How to structure trailer park build?

Question

I’m currently looking for my first real estate investment. I originally pursued SFH’s, but I happen to own a utility construction company that installs underground utilities for commercial projects (all wet and all dry). We’re also capable of performing concrete and asphalt work in-house. With that in mind, one of my real estate investor friends is strongly pushing me to build a trailer and/or RV park instead of pursuing SFH’s since I have the ability to build all of the infrastructure myself.

So I’m curious as to whether anyone has any advice on the best way to structure an investment like that. I have cash to utilize, substantial equity in my personal home to take advantage of (if needed), as well as an eager banker who is willing to make any necessary loans. I assume that the best structure would be a mixture of cash and loans, but would love advice.

I need to find/purchase raw land (currently looking around 10-50 miles outside Austin City Limits), build out the infrastructure with my construction company, and ideally purchase/own all of the trailers I rent out at a monthly rate.

Questions:

1) How much of my own money should I use (20%, 50%, as much or little as possible)?

2) Do you think it’s a good idea to own the trailers, or let tenants bring in their own?

3) How does depreciation work on the trailers?

4) Should I ever waste my time with RV stalls (travel trailers), or just focus on residential trailers? I feel like trying to combine the 2 might be a headache due to managing 2 different types of customers.

5) Are there any fundamentals I should be aware of? (Land value vs trailer values, standard rental set-ups for trailer tenants, etc.)

Rene Simon · Answer

@David Renfro Kevin Bupp did a podcast about mobile home parks. It's pretty good to get started. There are a few other guys out there who also do them. They all seem to be of the mind that building from scratch is extremely expensive and will take a long time to recover your investment. They all tend to "rehab" existing parks and hold them.

I'm like you though. I think there is a way to build from scratch, someone just needs to figure it out. I hope it's you! Because these things are the ultimate passive investment.

I'm like you though. I think there is a way to build from scratch, someone just needs to figure it out.  I hope it's you! Because these things are the ultimate passive investment.

John Jacobus · Answer

@David Renfro We are executing a major expansion of our park in San Antonio, which includes utility build-out and major restructuring of the home site configuration. We have two other projects, one in Houston and one in Mineral Wells, that will require similar heavy lifting and infrastructure development.  I wonder if we could explore utilizing your construction firm for advice and/or to do the actual utility development work on one or several of these projects.

I also think we can share some insights into approaching MHP development.  We've struggled with many of the considerations you raised above and I'd be willing to provide additional color to what's been outlined above based on our experience in TX.

Derek Faller · Answer

@David Renfro

There is a big difference between a trailer park and an RV park. A trailer park would be a long term rental for people who own mobile homes or park unit trailers. A RV park is a short term rental of spaces for people traveling in RVs. Each would have their own plusses and minuses. A trailer park would be more consistent rents, but you will attract low end tenants. RV park is going to be seasonal and less consistent money, but should be less issues with tenants. You need to do research on the area to see what would create more demand and perform better. I don't know the Austin area. I do own an RV and travel a lot and know that RV parks seem to be doing well if they are in a good location.

In either case you don't want to own the trailers or RVs. They depreciate rapidly and will have lots of maintenance over time. Build the infrastructure for the park and let people bring their own units and charge space rent.

As for money down, that is up to you and your means. Popular opinion is to put the least down you can and still make a profit. I prefer to put a little more down for a better return and buffer, but it is a personal choice.

Greg Dickerson · Answer

@David Renfro you should definitely go for mobile home park if you can. They are cash cows and provide much needed affordable housing options.

You do not want to own and rent the homes. You want to lease the dirt only. If you need to bring homes in to get the park off the ground then owner finance them do not rent them.

You need to check with the municipality’s to see if the zoning allows for mobile home parks.

Financing and cash down are up to you. All depends on your goals but generally best to keep leverage on the lower side if you can.

Don Gouge · Answer

First of all people won't bring homes into the park and dealers won't bring them in and sell them. These methods ended 20 years ago. You will have to purchase all of the homes yourself and then lease option them. Used homes are difficult to find so you will probably need to purchase new ones. If you have significant assets to back this project, as well as a receptive banker, it can be done. Make sure your banker will finance the home purchases.

Jordan Moorhead · Answer

@David Renfro please pm me

Justin Haberman · Answer

We are purchasing our first mobile home park in Southern Colorado. Since we are I have been studying up A LOT on them.  Frank Rolfe has a podcast as well as Jefferson Lilly that has some very good information on parks.  The beauty of mobile home parks is that they bring in a lot of money with relatively low expenses if you lease the ground only.  Both of the podcasts highly suggest having TOH tenant owned homes over POH park owned homes.  One reason these parks are so valuable is that most counties  do not want new ones coming in.  The taxes they bring in are not much. That will probabaly be one of the first things you ll want to find out.  If you can get it zoned as a MHP you would probabaly want to go that route as it will be a more steady income.

David Renfro · Answer

@Greg Dickerson I agree with you on the leverage. An impending “correction” will definitely cause me to be more conservative on the first one.

David Renfro · Answer

@Don Gouge thanks for your input.

David Renfro · Answer

@Chris Martin great questions. I agree w/ your idea of pursuing SFH subdivisions, and that’s my ultimate goal. We currently build the utilities for a few subdivision developers in Austin and we’re learning a lot about that process.

How to structure trailer park build?

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