the park into Lease/Purchases POH’s (Pad Rent, Monthly Lease until Purchase)
3. Rent the pads and fill with POH’s (Pad Rent and POH Rent)

I know that these can a bit subjective and also can be mixed and matched as needed. I guess where I am getting a bit off in my thinking is the value of the park is different in each scenario or is it?

If I’m making 10K per month pad only but if filled with POH’s maybe it brings in 30K per month. That’s quite a bit of difference. So how do you balance that out when looking at a park to purchase or putting together your Pro Forma so you an set your targets and track progress?

I know you add headache and expense with POH’s and to some extent with Lease to Own but I’m really only looking at the overall cost/value aspect and how that differs or is the same for each strategy type.

How do you evaluate when looking at parks that are being run in any of these ways to be able to compare apples to apples?

[Jack Martin]

From experience, I can tell you that there is a direct relationship between POHs and more intensive management.  The more POHs you have, the more brain damage you have.  As you convert a park to TOHs, your brain damage and time spent on management goes down.  So the answer to your question is to ask yourself another question:  How much brain damage am I willing to endure for the potential for higher cash flow?  

There is no question that you can achieve higher cash flow through POHs, but it is extremely unstable.  Essentially, a park with all POHs is an apartment, but with higher maintenance costs.  And as is the case with apartments, your tenants can leave anytime they want, with no vested interest in the park. 

Conversely, a park with all TOHs is extremely stable.  All your tenants have a vested interest in staying long-term since they are homeowners.  Maintenance goes down, management intensity goes down, risk goes down.  

That is a risk/reward question that you will have to assess.