Playbook #041: Mobile Home Parks
🖼️ The Big Picture
Mobile home parks (MHPs) are on fire as an asset class. They’ve evolved from having a very poor reputation, with only the boldest investors being willing to tackle the (sometimes significant) tenant and infrastructure challenges — to having sophisticated individual investors bringing more professionalism and quality to the parks today. Institutional investors are also getting more and more involved - accounting for 23% of sales transactions in the past 2 years (up from only 13% in the previous 2.)
As a result, an asset class where it used to be relatively easy to find a return of 10% or higher… is getting more and more competitive, and the returns are getting compressed. If you look on loopnet, you’ll see a lot of listings around a 6% or 7% cap rate. MHPs are getting closer and closer to apartment buildings, which have long been the gold standard “passive investment” for many real estate investors.
As we’ve mentioned in other real estate issues, there are still creative options to get deals done without using your own cash or credit like buying with OPM (other people’s money), and Seller Financing.
Along with being relatively recession resistant, there are some unique tax advantages that apply only to MHPs, as well simple, proven ways to acquire, optimize, stabilize, and either sell — or refinance to pull out profits tax free — that make this a very attractive investment.
One thing to keep in mind with MHPs is that good management is going to be critical, and it’s different than with apartments. There are plenty of great property management companies for apartment buildings… but most of those companies just aren’t going to be equipped to properly handle the clientele in a mobile home park.
If you don’t want to manage it yourself (which we wouldn’t recommend), then you’re going to need to buy a big enough park to justify the expense of having a manager on site. Think at least 50 pads. A lot of successful investors would say that the ideal park to buy has low occupancy, below market rents, and utilities that aren’t individually metered.
This gives you immediate upside - with the right management — to increase occupancy, raise rates, and sub-meter utilities. With strong management and the right property (bought at the right price), you could double the value within a couple of years, giving you the option to sell or refinance for tax-free profits and continuous cash flow.