All Forum Posts by: Frank Rolfe

As a park owner, your job is to provide the lot, roads, and utility access. You need to find out on each utility who provides it (municipal or private) and who pays for it.

Standard expense ratios for mobile home parks are 30% if the tenants pay all utilities, 40% if the park pays water and sewer (but not electric or gas) and -- in the case of greater than 20% vacancy or so -- 50% just to be safe.

Not enough information. You need the lot rent in the market (what other parks are charging in lot rent), the total number of permitted lots, and the type of water/sewer system and who pays for it.

But I can tell you immediately that it's not worth $189,000, as even best case if the lot rent is $300 per month and it's water/sewer paid by the tenants then the value would be: 7 x $300 x .5 = NOI $12,600 which at $189,000 purchase price is only a 6.6% cap rate -- far too low for a deal like this.

Remember that you can't count the mobile home rent but only the lot rent -- only real property income goes towards the cap rate.

The big catch with mobile home parks is that it is nothing like the other real estate sectors and people assume they know what they're doing and they get wiped out because of their arrogance. Here are a dozen things that can destroy you with a mobile home park:

1) Paying too much

2) Bad market (small metro population and low home prices)

3) Bad location in that market (undesirable part of town that nobody wants to live in)

4) Bad infrastructure (failing roads, utility lines, etc.)

5) Private water and/or sewer

6) Master metered electric and/or gas

7) Density too high so you can't fit new homes on the lots

8) Mostly 1960s and 1970s homes on the lots, as they will end up getting scrapped as people move out over time

9) Low lot rents that make the whole business model not worth the effort (like $99 rents in Mississippi)

10) Inability to get or retain traditional financing

11) Environmentally contaminated

12) City or state permit problems

The bottom line is that -- if you are going to seriously buy a mobile home park -- you need to educate yourself on this niche.

As far as finding mobile home park deals, there are basically four methods used:

1) On-line (Mobilehomeparkstore or Loopnet)

2) Brokers (over 50% of the 200+ parks we own came from brokers)

3) Direct mail to park owners

4) Cold-calling park owners

This deal will not work. Here's why. The lot rent of $150 to $200 means that each occupied lot is worth (using the high number of this range)

$200 x 12 x .6 = NOI $1,440 which at a 9% cap rate = $16,000 of value.

It costs $15,000 to $20,000 per lot to build a mobile home park, not including engineering, land or the dirt work.

So you would lose money on every lot you build.

You can't even consider building or expanding mobile home parks until the lot rent is closer to $300 to $400 per month. Here's how it works at $400 rents, for example:

$400 x 12 x .6 = NOI $2,880 which at a 9% cap rate = $32,000 of value.

That means you would make money on every lot you built and filled.

The bottom line is that the rents are just too low for this to be profitable at this time.

The reason you can't count the home rent is that it is not "real property" income, but instead "personal property" income. Only the lot rent and other "real property" can be counted. The only way you can count the mobile homes as "real property" is to follow the state's rules to convert a mobile home to a permanent structure which normally entails surrendering the title and singing documents warranting that the home is "permanently affixed".

This rule of "real property" vs. "personal property" by banks existed well before I got in the business 25 years ago. The only exception are small, local banks. But everyone that does $1 million loans up sticks with this rule that I know. CMBS and Fannie/Freddie will definitely not count home income but only lot rent.

There was one bank that did count home rent years ago which was Jim Clayton's "Clayton Bank" of Knoxville, TN. Not sure if they are still doing that or not.

Robert,

That's a really well written statement which I totally agree with. The New Yorker should have you write the articles.

We spent hundreds of thousands of dollars in infrastructure and home repair in the park written about in Iowa -- we gave a full itemization to the author but it didn't fit her narrative so she left it out. The residents appreciated everything we did, and fully understood the rents rising over the years by roughly $100 per month. That's why the park is nearly 100% occupied and we have had no complaints except from those few quoted out of a population of over 100 households. Bear in mind that we have filled many lots and homes at the new rates, so simply based on the rules of economics that would not be possible if those rents are a bad value. In fact, they are a great value, and are far less than all other forms of competing housing in that market.

That being said, there are parks out there that need no infrastructure repair and still have to hit rent levels even hundreds of dollars a month higher to make economic sense and be at market levels. So there does not always have to be a trade of infrastructure work for rent increases. While the optics in those cases are not as good, mobile home parks are a business and not a popularity contest. My cable bill goes up annually yet my number of channels and quality of content does not change one iota. Mobile home parks should not be burdened as the only business in the U.S. that has to rationalize higher rents when they are economically correct. Why is this the case? 

As for the "evictions" issue, that was a mistake by the park manager and was quickly corrected by the corporate office and not a single resident was evicted as a result. People make mistakes, and the only reason that came up in the article was because it fit the author's narrative that all landlords are evil. I urge you to read all the other articles by this author from The New Yorker online and then tell me which one you found to be fair and balanced journalism. 

How's this for timing? Someone just emailed this to me.

https://www.yahoo.com/news/res...

I guess this is what The New Yorker wants. With higher rents this property could probably have been saved from the wrecking ball. I'm sure the local media will praise the developers.

As the person who is referenced in the article repeatedly, I would like to point out the simple fact that most of the mom and pop mobile home parks in the U.S. are in terrible condition (a simple drive through will prove this out) and there are only two roads to take with these properties: 1) have new owners buy them, inject capital into them to bring them back to life, install professional management and raise the rents significantly or 2) let them fall into such disrepair that the city shuts them down or new developers buy them and bulldoze them. So the residents across America in these run-down mobile home parks have two realities ahead: 1) higher rents and tougher rules or 2) finding a new place to live. You would think that the media would embrace park owners who bring these old properties back to life and preserve affordable housing (but at a slightly higher rent) but instead they take just one or two unhappy residents out of communities that have 100 or more households and build the false narrative that all residents are unhappy with the trade-off being higher rents and a higher quality of life. 

Let's look at The New Yorker itself for example. The New Yorker costs $8 an issue at the news stand. Virtually every other magazine is cheaper. But people are willing to pay more because they like the higher quality of the writing and cartoons (not my personal taste but obviously there are those that do). Life is NOT all about providing the cheapest product on earth. Value is the key and 99.9% of mobile home park resident will happily pay more rent for a nicer living environment.

Let's also all admit that the reason the The New Yorker would write such an article is that they love the narrative that all landlords are inherently evil as is capitalism in general. Here is the rundown of the magazine's readership base, straight out of Wikipedia:

According to Pew Research, 77 percent of The New Yorker's audience hold left-of-center political values, while 52 percent of those readers hold "consistently liberal" political values.[

Enough said.

The best first park would be one that is "stabilized with upside" which means 80% occupancy with solid infrastructure and density and in which your plan is to raise rents, fill some lots, and cut costs (typically the manager). In this manner the park can be financed, is always liquid if you want to sell it, and yet has a ton of upside.

As far as size, parks in the 20+ lot category are fine. The goal is for the park to be worth $1 million when you get DONE with it (not when you buy it) because at $1 million in price all the attractive financing options kick into gear and there are a ton more buyers.