Table of Content
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 or without a recession, it’s more likely prices will flatten for quite a long time, with demand for units remaining high. And with the stock market being a roller coaster ride, more investors will view the high prices of multifamily real estate as a safe haven. 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.
As these homes were taxed as real estate, the owner removed any existing hitches and we had the appraiser re-value the property. His updated value came back at $340,000 on a $299,000 purchase price. We funded 90% of the purchase price and amortized the loan over 30 years. The CAP rate the appraiser used was 12.50% and the actual CAP rate the investor will be able to achieve was closer to 16%. This distribution is opposite the core commercial real estate sectors, including multi-housing, each reporting ten-year lows of institutional capital investment at 20 percent and 14 percent, respectively.
Evaluating Mobile Home Park Investments
Cap rate is a term used by real estate investors to measure the expected rate of return on an investment property for sale. When the park-owned homes are considered personal property and the appraisal is lower than the total purchase price, the seller will typically hold financing on these without affecting our combined loan-to-value. The investors plan to satisfy the note on the homes from cash-flow or refinancing the park based on an increased value over a five to seven year period. We recently funded a small mobile home park in Tennessee where the initial value came in at $190,000 based on pad rent only.
Alternately you can have the owner/tenant pay a nominal down payment and then hold the mortgage on the remaining balance and get paid out over, say 4 years at 10% interest. This guarantees you a good return on your Seller financing, a tenant that won’t leave after having invested in his own home for months or years and steady pad rental income. While demand for quality, affordable housing increases, the supply of mobile home parks is diminishing. 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.
Dos and Don’ts of Evaluating Mobile Home Parks
It will give you a more accurate and realistic ROI projection on any subject property located in any neighborhood. Therefore, the cap rate calculator is a must-have tool, especially for beginner investors. Finally, use the cap rate formula real estate now after getting both the NOI and the property value.
Another consideration is the service of utilities to the park which is also closely related to location. Most preferred is one that has full city services such as city water and sewer along with garbage pickup, hydro and cable TV. These can be more expensive at the outset but translate into easier management and upkeep. That said, it is good to also consider ‘non city serviced parks’ as there are many. These parks may be serviced by their own water wells, septic systems, lagoons, or onsite sewage treatment plants. If regularly maintained these can all function very efficiently and possibly at lower costs.
How Much Are Manufactured Homes?
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%.
Multifamily homes have lower cap rates than other types because they come with lower risk. It is true as people always need places to live, even during economic downturns. Commercial and retail properties, on the other hand, can struggle during difficult times. There’s so much demand there that real estate investors are willing to accept lower returns due to the lower perceived risk. Comparing two cap rates can help an investor quickly make this determination.
Risks of Investing Manufactured Home Parks
Our calculator will also provide you with neighborhood data to run a complete neighborhood analysis. It will also help you better understand what does 7.5 cap rate mean in real estate investing. They significantly impact risk and, consequently, the formula for cap rates. It is why what’s considered good in one market might be perceived differently in another. If the rental property requires $575 in expenses a month, that’s a total of $6,900 a year. Many of the mobile home park owners aren’t huge investors with a ton of capital.
In this book, author and investor David Greene shares the exact systems he used to scale his real estate business from buying two houses per year to buying two houses per month using BRRRR. Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 5th largest community owner in the United States, with more than 25,000 lots in 30 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top-selling ones in the industry. To learn more about Frank’s views on the manufactured home community industry visit With a focus on market reports, she enjoys researching the state of the real estate market in different cities across the US.
One of the first questions I ask of an investor when presented with a property with park-owned homes is whether they are taxed as real estate. (They are almost always permanently affixed and any hitches can be easily removed to meet our requirements.) The investor does not always know the answer to this question and it can sometimes be confusing. With the abundance of information now on the internet, we can usually look up the property on the county's GIS information in the assessor's office and see if the tax records are including the mobile homes. If it is not easily understood by the record card, a quick phone call to the assessor's office will let us know right away. Some states may show the mobile homes broken down with values, but they may be personal property as well.
A 2018 report compiled by Harvard’s Joint Center for Housing Studies found that the number of renters who spend 30% or more of their income on housing each month (those deemed cost-burdened) is rising year after year. Since manufactured homes can be built for a fraction of the cost of site-built homes, they are a desirable affordable housing option for tenants. We believe mobile home park investing offers outsized cash flow returns . Experienced acquisition and knowledgeable mobile home park operators such as Park Street Partners, are uniquely positioned to capitalize on this misunderstood asset class. If you are interested in learning more about Park Street Partners and its investment strategies please email us or register with us to receive access to our investment opportunities.
If you put $1,000,000 cash into a CD, you can expect somewhere in the 5% range for your money. Obviously, if you were to put $1,000,000 of cash into a mobile home park where there are risks and time involved in managing that investment, you will want more than a 5% return on that money. Cap rates have been all over the place in that last few years but they are once again rising. The parks that are selling now have cap rates in the 9.00% and higher range. Determining the proper cap rate to use in the formula is arbitrary and will depend on what you are looking for as an investor.
This cap rate refers to the rate of expected return on a real estate investment property which is calculated by dividing the net expected income by the property value to find a percentage. 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 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.
No comments:
Post a Comment