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When purchasing a mobile home park where there are park owned rentals, rent-to-own homes, and mobile home notes it is important to break out the income and expenses from this portion of the business from the lot/space rental portion. Manufactured homes are relatively affordable to buy since they cost so much less to build than traditional homes. As a result, commercial real estate investors can build larger manufactured homes while still keeping costs low, making them a great option for first-time investors especially. Additionally, due to the low cost, sellers are sometimes able to provide direct financing to investors.
Then comes the expansion phase – the beginning of which is still a good time to buy. But because it is now a seller's market, prices are going up again. Next comes the hyper-supply phase which is the worse time to buy.
How the business models are different
Rather, tenants own their own manufactured homes and pay rent for a place to park the home and for utility connections. This has a lower barrier to entry than many other types of real estate investing since you are only buying the land and any common areas as opposed to the land and the building in traditional real estate investing. Place & Sell – these pads can then be occupied in several different ways.
These parks are 3 stars or less with little to no amenities. These parks make up the majority of MHP’s in America and this is the type of MHP that I’m talking about for the rest of this article. We have the industry’s largest, most diverse collection of exclusive commercial real estate listings. Buying used manufactured homes can dramatically reduce the cost of the initial investment. If you are considering purchasing used homes, be sure to inspect them thoroughly for damage, leaks, and so forth. The exterior appearance of the home can also be customized with awnings, decks, upgraded siding, and more.
Replacement Cost vs: Existing Park (Zoning)
Some properties show the immediate ‘pride of ownership’ while others are neglected and in much need of repair & maintenance. That said, both parks though different in appearance can provide the same returns at the outset. However, over time the neglected one will have need of much more cost in repairs if not regularly maintained. When I first began selling real estate 25 years ago and knew very little about this product. It was only when a client asked me to find him a mobile home park to purchase that I learned just how difficult it was to find one.
New competition is made up of newbie investors wanting to buy into the mobile home park space, and other seasoned investors from other asset classes, jumping ship to join the profitable MHP space. In the land of opportunities, I explored the 3 top ways to make money; Stock Market, Owning a Business and Real Estate. After trying my hand at all 3, I found I was spinning plates and having mediocre success. It was very clear that Real Estate was the best option for many reasons, but there are so many ways to make money in real estate, where do I start?
Manufactured Home Park Investing Guide
A fifth factor is that multifamily properties are without doubt the most popular type of commercial property and are even more in demand. Lastly, with the stock market continuing to go up, many investors fear the bubble is about to burst and preferred to diversify into investing in overpriced multifamily properties, confident that rents and property values will go up in the future. Historically Strong Cash Flow – MHP’s have gain the nickname over the years as “Cash Cows” due to the high cash flow that has historically been produced in the mobile home park space.
Despite the recent increase in MHP purchase prices, there are advantages today that did not exist in the past. As mentioned, abundant and attractive financing options help increase the spread between financing interest rate and purchase cap rate. This is a huge advantage as financing terms where significantly less favorable before this asset class was proven to be sustainably successful. Section 8 vouchers to purchase mobile homes is a huge game changer. Recession Resistant – Mobile home parks are positioned in an interesting place within the real estate sector. Mobile Homes are typically the most affordable type of housing.
What are Modular Homes?
If the rents are under market or there are expenses that can be reduced or other ways to increase the net income with minimal work and cash outlay you might pay extra for a park if it otherwise meets your investment criteria. If you want a 10 cap on a property priced at a 7 cap, it does not necessarily mean you should pass on the deal. For instance, what if the park has rents that are $50 under market and through your inspections and due diligence you know you could raise the rent to market rates in 2 months. We specialize in high-income rental properties such as manufactured home investments with high cap rates as well as 1031 exchanges – which can be an excellent way to acquire manufactured home parks.
Rates on the 10 year fixed mortgage have spreads of 2.45% to 2.75% over the 10 year US Treasury Yield. Freddie Mac Mobile Home Park Loan – Rates ca be fixed from 5 – 10 years and are tied to corresponding US Treasury Yields with spreads of 2.45% – 2.85% over the 10 year treasury yield for a 10 year fixed, 10 year term, 30 year amortization mortgage. Although mobile home parks are capable of achieving high returns, while simultaneously maintaining low vacancy and management liabilities – most do not. For many owners, higher cash flow alone is enough to combat the fears of mobile home park investing, and they trust Zell’s expertise.
The perception of higher risk in customer turnover requires a higher cap rate to justify that risk. Valuations for tax reporting are also a common service provided to our clients who require fair market valuations for a variety of purposes including allocations of purchase price and estate tax planning. The Financial & Tax Reporting Services practice provides the independence and integrity that are the cornerstones of preparing valuation support for a defendable tax position. So in reality, a certain mobile home park will have a different value to each and every person. The idea is to decide what you want or will require in terms of your investment and then work to make the deal fit these requirements. Some buyers tell me they want at least a 7 cap, some say 10 cap, some say 15 cap.
Remember this simple calculation is very generic and may or may not be the true indication of the value of a mobile home park. Community Bank Mobile Home Park Loan – Rates are usually fixed for 3 – 5 years with a 10 year term and are tied to Federal Home Loan Rates. More predictable financialsThe tenant-owned-homes create a more predictable outlook of both cash incoming and outgoing.
Zell began his career with residential property management, then moved into multifamily, and finally settled into the mobile home park niche. Mobile Home Park investing has helped billionaire Sam Zell become a commercial real estate investing legend. You can cut through much of the management hurdles of owning an RV park by self-managing it. While this is not required, many owners find they really enjoy replacing their day job with a career as their own boss, with a varied schedule and both outdoors and indoor assignments. Only select RV parks that are “destinations” and not “overnighter”.
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