Rich Dad Education – Real Estate Blog

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Mobile Home Parks – The Power of Control

Mobile home parks are often overlooked by many investors. In some cases, it is because of the stereotype that is associated with low-income housing. The reality is that you can have a very nice, clean mobile home park. It is all about how you want to run your business and the quality of housing you want to provide your tenants.

Mobile home parks are unrivaled in their ability to produce positive cash flow and they have a very low cost per unit. Even though these are very attractive aspects of mobile home parks, there is another characteristic that is even more important.

That characteristic is control.

There are many different “control levers” that you can use to improve the value of the park. The reason that we call them control levers is because these are things you can control with some simple changes. Let’s review these different methods of control that will allow you to almost instantly increase the value of the park.

Control Levers

Here are the levers that will be outlined:

  1. Raising lot rent
  2. Increasing income/Decreasing expenses
  3. Utilities
  4. Selling homes

Raising Lot Rent

You will find that many parks have had the same lot rent for years. For whatever reason, the owner did not increase the rent. It could have been that they just forgot to do it, were too lazy to do it, were afraid of having the tenant move out, or any other myriad of reasons. Most of these reasons have no basis though.

Laziness or forgetfulness are things that are quite easy to overcome. The lot rents should be monitored and kept up to pace with the other parks in the area. We are not trying to raise the rents and gouge people. We are being competitive with the rest of the market. That is why it is called “fair market rent.”

The fear of having people move out is really unfounded. If you think about it logically, the rent is the same amount as what they would pay down the street at another park.  If they do not own the home, are they going to go through the time or expense of moving when they are going to pay the same lot rent elsewhere? It wouldn’t make sense.

Since most mobile home parks have leases that are month to month, raising the lot rent is a control lever that you can use almost instantly to increase the value of the park. How? That leads us to the next control lever.

Increasing Income/Decreasing Expenses

Keep in mind that the value of a mobile home park is measured differently than a single family home. With a single family home, the value will be determined by similar homes that have sold recently in the area. These comparable homes establish the value of the home being sold.

With a mobile home park, value is calculated differently. Generally speaking, there are not a lot of mobile home parks in an area that have recently sold to compare values with. Even if there were, usually the parks are so different that you cannot make a direct comparison.

In the case of mobile home parks, the value of the park is based on the income it produces. This is great news for investors. When you can purchase a park that is under-performing because of poor management, high vacancy rates, or exorbitant expenses, you can make some changes and have instant equity. As you are evaluating parks for purchase, you should identify areas that can be changed or improved for an instant profit.

Utilities

Utilities are a good example of how some parks are mismanaged. There are some parks out there that the utilities are paid by the park and are not billed to the individual owners/tenants. This is a huge monthly expense that can easily be fixed.

For a small fee, you can purchase individual meters for each unit and have the utilities billed to the individual owners. At first, it may seem unreasonable to pass the utilities on to the tenants. However, in a single family home, the homeowner will pay all of the utilities as part of owning the home. When you consider it like that, passing the utilities back to the owners/tenants makes sense.

Even though it may cost a little more, we suggest that you check with the county as you make this change. In most cases, you can pay to have their contractors install the units and they will also insure the lines since they did the work. Having them insure the lines to the utilities is a valuable thing to do.

The bottom line is that by removing the utilities expense, you have greatly increased the monthly cash flow, which also increases the value of the park. If you find a park where the utilities are paid by the park, this is a lever you can quickly pull to increase the value of the park.

Selling Homes

Each mobile home park is different, but there are many of them that have homes that are owned by the park and rented to the tenants that live there. At first glance, this may seem like a good situation because you get to collect the lot rent and the rent from the home. However, there are some issues that come with the park owning the home.

First of all, park owned homes require maintenance. This becomes a tenant/landlord relationship and the landlord is responsible for all repairs on the property. This could mean higher expenses with the maintenance factor. The older the homes are, the more this could be an issue.

The other large issue with park owned homes deals with financing. Lenders will only lend based on the lot rent because that is the amount of income generated by the real estate. Even though a park may generate a lot of income from park owned homes, the lender does not count it during the qualification process. This makes selling a park difficult when there is a large percentage of park owned homes.

One easy way to remedy this is to sell the property back to the tenant using seller financing. The tenant is still making you a monthly payment, but now they own the home instead of renting it. Since the person in the home now owns it, they are responsible for all maintenance. That is one less expense for you to deal with and you are still receiving the income from the seller financing.

As part of the seller financing, you could have the seller pay anywhere from $500-1000 dollars as a down payment and make some very quick capital with no expense for generating it. If you have a 50 unit park and you sell them with $500 as a down payment, you just raised an additional $25,000! Everybody wins in this scenario. The tenant gets the opportunity to own a home, and you are able to be more profitable with your mobile home park.

Ideally, these control levers are points that you should keep in mind as you are evaluating mobile home parks. These are the quick methods that you can use to immediately improve the value of the park and make your investment even more profitable.

 

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30 responses to “Mobile Home Parks – The Power of Control

  1. Randy Higgins May 25, 2012 at 3:03 pm

    this is fabulous information. I assume it goes for RV lots in an RV community as well!~

  2. KH May 26, 2012 at 10:34 am

    Some lot rents haven’t been raised due to city rent control ordinances. In Oceanside, CA for example, rent control on mobile homes and their lots was enacted in 1984 due to park owners excessively raising lot rents due to the lack mobile home parks at that time. This year, an elimination of the rent control is on the ballots (Prop E) in the upcoming June elections. I’ve provided a link to read about it here for anyone interested.
    http://www.utsandiego.com/news/2012/may/24/oceansides-prop-e-would-phase-out-mobile-home-rent/?page=1#article

  3. Darla Butler May 26, 2012 at 7:25 pm

    Great New way of thinking Mobil home parks

  4. Dante mccrutch May 27, 2012 at 12:33 pm

    Great information!

