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There may also be road requirements , tenant home ownership minimum percentages, aesthetic requirements , HUD code adherence requirements, home density requirements, and amenity requirements. After a half a century of combined years in the real estate business, MHU.com is the only place that will give you the good, bad and the ugly details on Mobile Home Park Investing. If you are reading this, you are likely already thinking about a non-recourse bridge loan and now wondering what this has to do with a death in unit 146B. This article is about why you really should obtain a non-recourse bridge loan as opposed to a recourse one. Lower tenant turnover ratesTenants are less likely to move out if they own their homes.
Only a few select niches such as self-storage (8.5-9%) and assisted-living facilities (7-10%) can compete, in contrast to the more popular apartment building (5.6%). Sales velocity rose approximately 10 percent in the second quarter, reflecting the accelerating pace of investor demand for manufactured housing communities. Cap rates have compressed to 6.25 percent on average, while the median price in sales year to date is $38,300 per space, similar to the median price in 2020. RV parks and mobile home parks have completely different approaches. Mobile home parks are more attractive to passive owners because the residents are extremely “sticky” , the residents pay for their own utilities via submetering, and there is little in the way of common areas or management intensity. RV parks, on the other hand, have customers who can stay as little as one night, the park pays all utilities without any billbacks, and there are widespread amenities leading to additional labor costs and management intensity.
Risks of Investing Manufactured Home Parks
MHP’s already perform well, and in a recession, typically perform better. This is something to take into heavy consideration given the current and near future state of the economy. Due to this, I know a whole niche of investors that are geared towards recession resistant investments only.
4.Record High Rents and Low Vacancies – With the cost of homes skyrocketing, more Gen Z first time home buyers were sidelined into the rental market, pushing rents up by over 10% in 2021 and over 15% annually through June of 22 according to Redfin. According to Moody Analytics, multifamily vacancies hit a 20 year low of 4% in the second quarter of 2022. I want to know how many lots there are, how many are occupied and paying, what the lot rent is, what expenses the owner is paying, and who is responsible for the water lines, sewer lines, and roads. CMBS Loan Mobile Home Park Loan – This is a securitized loan program. Rates can be fixed for 5 or 10 years with corresponding loan terms and 30 year amortizations.
How Much Are Manufactured Homes?
The same old tricks that used to work prior to 2018 do not apply today. Section 8 vouchers Used Towards Purchase of Mobile Homes – for those of you familiar with section 8, essentially the government pays a landlord rent on behalf of low-income tenants. This has been used to pay rent in the apartment and mobile home park space in the past, although now section 8 can pay towards the purchase of a mobile home. This is win-win for the park owner and for section 8 tenants. In most cases when you review a sales package for a mobile home park for sale it will not mention any reserve for capital expenditures. This really should be addressed in your evaluation of the park and in the due diligence phase.
These parks are 3 stars or less with little to no amenities. These parks make up the majority of MHP’s in America and this is the type of MHP that I’m talking about for the rest of this article. We have the industry’s largest, most diverse collection of exclusive commercial real estate listings. Buying used manufactured homes can dramatically reduce the cost of the initial investment. If you are considering purchasing used homes, be sure to inspect them thoroughly for damage, leaks, and so forth. The exterior appearance of the home can also be customized with awnings, decks, upgraded siding, and more.
Manufactured Housing
Other considerations on the value of the park will be the entrances, streets, landscaping, utilities, parking, lights, storage sheds, number of singles versus doubles, swimming pools, clubhouses, etc. The nicer the park typically the lower the cap rate and the easier it will to tap into better financing programs. In addition to the quality of the park considerations many mobile home parks have other factors that need consideration. This includes such things as vacant lots, land for expansion, park owned homes, and seller financed notes.
There are guidelines that an investor must adhere to, but a 1031 Exchange is one way to defer capital gains tax. Finally, it’s easier to finance the purchase of a mobile home park than it is to finance the purchase of mobile homes themselves. But, there are still some common requirements that your mobile home park must meet in order to obtain financing. In order to keep manufacturing efficient and therefore costs low, there are very few customizable design options when it comes to manufactured home layouts, so from the outside they all appear similar. Any exterior additions to the homes must be approved by the local building authority and/or the mobile home park operator. When evaluating a park the overall condition and often ‘first impression’ is important.
LOAN RATES
This has been a game changer for park owners and is a win-win-win for everyone involved. Although there were earlier attempts at the same type structure, the CASH program was introduced in a perfect time of need and has been a huge success since. As time has progressed, 21st mortgage now will do the same structure with most of the major mobile home manufacturers which makes this set up possible for many park owners nationwide.
Proposed Regulations for the Internal Revenue Service’s definition of ‘real property’. If you are engaged in the investing of manufactured homes, consideration should be given to these rules. Please consult your tax advisor as that discussion is beyond the scope of this article. Manufactured homes do not face the same risks that site-built homes do, such as delivery delays, theft, vandalism, weather damage and delays, misuse of materials, and so forth. This helps keep the build costs low and helps speed up the process – a manufactured home can be built and installed in three months or less while site-built homes often take six months or more.
Remember this simple calculation is very generic and may or may not be the true indication of the value of a mobile home park. Community Bank Mobile Home Park Loan – Rates are usually fixed for 3 – 5 years with a 10 year term and are tied to Federal Home Loan Rates. More predictable financialsThe tenant-owned-homes create a more predictable outlook of both cash incoming and outgoing.
Mobile home parks are residential subdivisions – investor owns the land and property infrastructure and typically only leases the land to homeowners. You will find some sellers that expense everything and then find the opposite where owners capitalize as much as possible to make the bottom line look better. Spend some time going through all the expenses and estimating future capital improvements.
Approximately 26% of American households earn $25,000 per year or less , which allows for roughly $500 per month in total housing costs. The average apartment rent is over $1,000 per month and is smaller than a typical mobile home. Our mobile home park investments offer tenants a superior combination of quality and price than comparably-priced site-built homes or apartments in that area and provide families with a sense of community. With Cap Rates for Multifamily Apartment properties holding at historical lows, value Add Acquisitions are priced at an all-time high averaging a 5.5 cap. This is what a quality C Class property went for just over a year ago, so be wary of overpaying for a property that needs major repositioning or rehab. Unless you can buy it at a very good price per unit, this is not the best time to go this route.
Fortunately, the cost of materials is coming down now, but labor is still at an all-time high. To add insult to injury the feds raised prime rate 2.25% between March and July 2022. Supply and Demand– Just as in the housing market, the corona virus created a record low inventory of multifamily properties for sale as buyers and sellers insulated themselves from each other. Once it was safer for people to mingle again, many sellers were reluctant to put their properties on the market, thinking prices would go up even higher. After coming up with the income that the park is currently generating and deducting from that all the anticipated operating expenses including the reserve for capital expenditures you will have what is called the Net Operating Income.
If cap rates further compress and if your occupancy increases along with the increase of rents, then you have leveraged the formula for massive potential mobile home park profits. 21st Mortgage CASH Program – a consequent effect of Berkshire Hathaway buying Clayton Homes was the introduction of Clayton Homes teaming up with 21st Mortgage to introduce the “CASH” program. This program provided an avenue for park owners to get their hands on new Clayton mobile homes that get transported to the park owner’s community . Then the park owner has a certain timeframe where he can market the home for sale, then send park screened applicants to 21st mortgage for financing. Of course, a park owner has to have some skin in the game so as park owners we essentially guarantee or back stop the loan and take over the financial responsibility if tenant defaults while we find another tenant.
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