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?
- Apartment and Multifamily Loan options.
- How To Finance A Manufactured Home In A Park?
- Reonomy Off-Market Mobile Home Park Search
You can consider the possibility of your park being rezoned for redevelopment at a future date. This has become popular with old parks built in town centers that now have land values far in excess of the cash flow value. Years ago the main income was from pad rents where now the value is in building a commercial strip mall or multi-family homes. This has its challenges but also has huge financial gains if successfully brought to completion. In 2018 BC parks have an allowable rent increase amount of 2.5% plus proportional amounts as published by the Tenancy Branch each year. (2012 – 4.3%) (2013 – 3.8%) (2014 – 2.2%) (2015 – 2.5%) (2016 – 2.9%) (2018 – 4.0%) (2019 – 2.5%) (2020 – 2.6%) (no increases due to Covid-10 for 2021) (2022 – 1.5%) (2023 – 2.0%).
The first, having a pride of home ownership, staying for 5 years or longer, and keeping their homes and yard in great condition. 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. 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.
Benefits of Investing in Manufactured Home Parks
If you’re interested to learn more about manufactured home park investing, whether that’s in the homes themselves or in a manufactured home park, we are here to help. Contact our team today for an initial client consultation or to grow your investment portfolio. 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.
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.
Major points to consider when buying a mobile home park
Our team has over 30 years of experience and we have built industry connections over the years that allow us to offer our clients access to properties that are not even listed on the market. These off-market properties are often much more reasonably priced than on-market properties are in the current seller’s market. Manufactured homes can range in price from $15,000 to over $100,000 depending on the size, built-in amenities, finishes, and so forth. Additionally, you’ll need to factor in other costs such as land, property taxes, insurance, the cost of moving the home into place, utilities, and maintenance. When evaluating a park the overall condition and often ‘first impression’ is important.
Many mobile home park investors often ask why lenders typically do not use the total cash-flow from a property with park-owned homes. The answer is that the majority of these mobile homes are considered personal property. As lenders are collateralizing their loans with real estate only, any personal property or chattel property is not considered in the value.
Is There a Better Alternative for Computing an Investment Property’s Cap Rate?
It basically works similarly with a cap rate with the only difference being it takes into account financing options for the property purchase. We have seen a number of deals lately where the park-owned mobile homes are taxed as real estate and permanently affixed to the site. In this scenario, we are able to use both the pad rents and the rents on the park-owned homes in the appraisal. We will instruct the appraiser to apply the total rents in the income approach to value and make any adjustments to the sales comparison value as well. As most mobile home park appraisals are driven by the income approach, this can make a significant difference in value.
For example, there may be a pad minimum – commonly 15 pads or more are required to be eligible for financing. There may also be road requirements , tenant home ownership minimum percentages, aesthetic requirements , HUD code adherence requirements, home density requirements, and amenity requirements. Keep in mind that you can purchase new or used manufactured homes. Buying a new home allows you to select the exact layout and size you desire, as well as any extra features like fireplaces, custom cabinetry, walk-in closets, and so forth.
Apartment and Multifamily Loan options.
This is thought to be a result of the Coronavirus Recession, which unlike the Great Recession which was caused by a runaway subprime loan market. Have cap rates on multifamily properties gone completely nuts? How is it that a C class property in a working-class neighborhood in South Carolina can be offered at close to the same cap rate as a B class property in one of the most moneyed areas of California? And why was my client willing to pay such a high price for a property that did not have the net operating income to support it? 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. Manufactured homes are relatively affordable to buy since they cost so much less to build than traditional homes.
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.
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.
You must also build in the cost of borrowing during construction and all the way to when the park is fully occupied. 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. Items like replacing all the water lines or sewer lines for older parks, resurfacing the roads, topping all the trees, are large expenses that can occur in the future and they should be budgeted for. While they are not expensed for income tax purposes they are capitalized and depreciated over 15 years or so, and are therefore real costs.
When you own a large collection of units, the high cost of occurrences, such as eviction or random expenses, are spread out across a large portfolio and are less of a hit. 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. Some buyers tell me they want at least a 7 cap, some say 10 cap, some say 15 cap. High tenant switching costs – it costs $5,000-$10,000 for a homeowner to move and reinstall their home into another community. It is why you should always find out about the local rental regulations in the area of your choice, so you don’t get into any legal trouble down the road.
A park located in an area where employment is strong will most certainly guarantee it will most always be fully occupied. 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. After coming up with the income that the park is currently generating and deducting from that all the anticipated operating expenses including the reserve for capital expenditures you will have what is called the Net Operating Income. The average mobile home park lot rent in the U.S. is around $280 per month.
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