Table of Content
There may also be road requirements , tenant home ownership minimum percentages, aesthetic requirements , HUD code adherence requirements, home density requirements, and amenity requirements. 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. 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. Lower tenant turnover ratesTenants are less likely to move out if they own their homes.
These loans require a minimum of 50 pads and cannot have more than 25% park owned homes. Frank Rolfe has been an active investor in RV parks for nearly two decades. As a result of his large collection of RV and mobile home parks, he has amassed a virtual reference book of knowledge on what makes for a successful RV park investment, as well as the potential pitfalls that destroy many investors. By utilizing a 1031 Exchange an investor is able to defer that capital gains taxes owned by utilizing the funds from the sale of their existing investment property to exchange into the purchase of a new one.
Risks of Investing Manufactured Home Parks
We just came up with the value we are willing to pay based on the NOI and the cap rate we are looking for. So, unless these homesites will fill up with minimal effort and investment, I would not place much of a value on them at all. In fact, having empty homesites that are hard to rent out will end up costing you money in terms of monthly maintenance and time. I would definitely point this out to the seller as a negotiating point. Many sellers like to say there is upside on all the vacant spaces.
Firstly, to obtain land that will be granted zoning for this purpose will be most challenging. The cost of developing every new pad is somewhere in the range of $25,000 to $40,000 per pad, consequently a 50 pad park would require at least $1,750,000 in development costs, excluding the land cost. You must also build in the cost of borrowing during construction and all the way to when the park is fully occupied. Due to this fact the existing parks are much more appealing. Traditionally, Mobile Home Parks have some of the highest cap rates (7-10% National Average) across all of the asset classes.
How Much Are Manufactured Homes?
The same old tricks that used to work prior to 2018 do not apply today. Section 8 vouchers Used Towards Purchase of Mobile Homes – for those of you familiar with section 8, essentially the government pays a landlord rent on behalf of low-income tenants. This has been used to pay rent in the apartment and mobile home park space in the past, although now section 8 can pay towards the purchase of a mobile home. This is win-win for the park owner and for section 8 tenants. In most cases when you review a sales package for a mobile home park for sale it will not mention any reserve for capital expenditures. This really should be addressed in your evaluation of the park and in the due diligence phase.
The factory built process allows for much greater consistency, quality control and accuracy than is seen with individually site-built homes, which often are plagued with delays and disruptions. All manufactured homes in the United States are required to be built according to federal construction codes laid out by Housing and Urban Development . A manufactured home is home built in a factory and then transported to the final home site, where it is typically quickly and easily assembled.
Manufactured Housing
One investor may be satisfied with a 7% cap and the next investor needs to buy at a 12% cap in order to justify the risk and time involved. I do not even look at parks that I can't turn into at least a 10% cap rate. The range of cap rates on the market today fall in the 3% to 11% range with most parks falling into the 7% to 10% range.
(it’s more like when, than what if. Some type of financial correction in the U.S is inevitable, and much closer to us than we may think!) Think about it. In that scenario, when you can no longer afford $500 a month in monthly accommodation costs, where are you going to go? Unfortunately, you’d be led to live with family or friends, perhaps you’d sleep in a car or god forbid, you’d be homeless. Point being, there not many options if you can’t afford to live in a mobile home park.
LOAN RATES
Mobile home parks provide a unique array of revenue streams. As we’ve seen in recent times, even during bullish markets, consumers are in a constant search for affordable housing. This may even contribute lower occupancy volatility during a variety of market climates down the road. Part of this resilience may be attributed to EGI’s large stake in mobile home parks. This is because, unlike multifamily and commercial, a majority of mobile home park value comes from land improvements. These land improvements include things such as roads, utility infrastructure, and park design.
Cost Segregation is an IRS recognized method of creating increased tax benefits for costs related to manufactured housing communities. Property owners can treat specific components and their costs as personal property, thereby writing off their cost over five or seven years. They can also write off any land improvements over 15-years. I’m assuming by now you understand the MHP space on at least a slightly deeper level.
Rents gained more than 1 percent during the second quarter, reaching $578 per month. From individual and private clients, to portfolio and institutional assets, CBRE delivers highly specialized execution of brokerage, debt & structured finance, valuation and appraisal services assignments nationwide. Mobile Home Parks (MHP’s) are arguably one of, if not the hottest investment classes of today. Not every park has all of these expenses and some have additional expenses but this is a good starting point. Amenities – you can also have additional amenities such as a meeting hall, a pool, laundromat, additional RV parking and charge rent for all these additional services. Place & Rent- you can also place a home, fully skirted and with all hookups and rent the home for about 2 or 3 times the monthly pad rent.
Mobile home parks typically incur less than 20% of the annual tenant turnover that an apartment complex experiences. After a half a century of combined years in the real estate business, RVParkUniversity.com is the only place that will give you the good, bad and the ugly details on RV Park Investing. In my opinion the sweet spot in MHP’s is buying 2-3 star parks and turning them into 3-4 star parks. We just don’t see that many attractive deals in that sector. Deciding at these crossroads was easy for me, as the thought of continuing schooling was daunting with the illusion of extreme boredom and dissatisfaction for me.
Financing mobile home parks in the past was somewhat challenging since most lenders only understood them as being very low end housing. Most lenders will still expect the Buyer to put his own cash of 30% to 40% down and they provide the balance required to complete the purchase. Current lending rates are at an all-time low so it is an ideal time to borrow funds to invest in this type of opportunity that offers returns of 5% to 9%. Lenders are now seeing this as one of the more secure lending opportunities due to the steady cash flow and debt serviceability. The combination of the higher going-in cap rates with comparable financing terms provide significantly stronger cash-on-cash yields than currently available in multifamily.
Once they are assembled at their home site, manufactured homes are often indistinguishable from traditional site-built homes . Parks come if many sizes in terms of land base and numbers of rentable pads. A rule of thumb, any park with a minimum of 30 pads can afford to have an onsite manager. The manger is usually paid with free monthly pad rent in exchange for general management duties.
These other issues will be addressed in an upcoming article. Mobile home park lenders also know that park owned homes have a much higher incidence of late paying or no paying residents, and much higher domestic problems resulting in tenants nearby being unhappy and sometimes moving out. In most mobile home parks, the park is in first position on the home above the mortgage in the case that the tenant stops paying the pad rent.
No comments:
Post a Comment