I know this is an old thread and you've probably already purchased a MHP or have moved onto another asset class, but I figured I would chime in.
MH Parks are an asset class my partners and I are looking at, and we have partnered with a MHP consulting company to help us with deal flow, the initial valuation of a park, the due diligence phase while in escrow and to run/off-site manage the park for us, so we can be passive investors and be out looking for other deals. It's all about leveraging our time. We will manage our assets, but bring on the right people to onsite and offsite manage our parks.
We look for UPSIDE/VALUE ADD parks and definitely want some POH (Park Owned Homes..Much higher IRR and Cash-on-Cash returns with POH) in our parks. We like a mix of POH, TOH (Tenant Owned Homes) and not opposed to permanent RV spots. This mix gives us a wide range of opportunities and adds value to the park. If you end up being taught the MHP model by Frank and Dave, they will tell you NO POH in your parks. It's not their thing, but I personally think there is a bigger upside.
We also look for parks with city sewer (no septic) if possible, and focus on the Midwest and South areas of the U.S. Most of the parks we look at are in the 3.8 to 5 CAP rate range during acquisition and we put a TURNAROUND PLAN together in Phases, with each phase increasing the CAP rate. We love parks with vacancy because most investors don't have the resources, time or experience to fill those spaces, so they turn their head to lower vacancy parks and want parks that are much more stable. THANK YOU for that because now there is less competition. In most cases, these investors are paying RETAIL prices and that's not our model. We want under performing parks because we do have the resources and team in place find used units to bring into parks, REHAB them and fill those vacant pads/spaces. We may even look at buying new units to fill those spaces. Our valuation of a park during acquisition is much lower than a more stabilized park. We put little to no value on vacant spaces when making offers, so we use a formula based on occupied spaces paying rent.
We just passed on a deal in South Carolina because the park came with 40 acres of undeveloped land that the seller is trying to claim can be entitled and 80 additional spaces can be developed. First, there is no guarantee that will happen and the time it will take to go through the entitled stage, the development stage and get the 80 spaces to stabilization could be 3-5 years, if ever. They were asking $1.4M for a 33 space park with 2 being vacant and one being used by the park manager, who isn't paying rent. So, from a valuation standpoint we were only looking at 30 spaces and they were already pretty much at market rent, so we didn't see a lot of upside to the park as an ADD VALUE, and the park as it sits and operates was only really worth about $735K. We put almost no value on raw land when it's adjacent to a park. There are better parks out there with a $1.4M price tag.
One park we are evaluating right now is in Mississippi. It's currently operating at a 3.8 CAP and after our TURNAROUND PLAN is fully executed over 3 to 4 years, we will get the park to a 15 CAP, or about 19.3% CASH-on-CASH return. Many investors ignore these parks because they don't have the experience to identify what a TURNAROUND PLAN looks like, which is why we partner with a MHP consulting company with over 40 years of experience, and have them as part of our team. The other mistake park investors make is they don't have an OPERATIONAL PLAN in place and just try and go in and follow what the previous owner was doing with may a few minor changes, and that's a recipe for disaster.
I just met with a park owner in Arizona who had some vacant units in his park that I was going to consider REHABBING and then either rent out or resale them because he didn't want to take on that project (BIG MISTAKE on his part, in my opinion, but whatever). I decided to pass on this opportunity because all I would have been doing is putting butts in the seat for him to collect $403/month space rent for as long as those tenants stayed in the park, and I'd be leaving with a small one-time profit. This is when I came back to my investor group and said we are going to focus on buying MHP and not individual units for small quick profits.
If you don't know how to properly evaluate a park on the onset, know where your ADD VALUE is in the park, have a TURNAROUND and OPERATIONAL PLAN in place moving forward and have an exit strategy in place, chances are you won't do as well as you think.
We look to buy parks with the goal of holding for 7 to 10 years (or longer) if it's performing well. But, we are not opposed to selling the park after our TURNAROUND PLAN is complete and we have brought the park to stabilization with a higher CAP rate.
Good luck to all going into the MHP space. It's a great asset class and one that is getting a lot more attention because investors are seeing the benefits:
1. Low Cost Per Unit (compared to multi-family)
2. Low Cost For Repairs
3. Lower Risk
4. High Demand (Scarcity of MHPs)
5. Low Turnover (Tenants just don't leave because of the cost to move the units and higher rent cost with apartments and stick homes)
6. Less Competition (cities and counties don't think MHPs are highest and best use of raw law, so there won't really be any new MHP developments going in at this time like there are for multi-family)
