This issue of the MobileHomeParkStore.com and MHBay.com
Newsletter includes:
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Important updates, news, and new features
of MobileHomeParkStore.com and MHBay.com
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Mobile Home Park College - We are in
Session!
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Questions and Answers with Dave
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Advantages of Mobile Home Parks versus
SFR's and Apartments by Dave Reynolds
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Tell us what you think and send us your
articles!
In the past 30 days, there
have been over:
75 new mobile home parks listed for sale
on MobileHomeParkStore.com and at least
13 confirmed sales.
Here is what P.A. had to say:
Dave,
Please do not post our ad! I am very pleased with the
response from your site. I already have it under contract from one of your
investors who sees the listings before it goes public! Thank you for your
services. I will be sending you a check!
P.A. (March 11, 2007)
MobileHomeParkStore.com
"Your source of reliable information
since 1998"
Many have asked for it and now it is Reality.
Announcing...
Mobile Home Park College (MHPCollege)
College is in
session at MobileHomeParkStore.com
Throw away those
other textbooks and manuals because your are about to embark on a
learning experience like none other.
Our program is unlike
any of the other real estate investment or mobile home park "get
rich schemes" or "make millions overnight" type of investment
programs. We have hands on and real life experience in the
industry and with more than 70 mobile home parks under our belt, we
have seen it all!. We are real players in real life.
Are you looking to
Buy a Mobile Home Park?
Are you looking to
Sell a Mobile Home Park?
Are you needing
help to Turnaround your existing Park?
If the answer to any of
these questions is "YES" or "Maybe" then we are here to help!
Find out more
about our new Mobile Home Park College
Selling your Mobile Home Park:
We are still offering the 15 day trial run to
SELL your Mobile Home park. No further obligation or strings attached!
Find out more here about this special offer!
Are you a manufactured home owner or community owner with homes or
lots for sale or rent?
If so, then you can list your new and
used mobile homes for sale or rent and lots for sale or rent for
FREE at
MHBay.com
Our traffic continues to increase so if you are looking to connect
to potential residents and sell or rent more homes, then place your FREE
listings on
MHBay.com.
Q&A with Dave
Question:
Dave, I have seen all these
different formulas out there to value a mobile home
park. Your 70 times formula and a 60/40
formula and variations of these. Why should I
use one over the other?
Richard
Answer:
Richard,
These formulas should only be used as basic
starting points in evaluating a mobile home park.
Often times the formula will not take into effect
very important issues that should be addressed.
Every investor can and
should come up with a different value for a certain
park. A park worth $500K to Joe may be worth
only 450K to Bob. Joe may live 2 miles from
the park and be able to manage it himself and
therefore cut out travel expenses, etc. Bob
may live 2,000 miles from the park and need to hire
a full time manager and so on. Joe may have
$500,000 in a 1031 and needs to find a property in 2
days. Bob may only have $90,000 down and
cannot afford a price of more than $450K. Bob
may be happy with a 10% Cash on Cash Return and Bob
may want a minimum of 15%.
Another reason these
formulas can be flawed is that they are based on
average expense ratios in one manner or another.
However, if the expense ratio for a particular park
is 10% higher or lower than average you will come up
with a value that may be $100,000 or more skewed.
So the bottom line is...
formulas are just a starting point but you need to
look further.
Thanks,
Dave
Question:
Thanks Dave and one more question:
How do you address vacant land or vacant spaces in
determining the value of a mobile home park?
Richard
Answer:
Richard,
Here are my thoughts on vacant land... I
value it based on whether it can be split off and sold. If it is a
prime commercial piece on the front of the park then it does have value.
If it is a piece of land next to the park with good access and could be sold
off for other purposes then it may also have good value. If it is a 5
acre chunk in the middle of the park that needs to be mowed and regularly
maintained then it does not have much value, if any. The only
exception to this would be if this park was in a strong market and this land
could be used to expand the park and the spaces would fill up quickly.
Here are my thoughts on vacant spaces... Suppose
you are buying a park and there are 100 spaces and only 50 occupied.
If these 50 have been vacant for some time and the only way you are going to
fill these is to buy homes and move them in or wait for Toyota to build a
plant next door, then they are really more of a nuisance and maintenance
nightmare. You will have to mow, trim, maintain, pay taxes on, and
keep kids from filling up the sewer cleanouts with rocks. They
actually cost you money so I do not give these spaces any value.
If these vacant spaces are in a market that is
absorbing these spaces without having to put the homes in yourself, then I
may give them a value of 25% of what I am paying per space for the occupied
lots.
Thanks, Dave
Advantages of purchasing/owning a mobile
home park as compared
to apartments and other real estate:
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There has always been and will always be a
need for affordable housing. The typical mobile home park is just
that… affordable housing.
