MOBILE HOME PARK INVESTMENTS
What makes MHPs such great investments?
What Makes Mobile Home Park Investments so good?
MOBILE HOME PARK INVESTMENTS:
INVESTORS WANT HIGH RETURNS WITH LOW RISK
Investors today have been through a lot. The stock market is all over the board. Residential seems incapable of producing prodigious cash flow. Many forms of Commercial Real Estate have become risky. Today’s investors want and need to put their money to work somewhere where it will produce HIGH RETURNS with LOW RISK, and more importantly strong, reliable POSITIVE CASH FLOW. Easier said than done, right? With years of research and experience, looking at all types of investment real estate, we have identified Mobile Home Park investments as THE VERY BEST INVESTMENT available today. And here’s why:
1. HIGH DEMAND & DIMINISHING SUPPLY
Very few new mobile home parks are being built anymore. Many states, like California, effectively banned new construction of Mobile Home Parks (MHPs) in the late 1980’s. Yet millions of Americans own and/or live in Mobile Homes. And new Mobile Homes (MHs) are still being sold by dealers every day. So demand remains high. But the supply of available space in Mobile Home Parks is not only low, it’s actually shrinking. While many MHPs have closed over the years, for a variety of reasons, practically no new ones came on line to replace them.
In addition, during strong real estate markets, builders and developers hungry for scarce land to build homes on will often buy Mobile Home Parks, level them then build homes or apartments on them. During the last real estate boom of a few years back, in West Sacramento alone 3 large Mobile Home Parks were torn down to make way for new construction. What happened to all those people and their Mobile Homes? Some simply couldn’t find a suitable replacement in the area. The same thing is happening all over the U.S. today. Parks close all the time, for various reasons, but few reopen once they’ve been deactivated, and virtually no new ones are being built. This short supply creates a built-in demand for space in Mobile Home Parks. It also creates demand for Mobile Home Parks themselves as places to live, and as Mobile Home Park Investments with savvy investors who like the high returns. And this demand is bound to increase over time.
2. EASIER TO MAINTAIN THAN MOST REAL ESTATE
Think about it: what is a Mobile Home Park anyway? Mostly just land with some underground utilities, some streets, fences and some pads. Not much to break or wear out or maintain. Compare that with almost any other type of real estate. Lots of things can go wrong with an apartment building or a rental house, for instance: the roof, structure, foundation, doors and windows, kitchen and bathrooms, plumbing and electric, heating and AC, paint and carpet, and the list goes on and on. And disgruntled tenants can do tremendous damage to the property before leaving. With a Mobile Home Park, the living unit, the Mobile Home, is often owned, insured and maintained by your tenant. That leaves much less for the park owner to maintain, which is a big plus for mobile home park investments.
3. EASIER TO MANAGE THAN MOST REAL ESTATE
Again, because of the high demand and low supply, there is less turnover in most Mobile Home Parks. But it goes beyond that. Because Mobile Homes are not really very mobile, an average single-wide Mobile Home costs $2,000-$5,000 or more, to move, and many parks won’t take older Mobile Homes being pulled out of other parks. So there is literally nowhere for them to go. If they want to leave, their best option is usually to put their Mobile Home on the market and sell it (with the park owner having final approval of the new buyer), all the while having to maintain their space rent. All of these factors drastically reduce turnover, which makes Mobile Home Park Management much simpler. Generally speaking, onsite management duties are less demanding (require fewer hours) than those of Apartment Managers, and because of this, they often are paid less also, saving the park owner more money.
4. EXCELLENT SECURITY – YOU WILL GET PAID YOUR RENT
As many apartment owners will tell you, it’s one thing to rent your units, it can be quite another to actually COLLECT THE RENT. Tenants can fall behind, then leave owing money that can never be collected. While nothing is 100%, Mobile Home Parks offer far better security for the park owner that they will actually get their money. Again the reason is that some of your tenants own that Mobile Home that’s sitting in your park. In apartments, tenants often stop paying the rent, trash the place then skip out owing you money. But with your Mobile Home Park Investments, your tenants aren’t going anywhere in a hurry here, not with their Mobile Home that they’d have to move first. Again, it will cost them several thousand dollars to move, will require several days of prep and a moving permit, and they will have great difficulty finding another park that will take them, especially an older unit. And, if they’re leaving because of non-payment, their problems in finding another park that will take them will be compounded by that fresh eviction on their record.
They have 3 choices at this point:
A. Sell their Mobile Home within your MHP and settle their bill;
B. Sign it over to the park owner for past due rents, or;
C. Wait until you evict them and they lose it to the park in a Lien Sale.
Either way, you get your money. In many cases, the park ends up owning the unit, then either sells it (thus creating a new long-term tenant in the park) or rents it out as a Park-Owned Home (POH). One way or another, properly done, in the end the park always gets it’s money.
