Mobile home parks are a good investment in a downsized economy, with tax depreciation advantages and particular potential to turn around mom and pop operations. Learn how to apply simple formulas for finding the best deal, and explore financing through sellers or small banks, from someone with years of experience like Dave Reynolds. See the following article from JasonHartman.com for more on this.
In a downsized economy where only service industry jobs seem to be booming, the trend is away from upscale properties while demand is growing in the rental sector. Meanwhile, the window of opportunity is narrowing to take advantage of a market that has been both maligned and neglected – mobile home parks. In episode #168 of The Creating Wealth Show guest Dave Reynolds shares his expertise on the subject. Reynolds was born into the business, but he wasn’t infatuated with it until he viewed his dad’s profitable park management with the perspective of a recent accounting graduate. His own entry into park ownership came through a credit card cash advance to finance a down-payment. That inauspicious start launched a career in mobile home park acquisition and management that has spanned a dozen years and more states.
Mobile Home Park Value-Adding Strategy
Reynolds prefers dealing in land, renting lots rather than homes. He calls Lonnie deals – investing in park mobile homes rather than lots – “the worst of both worlds” since the investor is liable for lot rent regardless of occupancy. His strategy is transitioning park-owned home arrangements to space only deals. Furthermore, mobile home parks benefit from the IRS 15 year schedule of depreciation, while the ratio of improvement value – 70% land improvement/30% land – is comparable to other real estate sectors. Improvements for mobile home parks include infrastructure such as roads and utilities.
Formulas For Assessing Mobile Home Park Deals
In order to gauge what he might spend on a park deal, Reynolds uses a basic formula with one variable depending on which party is responsible for utilities. If utilities are paid by the renters: Number of lots multiplied by Average monthly lot rent multiplied by 70. If utilities are paid by the park, multiply instead by a factor of 60. Although vacant lots represent potential income, they should be assigned a lower value when buying. The metric that he applies when pricing occupied lots is based on the space rental. He will spend ~$5000 for a lot that rents at $100/mo.; double that if the lot rent is double. Reynolds prefers a price point of $5-15,000 per lot, subtracting value if vacant.
Best Practices of Mobile Home Park Management
Reynolds utilizes both off-site and on-site management, the latter serving as his “eyes and ears at the park.” Reimbursed with free rent and perhaps supplemental fees, on-site managers handle day-to-day operations, maintenance, and tenant issues. He strongly advocates the use of a cashless system – and a good accounting system – to discourage theft. Software like Microsoft Excel and Quickbooks helps. When Jason brings up the subject of using a Master Lease clause forbidding illegal or immoral activity by tenants, Reynolds relates that in his long experience he has rarely encountered this issue, and that the bad rap on mobile home parks is mostly undeserved.
Finding the Ideal Mobile Home Park Opportunity
Typically, Reynolds seeks out smaller mom & pop type parks, which he says account for more than a third of the market, since he has found they are often well run but not profitably so. His ideal is a 5 – 10 acre property with 35 – 40 spaces offering the potential to step in and increase rent in line with the going rate. Generally there are no leases in place, and in his own parks he rents primarily on a monthly basis, allowing him greater price flexibility.
Financing Methods for Mobile Home Park Acquisition
Owner/seller financing with 10 – 15% down (often with an assumable note) is his primary strategy since these are non-recourse deals meaning only the park itself is vulnerable as collateral. Alternatively, he has utilized REO deals and local bank financing, both customarily with 25% paid upfront.
This article is based on Episode 168 of Jason Hartman’s Creating Wealth Show. You can listen to the full podcast at JasonHartman.com, a real estate investment and wealth creation site.