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The cost method does not take into account the business component of the business or occupancy levels. It would value a 100 space mobile home park the same whether it has 100% occupancy or 50% occupancy. This doesn’t mean that these mobile home park owners are unsophisticated, instead, they are simply out of date with the modern day operational flexibility of these assets. These owners tend to keep poor financial management records and operate in a less efficient manner. In addition to high cash flow, mobile home parks also offer attractive tax benefits. CBRE Manufactured Housing Group represents sellers of single assets or portfolios anywhere in the world to maximize seller's profit.
(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
But since that time, both have created their own business model with little shared between the two. And one big difference is that many RV parks have a 2-point higher cap rate – but potentially for good cause. However, this issue can be used to your advantage if you buy the right RV park.
If cap rates further compress and if your occupancy increases along with the increase of rents, then you have leveraged the formula for massive potential mobile home park profits. 21st Mortgage CASH Program – a consequent effect of Berkshire Hathaway buying Clayton Homes was the introduction of Clayton Homes teaming up with 21st Mortgage to introduce the “CASH” program. This program provided an avenue for park owners to get their hands on new Clayton mobile homes that get transported to the park owner’s community . Then the park owner has a certain timeframe where he can market the home for sale, then send park screened applicants to 21st mortgage for financing. Of course, a park owner has to have some skin in the game so as park owners we essentially guarantee or back stop the loan and take over the financial responsibility if tenant defaults while we find another tenant.
Multifamily Loan Products
So, now getting back to why my client was so eager to overpay for the property mentioned earlier. He’s actually a smart guy who owns an apartment building down the street that is full with a waiting list. The property he wants to buy is in good condition with under market rents.
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.
DON’T: Apply Cap Rate to Mobile Home Rent
It took a while to create a solid, rinse and repeat history of successful mobile home park investing. Albeit, there was enough of a track record for Warren Buffet to join the mobile home industry in 2003. Not too long after came 21st Mortgage CASH program, FANNIE & FREDIE financing for MHP’s, Section 8 Mobile Home purchase ability, and numerous large institutional buyers. Consequently, many investors from other asset classes have jumped fence to join the MHP Investing craze. Most buyers are indeed paying too much for commercial properties when cap rates are historically low, rationalizing that rents can be raised over time.
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.
So the interest rates are important to consider in the equation. Buy, Rehab, Rent, Refinance, Repeat is the five-part BRRRR real estate investing strategy that makes financial freedom more attainable than ever. 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. Bridge or Hard Money Mobile Home Park Loan – Rates are fixed from 1 – 3 years and are tied to the 30 day libor rate plus 6.00% to 10.00%.
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. I would include at least 2-3% of gross income as a Reserve for Capital Improvements in your numbers when determining the value. Manufactured homes are built using high-quality insulation, which helps with both heating and cooling the space efficiently as well as minimizing sound transference. 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.
“Are you seriously going to buy this property at a 3.76 cap? High tenant switching costs – it costs $5,000-$10,000 for a homeowner to move and reinstall their home into another community. If the park is on the market for $3 million I will probably pass. If the park is on the market for $1,800,000 or less than I will probably look into it further.
There are guidelines that an investor must adhere to, but a 1031 Exchange is one way to defer capital gains tax. Finally, it’s easier to finance the purchase of a mobile home park than it is to finance the purchase of mobile homes themselves. But, there are still some common requirements that your mobile home park must meet in order to obtain financing. In order to keep manufacturing efficient and therefore costs low, there are very few customizable design options when it comes to manufactured home layouts, so from the outside they all appear similar. Any exterior additions to the homes must be approved by the local building authority and/or the mobile home park operator. When evaluating a park the overall condition and often ‘first impression’ is important.
Our top priority is to help our clients make sound investments by offering professional advice and expert investment strategy guidance. Invest in the manufactured home real estate niche by purchasing a manufactured home park investing, where you own the property that the homes will sit on, but not the homes themselves. 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.
The Securities have not been, and will not be, registered under the Securities Act, or the securities laws of any State of the United States or other jurisdiction. Learn more about how our real estate analytics software can help you become the next Zell, check out our previous blog The Need for Asset Management Analytics in Commercial Real Estate. Take advantage of STRATAFOLIO’s innovative software, and operate your portfolio like a modern-day Zell. With a team of analysts, accountants, and managers that work for him, Zell is able to read the summary data from his investments regularly. Reduce your management responsibilities You are also no longer responsible for the interior capital expenditure liabilities .
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.
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