5. LOW OPERATING COSTS
When compared to other types of real estate, Mobile Home Park investments are relatively inexpensive to operate and maintain. Again, they’re mostly dirt, underground utilities, some streets and pads, and some fencing. The low turnover and high demand keep vacancies down. The nature of Mobile Home Parks ensures a very high collection rate. Mobile Home Park onsite managers generally earn less than comparable apartment managers. Insurance also costs much less because there’s so little to insure, in fact many parks carry only Liability Insurance.
Mobile Home Park Operating Expenses generally run around 30%-40% of Gross Income, where apartments and other types of real estate can run 35%-55% of Gross, or more. That’s a big savings that drops directly to the bottom line, in the form of Positive Cash Flow, High Returns and great Upside.
6. GREAT UPSIDE POTENTIAL
Mobile Home Park Investments offer many opportunities to increase their value for big profits. Since the Value of Mobile Home Parks is directly tied to its Net Operating Income (NOI), the higher the NOI the higher the value of the property. Increasing the NOI can be accomplished in two basic ways:
A. INCREASING INCOME; and/or
B. LOWERING EXPENSES.
As professional MHP Consultants, we plan and oversee every aspect of the Operations of dozens of Mobile Home Park investments of every type, size and situation. In most cases, there is an upside component to the deal, so we draft a Turn-around Plan and implement it. This allows our Investor-Clients to worry less and buy more Mobile Home Parks. And make mire money. Part of what we do offer is what we call VALUE ENHANCEMENT, which is the process of doing whatever it takes to raise NOI through increasing income, decreasing expenses, or some combination of the two. Each property is different, of course, but the goal is to make the property worth more so that it can be resold (or refinanced) at a profit. From our experience, this is easier to do with Mobile Home Park investments (not that it’s easy) than with just about any other type of Investment Real Estate.
For several actual examples of Mobile Home Parks that have received our VALUE ENHANCEMENT treatment, and how they turned out, check out our recent Mobile Home Park sales.
Dispelling Old Myths on Mobile Home Park Investments
LOCATION, LOCATION, LOCATION
We’ve all heard it, right? It’s the age-old ‘secret to real estate’. Well, we’re going to give it a new twist. The very best investment vehicle we have found are MHPs, both for producing great POSITIVE CASH FLOW, and for BUILDING VALUE (we have a proven system for both). Most Investors look for MHPs close enough to the homes so that they “can go check on them”. There a flaws in this thinking on many levels. First off, most MHP owners have other careers, and are not experienced, full-time MHP Managers, so what is it they think they’ll see, when they don’t know what to look for? Secondly and even more importantly, your chances of finding the best possible money-making park are vastly reduced if the park must be near your hometown. That is to say, practically impossible. Can it happen? Of course, anything can happen. But waiting for that once-in-a-lifetime deal will sideline you in a market that is rich with opportunities, as long as you’re willing to go where the deals are. Now, instead of looking for the best mobile home park investments in your price-range, within 100 miles of Backwater WA, you’re looking for the best park in the entire United States. But, how can you even consider buying a MHP, much less a MHP the must be turned around, so far from home?
PROFESSIONAL HELP IS A MUST
The answer is that, no matter where the MHP is located, even if it’s next door to your home, you need to have professional, competent people who specialize in MHP Operations running it for you. This not only frees you up from the enormous workload of running a successful MHP, but it should mean that your park will be run better…much better. We consistently find that the parks we take over for MHP Owners who ask for our help generally make more Net Income money once we’ve been running it for a little while than it was when the owner was running it himself. So, if you can assume for a moment that you now have the Operations and the Turn-Around of your MHP handled, this frees you up to look anywhere that the best deal presents itself.
MOBILE HOME PARK INVESTMENTS: AHEAD OF THE WAVE
And like I said before, for investors looking for opportunities to make great POSITIVE CASH FLOW and UPSIDE PROFITS, the MHP Market is a TARGET-RICH ENVIRONMENT. But only in certain areas of the country, and it’s not anywhere out West, or in the Rust Belt or the East. It’s too late to be ‘ahead of the wave’ in those areas. Even places like Texas and Florida are solidly ‘in the wave’, but no longer ahead of it. The best money has already been made by savvy investors who came before, when they themselves were ahead of the wave. Does that mean you can’t make any money in those places? No, you can make money, and find decent parks in these markets, but because the demand is so high, you’ll be competing with lots of other deal-hungry investors, which gives you fewer choices and forces you to pay more. In the end, it’s just much easier to make money, and more money in MHP markets that are still ‘ahead of the wave’, like the South and parts of the Midwest. Being ‘ahead of the wave’ means that the bulk of the mainstream buyers haven’t come to accept or feel comfortable with it yet. Good, we’ll get in ahead of them, then when the wave overtakes us, we’ll sell these same parks to those same buyers at higher ‘behind-the-wave’-prices. It’s the way the world works. So, this is our new take on the old real estate adage “Location, location, location”. To us, it means “Don’t let location limit your success, go where the money is”.
There is so much more to this than can be explained here. If you’re serious about making money in the MHP Business, please call me. I love talking about MHPs. There is no cost or obligation, and you won’t get any high-pressure salesmanship from me. I hate that stuff too. Call me.