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We also selectively represent buyers looking to acquire specific MH & RV communities throughout the United States. We can also assist the owners in determining if their community has a land value that exceeds the existing cash flow value of their community. As Manufactured homes are located on long-term rented spaces in quality parks, they lack underlying land ownership as well as the potential of future land ownership appreciation. They also may suffer from deep-rooted stigmas surrounding mobile homes and trailer parks. Location may be the primary way of determining both short term and long term value.
Cost Segregation is an IRS recognized method of creating increased tax benefits for costs related to manufactured housing communities. Property owners can treat specific components and their costs as personal property, thereby writing off their cost over five or seven years. They can also write off any land improvements over 15-years. I’m assuming by now you understand the MHP space on at least a slightly deeper level.
Mobile Home Parks: An Overlooked Gem in Real Estate
If in a well located area the land value alone is always a good investment even if the cash flow from the rental income were to completely stop. This would not be the only reason for buying a park but certainly must be considered. A park located in an area where employment is strong will most certainly guarantee it will most always be fully occupied.
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.
DON’T: Apply Cap Rate to Mobile Home Rent
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.
With the uncertainty of actual repositioning expenses, future market rents, new construction starts, rental concessions, and absorption times, this can represent a large risk. Historically, value-added investment real estate made sense only when buying at below market value. As a mortgage banker that has made loans on rehab projects since 1997, the largest risk I see today is overpaying for a building and then going over your rehab construction budget. And then compounding the problem taking too much time to complete the construction. A simple way to think about the cap rate is that it is the return you will receive year one based on the current projections if you were to pay cash for the property.
Investing in Mobile Home Parks
If it is going to take more than a year for you to reach the cash on cash return you want by raising rents, you are likely paying too much for the property. Now that unemployment and GDP are beginning to return to normal, there will be more apartment construction starts which should eventually supply more units in the market than demand. Did you know that lenders who make loans on mobile home parks prefer 10% or fewer park owned homes . This is mostly because of the difference between tenants of the park that own their own manufactured homes and tenants that are leasing both the pad and the home. The first, having a pride of home ownership, staying for 5 years or longer, and keeping their homes and yard in great condition.
Ultimately, the two phrases refer to different iterations of the same concept and in many cases they are used interchangeably. I have worked as a commercial mortgage banker for the past 25 years and have encountered many surprises. But nothing that equals the call I got last week from a client that was making an offer on a 36-unit, C Class property in Greenville, South Carolina.
What are Modular Homes?
However, if this upside was easy to obtain, then the seller would have most likely realized it before selling. In another example, suppose the park has an NOI of $80,000 and is priced at 1 million. Also, suppose that the park is currently paying for water and sewer and this expense is running approximately $30,000 per year. You know that you could install water meters and pass this expense on to the residents. You could very well purchase this park and realize the return you want very quickly in situations such as this.
This may sound counterintuitive, but while depreciation is a negative for single family homeowners, it’s actually a positive for real estate investors. That’s because depreciation allows the investor to deduct a portion of the real estate asset’s value from the operating profits each year, while your more or less fixed income from the property remains steady. Low Interest Rates – Cap rates have been coming down on apartment buildings pushing values up at a rapid rate since the recovery phase of the great recession in 2010, and even more so during the corona virus recession of 2020. During both recessions the Feds purchased an unprecedented amount of treasury and mortgage-backed security bonds that kept long term interest rates artificially low. These record low rates supported a much higher loan amount which made it feasible for buyers to get financing at a much higher sales price. Dave Reynolds is a household name in the mobile home park business for many reasons.
In some cases, you will be able to fill up the homesites with minimal investment and effort so you may place a value of 25-50% depending on your comfort level. The key then is to reconcile the tax return with the profit and loss statement and then interject reality into the whole process. Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings. Manufactured homes are prefabricated homes built after 1976.
Essentially, tenants are benefiting from small single family homes at very affordable prices, and often in close proximity to their workplaces in metro areas. Have cap rates on multifamily properties gone completely nuts? How is it that a C class property in a working-class neighborhood in South Carolina can be offered at close to the same cap rate as a B class property in one of the most moneyed areas of California? And why was my client willing to pay such a high price for a property that did not have the net operating income to support it? Like Zell, many owners use this array of options to their advantage.
We just came up with the value we are willing to pay based on the NOI and the cap rate we are looking for. So, unless these homesites will fill up with minimal effort and investment, I would not place much of a value on them at all. In fact, having empty homesites that are hard to rent out will end up costing you money in terms of monthly maintenance and time. I would definitely point this out to the seller as a negotiating point. Many sellers like to say there is upside on all the vacant spaces.
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