We set a new world record for ourselves with the sale of our mobile home park in Iowa – we netted over $4 million in profit in less than three years of owning it. So how did we do it?
- We bought the park at a good price. Mobile home parks sell for higher cap rates than any other form of real estate, and we bought it at about a 9% cap rate, compared to 6% for typical apartment deals.
- We raised the rent. Mobile home park lot rents are notoriously underpriced, and you can deliver a great value with even moderate increases. In this case, we simply raised the rent to the market level for parks of this caliber
- We filled a bunch of vacant lots. The park had roughly 100 vacant lots when we bought it. It only had a fraction of that when we sold it. The demand for mobile home park living is extremely high, and mobile homes sell at a very rapid rate of speed. And why not? Mobile home parks cost around 30% less than Class B apartments – including the home mortgage – and are preferred by customers because they 1) don’t have neighbors banging on the walls or ceiling 2) have a yard 3) you can own them and do with them whatever you like as far as modifications 4) park by your door 5) have a sense of community. Those are very strong arguments.
- We instituted professional management. We enacted “no pay/no stay” which means you have to pay your rent every month or we kick you out. We also enacted “no play/no stay” which means you have to play by our rules or we kick you out. This sounds mean, but actually it’s the only way to make a mobile home park work: you have to set rigid guidelines and enforce them. That’s what creates a quality community atmosphere for those 90% of customers who abide by the rules and pay the rent on time every month.
- We chose a park in a growing, dynamic market with increasing population, less than 4% unemployment and a strong housing market.
- We found a buyer that appreciated the property and its future, and was excited to take it to the next level.
Most people who would tell you of their best apartment deal would be talking about holding it for 20 years and riding out years of rent increases and loan principal pay down to get there. Mobile home parks can sometimes get to that same place in a matter of a few years and without having to slog through economic cycles.
Here’s a link to explain this deal in complete detail, and all the lessons learned, both large and small http://www.mobilehomeuniversity.com/emails-and-events/teleconference-series/most-profitable-deal/recording.php
We think you’ll see the advantages of mobile home parks pretty quickly. We’ve been investing in mobile home parks for around two decades, and this is the best market we’ve seen in that time. Have you checked out the “other” form of multi-family yet? If not, you definitely should.