  5. maria May 29, 2012 at 7:40 pm

    good information never consider investing in mobil parks,will keep it in mind. thanks

  6. Janice King May 30, 2012 at 7:45 pm

    We do this and it works. This is valuable information. Listen to what the kiyosaki’s say and do what they say, it works.

  7. Thomas Rones May 31, 2012 at 4:23 pm

    Great Info! Ill be sure to invest in some mobile home parks soon.

  8. Trever May 31, 2012 at 6:12 pm

    I am a mobile home park broker in California. trever@martinezandassociates.com
    for information about listings.

  9. Linda Garcia June 1, 2012 at 5:17 pm

    Hi, I would love to know anyone’s experience with metering. Our park is old and tenants use their water AND the adjacent trailers spigot for watering. It was quite expensive and confusing to do remote metering so we chose not to, We think it will be one more thing to fix and that we may have a hard time collecting a billing to the tenant. Why not raise the rents accordingly to include? Of course it would be more fair to singles and couples to meter. Also our water/sewer bills are $6000 mo but most of this cost is sewer which would not be metered. A new park….absolutely.

  10. Tonia June 1, 2012 at 11:42 pm

    I lovevit
    ..

  11. Shawn June 2, 2012 at 11:21 am

    I’ve always been interested in MHP’s. The problem buying them at a reasonable price.

  12. James Wheeling June 3, 2012 at 8:49 pm

    Great article! Done right, it seems this parks are a solid investment with monthly cashflow.

  13. fred archuleta June 4, 2012 at 12:07 pm

    thank you

    • James June 6, 2012 at 6:44 am

      Great article. Who is the best instructor for this and when is the next please.

      Thanks!

      • Rich Dad Education June 6, 2012 at 8:37 am

        James, you can call in on our 800-978-8068 phone line, and press option 2 to speak with a program specialist. One of our specialists would be more than happy to give you information on our Mobile Homes instructors as well as dates, times, locations, and any other information you may need.

  14. James June 6, 2012 at 10:10 pm

    Will do. Thanks!

  15. Dan Ehman June 9, 2012 at 12:48 am

    I am a part investor in a MHP. It was supposed to be a 12-18 month flip that didn’t work that way when the economy fell, The principals worked diligently to upgrade the park with one of them becoming the manager to be hands on. They aquired some distressed homes and purchased some brand new ones to rent out.Their work is exemplary. They worked hard negotiating with the city owned water utility to provide all new meters while park paid the installation. The results were more monthly cashflow. It took alot of effort but they persisted. The park is cash flowing with good reserves. I now feel the quartely dividends and equity I have is better than the original flip prospect.

  16. David July 1, 2012 at 7:36 pm

    What about collecting the rent, MHP are notoriously difficult to collect. Do we need to hire muscle?

    • Paddy Monk July 4, 2012 at 10:04 am

      I live in a mobile home park and have taken Rich Dad Real Estate courses. Like Robert’s rich dad that choose to live in a lower value home in his younger years, I too choose to live here. I also own the home and it is very well kept. That being said, I find what was said above to potentially show disregard for the mobile home renter’s\owner’s. If one of the goal’s is to “help” as many people as you can by providing low-income housing, then coming up with angle to get the expense of power off of your books and onto the low-income budget of these people (call it “control leverage” if you like), seems to me to be a way to put even more financial pressure on folks who may already be financially challenged. Although the goal may be to make profit, is not “helping people” also supposed to be an equal priority goal as opposed to a way to rationalize greed? No offense meant.

    • Linda October 1, 2012 at 8:08 pm

      not if you don’t rent out o scum

    • Linda October 1, 2012 at 8:10 pm

      @David – my last comment was for you, not Paddy Monk regarding muscle/rent collecting

  17. Paddy July 4, 2012 at 9:03 pm

    Funny my comments have been edited out 🙂

    • Rich Dad Education July 9, 2012 at 11:08 am

      Paddy, we apologize for the delay, but we don’t show any comments that you’ve posted other than a comment about living in a mobile home park, which was in response to a post made by David. Please let us know if you have any other questions.

  18. Steve D July 16, 2012 at 11:31 am

    If you seller finance mobile homes, or any property for that matter, do you transfer the deed or keep it until the note has been satisfied?

  19. Elana Preston January 29, 2013 at 9:55 am

    How does one go about acquiring an existing mobile home park? Does it start with finding a park, making a business plan, and applying for a loan? Can you get a loan for this without an existing full time job since this plan IS supposed to be your full time job? What type of loan is this and how much money down would need to acquire, say, a 1 million dollar park?

    • Rich Dad Education January 29, 2013 at 9:06 pm

      You need to start by finding the park. This will be a commercial loan so the loan will be based on the performance of the property. It also means that you will be looking at a 65-70% loan to value. Mobile home parks are great opportunities to practice creative financing strategies and seller financing strategies.

  20. Preeti September 16, 2013 at 5:07 am

    I am planning to buy a new home from B&B Homes. They sell bungalow sized mobile home and they call it as RTM home 😀

  21. site November 25, 2013 at 7:32 pm

    Very interesting topic , regards for posting
    . “Genius is of no country.” by Charles Churchill.

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