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It is typically accepted that the average
operating expenses for a mobile home park are usually around 35-40% of the
gross income as compared to apartments which have in the 50-60% expense
ratio. One of the biggest advantages of mobile home park ownership is
not only this decreased operating expense margin but the reasoning behind
it.
Mobile Home Parks in which you rent the
land to the home owners have a much lower turnover ratio as compared to
apartments. In most cases, once the home is moved into your park, that
home will stay in there for 25+ years and when people are ready to move they
will just resell the home in the park and you will have a new homeowner.
The biggest reason for the low home turnover is that it costs so much to break
down, move, and set up a home. In most cases this is going to cost at a
minimum of $2,000 for a singlewide and $4,000 for a doublewide. In an
apartment, your renters can pack up and leave in the middle of the night.
In most cases a mobile home will not move out in the middle of the night
(especially legally). There are those cases where someone will hire
someone to come in and move a home in the middle of the night but it is rare.
I actually had someone who was a few months late on rent, decide to hook up to
their 14 x 70 home with their ¾ ton pickup in an attempt to move it down the
road a few miles to a different park. They made it out of the park with
the home but about a mile down the road the mobile home separated from the truck
and they not only flipped the home but destroyed a truck. All of this to
avoid about $800 in lot rent.
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When you raise the rent by $10, $15, $20 or
more in a mobile home park, it is less justifiable for a renter to spend
several thousand dollars to move their home to save $10 or $20 per month.
In addition there is no guarantee that the mobile home park that they move
their home to will not follow suit with a rent increase of their own.
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Another reason for the lower operating
expense ratio for mobile home parks is that you are not responsible for
painting, cleaning carpets, fixing windows, and all the fun jobs of the
apartment maintenance personnel. You are typically only responsible up
to where the home connects to your utilities and the maintenance of the
common areas.
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As far as depreciation, apartments have a
large value attributable to the building itself and the building portion is
generally required to be depreciated over 27.5 years However, for
mobile home parks, the depreciable costs are typically the roads, water
lines, sewer lines, electric poles and so on. These are considered
land improvements and are typically depreciated over a period of 15 years.
This increased depreciation over the first 15 years is a major tax benefit
for many investors.
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Another hidden benefit of mobile home parks
are the barriers to entry for competition. In most areas of the
country, it is difficult to get the proper zoning, meet all the requirements
to build a new community and actually make a profit. Face it, once you
get all the permits and licenses and have the curbs, roads, driveways,
utilities, pads and everything else built out, you will have a carrying cost
until you actually get enough homes into the project to break even, let
alone start making a profit.
Mobile Home Parks are in limited supply
and the barriers to entry as far as costs, regulations and government
restrictions make developing new parks unfeasible in most areas. State and
local governments restrict new mobile home park developments for many reasons,
including: bad reputation, existing owners allowing parks to deteriorate, less
property tax base to fund schools, police, fire, and other government services.
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Another benefit of mobile home parks is that
in most cases you have individuals that own their own homes and will tend to
take care of the home as well as their lot. Since you are renting
basically the land and the utility connections, there is not near as many
things that your renters can do to cost you major repairs. Sure they
may flush things down the sewer and let the water run, but they will not be
putting holes in the walls and floors or spilling things on the carpet as
they will in your apartment rentals. You rent the land and do not have
to fix leaky kitchen faucets or toilets.
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Another benefit of owning mobile home parks
is that you are often in a good position to buy and sell new and used mobile
homes. You can often buy homes that people sell in your park, in
nearby parks, repos, or even new homes from the manufacturers and place them
in your park and sell them at a profit.
Depending on the situation, you may be
able to sell them for cash, on terms, or with new financing. As the park
owner, every time you sell a home and fill a vacant lot in your park you have
just increased the monthly lot rent income as well as the value of the park.
If each occupied lot is worth an
additional $10,000 then in addition to the profit from the home sale itself you
have just made an extra 10k in equity.
A mobile home dealer makes money on the
spread between the purchase and sale price and thus needs to have good profit
margin to stay in business. As the park owner you can live on a much
smaller or even a break even on the home sales and thus save your buyers
thousands of dollars.
Excerpt from
Mobile Home Park Investing E-book!
By Dave Reynolds, December 2006
Tell us what you think!
We'd love to hear what you think of this issue!
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dave@mhps.com to be included in
upcoming newsletters.
Please send your comments, questions, articles, and
ideas for upcoming issues to us at:
dave@mhps.com
Your feedback matters to us!
Until Next Time!
Dave Reynolds
MobileHomeParkStore.com
18923 Highway 65
Cedaredge, CO 81413
PH: 800-950-1364
FX: 970-856-4883
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