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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. It seems evident that multifamily sales prices have reached their peak. Sales for multifamily properties started dropping in May 2022 due to increased interest rates according to the National Multifamily Housing Council.
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.
Mobile Home Parks: An Overlooked Gem in Real Estate
The latter, renting the mobile home may stay for less than a year, have junk and old cars in their yards and may do little to maintain the home and landscaping. Despite being a new concept to many investors, rented manufactured homes in quality manufactured home parks can be an excellent way to invest in the real estate market in a profitable way without large capital requirements. Manufactured homes typically generate higher near-term returns on investment than a comparable rented residential home rental investment does. With historically high inflation, rising interest rates, and the gross domestic product being down for two consecutive quarters, a recession could be looming around the corner. Unlike the great recession where vacancies and delinquency on rent payments dangerously increased due to high unemployment, the opposite is the case now. And most sellers today have savings plus good incomes and can afford to wait to get the prices they want.
With most multifamily projects, a majority of the operating income comes from the tenant rental income. However, mobile home parks’ income can come from a variety of sources. In today's economy, many financial institutions, investors and owners are faced with non- or under-performing MH/RV Communities, particularly in the wake of the ongoing credit crisis. MHG satisfies these unique client needs with a fully-integrated platform that specifically addresses the valuation/broker opinion of value, management, workout, restructuring and recovery of distressed MH/RV loans and assets. #1 is 4 to 5 star MHP’s that people choose to live in for non-financial reasons. These parks are often gated, even guarded communities that have paved streets with curbed gutters, amenities such as pools or community event center, and lot rents typically above $500 a month.
DON’T: Apply Cap Rate to Mobile Home Rent
Prices are just too high, cap rates are insanely low, but there is an oversupply of units on the market due to new apartment building starts and completed rehab projects. It’s unbelievable that investors are still paying too much for properties – sure that prices will go even higher. You won’t know when the next phase of the real estate market cycle will start, but you can learn to identify which phase you are in so you can make intelligent decisions on purchasing and selling. Demand for quality affordable housing often outstrips supply of mobile home park properties. Affordable housing is in high demand from young families, middle-aged people in transition, and seniors on a fixed income.
Other considerations on the value of the park will be the entrances, streets, landscaping, utilities, parking, lights, storage sheds, number of singles versus doubles, swimming pools, clubhouses, etc. The nicer the park typically the lower the cap rate and the easier it will to tap into better financing programs. In addition to the quality of the park considerations many mobile home parks have other factors that need consideration. This includes such things as vacant lots, land for expansion, park owned homes, and seller financed notes.
Investing in Mobile Home Parks
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. Did you know that lenders who make loans on mobile home parks prefer 10% or fewer park owned homes . This is mostly because of the difference between tenants of the park that own their own manufactured homes and tenants that are leasing both the pad and the home. The first, having a pride of home ownership, staying for 5 years or longer, and keeping their homes and yard in great condition.
Having that said, in previous years (especially pre-2018) the MHP space was much less investor populated with different metrics that we are seeing today. In analyzing the financial statements and tax returns, they are often different. 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. Mortgage lenders will often only offer loans to buyers of ‘real property,’ which generally refers to land with a permanent structure built on it. These rules vary state to state, but manufactured homes are generally only considered eligible for a mortgage if the axles are removed and the structure is permanently installed on a foundation or basement .
Approximately 26% of American households earn $25,000 per year or less , which allows for roughly $500 per month in total housing costs. The average apartment rent is over $1,000 per month and is smaller than a typical mobile home. Our mobile home park investments offer tenants a superior combination of quality and price than comparably-priced site-built homes or apartments in that area and provide families with a sense of community. With Cap Rates for Multifamily Apartment properties holding at historical lows, value Add Acquisitions are priced at an all-time high averaging a 5.5 cap. This is what a quality C Class property went for just over a year ago, so be wary of overpaying for a property that needs major repositioning or rehab. Unless you can buy it at a very good price per unit, this is not the best time to go this route.
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. Under this method I take the Net Operating Income divided by the Capitalization Rate to come up with the Value. While this might sound like a simple process, it can be quite complex coming up with the true Net Operating Income and decided what cap rate to use in the formula. Regional Bank Mobile Home Park Loan – Rates can be fixed from 3 to 10 years and are tied to corresponding US Treasury Yields with corresponding terms and a 25 to 30 year amortization.
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.
It’s not that I didn’t like education, in fact, I’m obsessed with growth and education. It’s just wasn’t a fan of traditional schooling which I felt held me back from my creativity and full capabilities. I wasn’t excited about option #2 either, although that seemed the less of 2 evils, so I chose one of the top paying blue-collared professions, steel fabrication & welding. For example, there may be a pad minimum – commonly 15 pads or more are required to be eligible for financing.
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.
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