Advice on due diligence and buying and operating mobile home parks effectively has filled dozens and dozens of books, but the general theory of how to make money with mobile home park investments could fit on the back of an envelope. This article will explain in a few, simple steps how to make money in mobile home parks.
Buy a park in a big market
It doesn’t have to be New York City, but you need a market large enough size to fill vacant lots and push rents. A mobile home park in a tiny town suffers from little population growth and high dependency on the employment trends of a few large, local employers. Also, you need prevailing two-bedroom apartment rents in the $700 or so range. In housing markets where the rent for a two-bedroom apartment is $295 per month, tenants do not need mobile homes for affordable housing and owners cannot push rents.
Stick to city water and city sewer, if you can
If you can avoid private utilities, you can avoid huge potential capital expenditures. Using public utilities, the worst capital expenditure you may face is a few thousand dollars on pothole repair. But if you have a water well or packaging plant or lagoon, the overnight cash you might have to cough up could be $50,000 to $250,000.
Never count any income but lot rent
You can’t use any mobile home rentals, note income or laundry income in your calculations. You can only rely on lot rent. Period. Even if you insist on including other income in your application, your bank will stop you by refusing your loan.
Buy at a 10% cap rate or better
You should only get in the mobile home park business to make money, and positioning yourself to do that is crucial. Buying parks at a 6% or 8% return is starting off behind the 8-ball. You may only cover your mortgage with no cash flow as reward for all your time, effort and risk.
Push rents relentlessly
There is no better way to make money in the mobile home park business than to increase rents. Every dollar that increase goes directly to the bottom line and is worth 10 times more in determining the value of the park. Increasing rents by $1,000 per month yields $120,000 in sales value enhancements, at a 10% cap rate.
Groom the park into a 20% cap rate
If you push the rents by about 10% each year, it will take you only about seven years to double the rent. Can you push rents this aggressively? You bet. At $3,000 or so to move a mobile home, there is a huge barrier to moving out, so tenants will accept pretty much whatever you raise the rents to.
That’s the entire roadmap to success. It’s not complicated, but people make errors every day. In an effort to buy something quickly, many people will sacrifice their lives and buy a mobile home park on which they can’t possibly profit.
If you respect yourself, you have to hold your ground with our strategic deal points. If the seller won’t sell at a 10% cap rate, then walk away from the deal. The same is true with all the other subpoints. Without the correct alignment, the park will be an inescapable and profitless burden.
Don’t try to get fancy if you want to make a million dollars in the mobile home park business. Follow proven formulas such as ours and you will have the best chance at success.