Add Mobile Homes or Build Multi-Family?

Question

I just got a property under contract in Charleston, SC.  The property consists of a duplex and three vacant lots (two are right next to each other, one is adjacent).  My realtor has told me a bunch of options I can do w/ the land, anywhere from subdividing and putting upwards of 10 mobile homes on there (it would not be a mobile home park as each home would be on its own lot), selling the land separately, or putting more traditional multi-family buildings.

The surrounding neighborhood is a mix.  On one side of the area, there is a chain link fence with a mobile home park on the other side of it.  The rest of the area has a couple of duplexes and a 50+ unit apartment complex, which was recently purchased and improved by some outside investors.  They've put a lot of work in to improve the place and kick out the bad tenants.

I haven't run any numbers, but I'm pretty confident that subdividing the lots and placing as many mobile homes on there as possible would be the most lucrative path for me.  However, I kind of feel like the correct path I should take would be putting multi-family buildings (duplex, quads, maybe more) on there to keep the appearance and condition of the area up to par with the nice apartment complex.

I don't mean to speak poorly of mobile homes, mobile home parks, or the tenants that occupy them. It's more about the perception (whether it's warranted or not) and wanting to do what's right for the community.

I'm open to any other suggestions and advice.  I've never built a multi-family building so some advice on that would be welcome as well.

Thanks!

John Corey · Answer

Technically, MFR is 5 units or more on 1 title. The stuff with fewer units is not MFR. Owner occupiers (OO) can obtain financing for 1-4 unit properties. At 5 or more units, there is no OO financing on offer.

Kenneth Mooney · Answer

@Andrew Merritt build the multifamily and do more than 4 units on each lot if possible. If you could combine the lots into one giant lot and build more than five units I would do that. When you go to refinance for over 4 units (or get a commercial loan on it) you are going to value the property on its performance instead of getting an appraisal based on surrounding comparable sales. You will have more control over the value and the value will almost be completely dependent on the income vs. expenses.

John Corey · Answer

Grandfathered properties could be hard to finance. OK for cashflow and bad for expansion. They might be a good asset to buy if you have plans to covert them into MFR or something else. So, the regulations will drive the decision.

Andrew Merritt · Answer

Good points @John Corey.  City sewer and power are available so that's not an issue.

They're trying to force out mobile homes around here so on one hand it could be valuable to have some and get grandfathered in before any changes happen.  However, I've looked at other mobile home properties that were grandfathered in and the laws state that the mobile home can't be replaced if something happened to it.

Kenneth Mooney · Answer

@Andrew Merritt it seems like a better long term plan to me. No more land is going to be made and many communities across the US are already adjusting their zoning ordinances regarding multi family housing and construction.

Andrew Merritt · Answer

Thanks @Kenneth Mooney, that makes sense.  I think that would go a lot better w/ the current community that's there and would help add value to the neighborhood in general.

Andrew Merritt · Answer

The more I look at it building multi-family buildings will likely be the best choice in the long term, whether for selling it down the road or just avoiding any kind of legislation changes

John Corey · Answer

You also need to check the services in the area. What can be done for sewer and power? Are there any traffic studies required before you improve the property? Any other obligations (schooling, etc)?Consider the exit. What property type will give you more flexibility in terms of financing or a sale to an end buyer?

Highest and best use normally becomes clear when you run the various numbers and you look at the trendline for how the area is developing.

Alex G. · Answer

Adding mobile homes may make it hard for a RE appraiser to find comps for the duplex and thus negatively impact your ability to refi and sell the property.

Jennifer Rysdam · Answer

I would check with local ordinances first and see what you can do. I've heard from others that a lot of places do not allow new mobile home parks to be built. Does it say it allows new parks or just mobile homes (residential). Then run the numbers and see what works best for you. I think both options have their pluses and minuses. Mobile home parks may be harder to fill at the get-go, depending on your area. It might take a lot of funds to get that started if you are going to purchase the homes yourself and then rent or lease them to tenants. An apartment building could be filled as soon as it's finished. You'll have the upkeep of the building and parking lot of deal with. Of course you're not in MN like I am and won't have to deal with the snow removal expense.

Add Mobile Homes or Build Multi-Family?

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