Our Weekly Mobile Home Park Investing Tips. Along with comments from investors. Enjoy!
Mobile Home Park Tip #21
Keeping in Contact with your Manager:
I have to admit that I have made some mistakes in the past with communicating with my onsite management. For the most part, I let the managers run the park and assumed that if I did not hear from them, everything must be going well.
This approach has come back to bite me a couple of times and I have since resolved to have myself or someone in my office talk with the manager at least once per week. I have adopted the following strategy and it appears to be working.
Each week, I have the manager write down any problems or issues in the park, and then fax them or email them to me every Monday morning. This is working great so far and now I have a paper trail of everything important that is going on in the park.
Then on Thursday or Friday of every week, we call the manager just to see how things are going. The managers like to know that we are thinking about them and appreciate these calls. In the past, I had some managers that we talked to only once per month when there was a problem. It is much nicer to talk to them now and find out that there are no major problems.
Mobile Home Park Tip #22
Types of Mobile Home Parks to Consider:
When deciding on purchasing a mobile home park, you can basically look at four different types:
Building a New Park: This is starting from scratch and will take time, money, and patience. This is usually the riskiest and drawn out option but can be potentially a great opportunity.
Buying a Stable Park: These parks usually have low vacancy, are operating smoothly and have rents at or near market. You are buying a cash flow that should increase as rates increase over time. You will pay a premium price for this type of park.
Buying a Park that is mainly filled up but is not running efficiently. In these types of parks you want to buy them based on the current income and expenses and then increase the value through such things as raising rents to market, collecting rents, sub-metering utilities. This is the type of park that I am on the lookout for.
Buying a Turnaround Park: In addition to increasing rents and reducing expenses this is the type of park that is either half vacant and needs rent to own homes or the type of park that the owner has forgot about and is run down. This type of investment usually has the best potential to increase in value for existing parks but will take the most time, money, and efforts. Make sure that the extra time and efforts will be worth it. Turnaround parks are often better deals as the owner may have lost interest or is having financial difficulties. The opposite is true of the stable parks.
Mobile Home Park Tip #23
When looking for a park, you can basically choose:
Large Metro Areas: There is usually more competition here from investors but they are generally regarded to have greater stability and less market fluctuation.
Small Cities & Rural Parks: There is generally less competition here from investors and you will usually be able to buy the parks with a higher cap rate. These parks will typically have a larger risk due to dependency on one or two major employers. However, in the right cities and markets these will often represent great investments.
Adult & Senior Parks: These are usually more desirable as your tenant base willl have greater stability and tend to care for their homes and lots better and pay their rents on time. However, many of the residents in these parks will have a lot of time on their hands and require more amenities and offer more resistance to rent increases.
Most REIT’s (Real Estate Investment Trusts) and larger mobile home park investors are looking to purchase parks that are in the 150+ site range so the competition and pricing is generally higher for these larger communities. I would suggest you focus on the parks that are in the 25 to 150 space range. Lower than 25 spaces if you live nearby and are able to manage the park yourself.
Any size of park can be run efficiently and profitably. Some 10 space parks are easier to run from a distance without a manager than one that is 100 spaces with a full time manager. There are many factors. Some parks require weekly visits, monthly, yearly, or whenever you are bored.
When deciding what type of park to buy, you need to decide on your investment goals, evaluate the amount of time you have, talk to others in the business about the time requirements for your potential purchase and then begin your search for parks that will fit with those goals. Make sure your goals are reasonable. It is not likely your are going to buy a 100 space park in a good market operating well for a 15 cap and it is not likely you will find a park operating well in a good market that will be purchased for no money down, etc.
Mobile Home Park Tip #24
The Double-Wide Two Step:
What to expect when one half of a multi-section home is destroyed.
By Kurt Kelley of Mobile Insurance in Texas
When one section of a manufactured home is destroyed, the question becomes -“What is the extent of this loss? Half the home or the whole home?” The destruction of one-half of a multi-section home can be more traumatic to the home’s owner than the destruction of the whole thing.
Today, in most circumstances, manufacturers refuse to build a replacement section. Manufacturers report that if they rebuild one section of the home it will not match the remaining section(s) like it would have if built at the same time. Carpet colors, paints, etc. can vary slightly and create product quality and image concerns. Furthermore, sections may not match-up at the marriage line accurately. Nevertheless, the retailers that own a home which has had one section destroyed, and their respective insurance companies, only want to pay to replace half the home, not the whole thing. To make things more interesting, many manufactured home physical damage policies only offer to pay for the physical damage to the home.
Thus, if an insurance company pays to replace a destroyed section, the insurance company may have technically satisfied its policy obligations, whether or not the home owner can actually replace just one section of the home. This leaves the home’s owner with a large uninsured loss. In the battles over the years between insurance companies and manufacturers on whether to build a replacement section to home, both have prevailed.
To protect yourself from a large uninsured loss, make sure your insurance policy has specific language in it stating that if one section of a home cannot be rebuilt, then the home will be considered a total loss.
Furthermore, you should demand that all hired transporters carry a “cargo insurance policy” that includes a “pair and set” or “multi-section” clause. If you do these things, you may not limit your time on the dance floor doing the double-wide two-step, but at least you know you will have a chair when the music stops.
(For a copy of a model Transporter/Installer agreement, visit www.MobileAgency.com and go to the forms section).
Contact Kurt at 281-367-9266 or email Kurt@mobileagency.com
By Dave Reynolds and Frank Rolfe
Dave Reynolds and Frank Rolfe are mobile home park investors and together own and operate over 100 parks. Frank also leads regular Mobile Home Park Investing Bootcamps through www.MobileHomeUniversity.com.