Table of Content
- Benefits of Investing in Manufactured Home Parks
- Major points to consider when buying a mobile home park
- Is There a Better Alternative for Computing an Investment Property’s Cap Rate?
- Reonomy Off-Market Mobile Home Park Search
- Tips for Getting Into Real Estate Investing
- Mobile Home Park Investment Highlights
That’s because such a property would be making a lot of money relative to the amount invested in it. On the other hand, a lower cap rate indicates that you’re investing more money into a property that will provide a lower return on investment. If you’re comparing a number of properties for sale, you’ll need to do it multiple times. Imagine calculating the cap rates of dozens of properties until you find the best one. Knowing the cap rate on a potential investment is important, regardless of your preferred property and investment strategy. The type of property can be single family, multifamily, condo, or townhouse.
Local banks are typically the only option if a park investor would like to apply a value to the chattel park-owned homes and be able to borrow against them. These banks will take into account the income generated from these homes along with pad rents and make a lending decision based on the cash-flow, strength of the investor, and any banking relationship they may have in place. However, mobile home parks have low turnover because it costs the tenant thousands to move their home out of the park. Most mobile home park owners plan to stay for at least 5 years. So much so that mobile home parks have the highest cap rate of any real estate niche, at roughly 7-10% nationally.
Benefits of Investing in Manufactured Home Parks
Earlier this year I closed a multifamily loan on a B class property in Santa Monica, California at a 3.25 cap which made perfect sense in that neck of the woods. RV parks and mobile home parks have completely different approaches. Mobile home parks are more attractive to passive owners because the residents are extremely “sticky” , the residents pay for their own utilities via submetering, and there is little in the way of common areas or management intensity. RV parks, on the other hand, have customers who can stay as little as one night, the park pays all utilities without any billbacks, and there are widespread amenities leading to additional labor costs and management intensity. Manufactured homes are built using high-quality insulation, which helps with both heating and cooling the space efficiently as well as minimizing sound transference.
If the seller gets paid in cash, they have to pay income tax and then put it in a CD or Treasury Bill for maybe 1%. If they seller finance, on the other hand, they only pay tax as they receive the payments and they get around 4% to 5% on the debt – that’s four to five times more annual income to them as investors. One of the most attractive and growing investment property types, manufactured housing communities fulfill a much-needed supply of affordable housing. Additionally, it’s a less hands-on investment because many manufactured home park tenants do not move on a regular basis, with 98% of mobile homes remaining in the same location after the second year. On the other hand, apartment tenant turnover can be as high as 60%, which means that investors have to spend money and time finding new tenants on a regular basis, cleaning and repairing apartment units in between tenants, and so forth.
Major points to consider when buying a mobile home park
Thirdly, because of the stress the coronavirus put on the economy, almost all apartment starts were either delayed or canceled. A fifth factor is that multifamily properties are without doubt the most popular type of commercial property and are even more in demand. Mobile home park investments tend to trade at a capitalization rates anywhere from 1-3% percentage points higher than comparable quality multifamily assets.
If you want to look outside your area or have run mobile home parks before, there are generallistings platforms that you can search on, such as Loopnet, CREXI, and MobileHomeParkStore.com. You can also do some research and reach out to local park owners yourself. Send letters asking owners to contact you if they are looking to sell, or speak to local bank managers. But, new mobile home parks aren’t being developed often due to government zoning changes.
Is There a Better Alternative for Computing an Investment Property’s Cap Rate?
So how do you know if you are buying at the top of the market? If there are very few properties for sale in the property class and neighborhood you are shopping in, and almost no new construction starts, this is a sign you are purchasing at the top of the market. It is essential to look at the relationship between low cap rates, low net operating income, and how much time it might take you to raise rents and realize the return on your investment. Manufactured homes, when rented and located in a quality park, often generate high capitalization or cap rates – on average between 7-12%.
And then compounding the problem taking too much time to complete the construction. Most buyers are indeed paying too much for commercial properties when cap rates are historically low, rationalizing that rents can be raised over time. If it is going to take more than a year for you to reach the cash on cash return you want by raising rents, you are likely paying too much for the property. Now that unemployment and GDP are beginning to return to normal, there will be more apartment construction starts which should eventually supply more units in the market than demand. While the demand for quality, affordable housing increases, the supply of mobile home parks is diminishing.
Apartment and Multifamily Loan options.
With the uncertainty of actual repositioning expenses, future market rents, new construction starts, rental concessions, and absorption times, this can represent a large risk. Historically, value-added investment real estate made sense only when buying at below market value. As a mortgage banker that has made loans on rehab projects since 1997, the largest risk I see today is overpaying for a building and then going over your rehab construction budget.
You can get offsite professional management but most often parks are managed by an individual or a couple living in the park who can oversee most all aspects of management. In exchange for management their pay is usually free pad rent and depending on the size of the park they may also receive an additional monthly salary. Location may be the primary way of determining both short term and long term value. If in a well located area the land value alone is always a good investment even if the cash flow from the rental income were to completely stop. This would not be the only reason for buying a park but certainly must be considered.
Not every park has all of these expenses and some have additional expenses but this is a good starting point. The value of roads, clubhouses and other common area improvements can be maintained with periodic capital expenditures averaging $125/site annually. If you are reading this, you are likely already thinking about a non-recourse bridge loan and now wondering what this has to do with a death in unit 146B. This article is about why you really should obtain a non-recourse bridge loan as opposed to a recourse one. Market Glance Analysis of historical market data from select MSAs. After a half a century of combined years in the real estate business, MHU.com is the only place that will give you the good, bad and the ugly details on Mobile Home Park Investing.
Nvestors can purchase the entire mobile home park and lease each pad to residents that either rent or own a mobile home. Manufactured housing is viewed as a major part of the solution to the nation’s lack of affordable housing, providing an affordable option for residents seeking home ownership in comparison to other housing options. Communities in the northeast and coastal metropolitan areas, where affordable housing is less attainable, have benefited the most. The rate of rent growth has tapered with year-over-year rent growth for the second-quarter 2020 reported at 1.5 percent.
This requires some hands on effort to get the park up and running with efficiency again but can be well worth the investment. Mobile home parks allow you to acquire more units for less money.It’s the lowest cost investment per unit of any real estate asset class. Mobile home parks provide affordable housing for low-wage earners in the U.S., and with that, also provide stability to owners in the case of a declining or depressed economy. Due to the flaws in the first two methods I put all my efforts into valuing a mobile home park using the Income or Market Capitalization method.
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.
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