Although it has taken us literally thousands of pages to describe how to do due diligence and operate mobile home parks effectively, the general theory on how to make money with mobile home park investments could fit on the back of an envelope.
These are the few, simple steps to making money in mobile home parks.
I. Buy a park in a big market. It doesn't have to be New York City, but you need to have a market that has enough size to fill vacant lots and push rents. A mobile home park in a tiny town suffers from few new move-ins and great danger from the employment trends of a couple of large employers. Also, you need prevailing two-bedroom apartment rents in the $700 or so range. If you are looking at a market with two-bedroom apartment rents of $295 per month – where is the affordable housing niche? The apartments, in that case, are already delivering affordable housing – so who needs mobile homes? And how can you push rents in that scenario?
II. Stick to city water and city sewer, if you can. If you can avoid private utilities, you can avoid huge potential capital calls. In the absence of private utilities, the worst capital expenditure you will be forced into spending is a few thousand dollars on pothole repair. But if you have a water well or packaging plant or lagoon, the overnight cash you might have to cough up could be $50,000 to $250,000.
III. Never count any income, but lot rent. You can't use any mobile home rentals, or note income, or laundry income in your calculations. Only lot rent. Period. Even if you are insist on trying to use it, your bank will stop you by turning down your loan.
IV. Buy at a 10% cap rate or better. You should only get in the mobile home park business to make money. To make money, you have to put yourself in a position to do that. Buying parks at a 6% or 8% return is starting off behind the 8-ball. All you will do is, maybe, cover your mortgage. You will have no cash flow to reward yourself for all your time, effort and risk. And that's just not a fair deal to yourself.
V. Push rents. Relentlessly. There is no better way to make money in the mobile home park business than to increase rents. Every dollar that you increase rents falls directly to the bottom line. And every dollar of rent you increase equals 10 times more in value. Increasing rents by $1,000 per month yields $120,000 in sales value enhancements, at a 10% cap rate.
VI. Groom the park into a 20% cap rate. If you push the rents by about 10% each year, it will take you only until about seven years to have doubled the rent. Can you push rents this aggressively? You bet. At $3,000 or so to move a mobile home, there is a huge barrier to moving out, so tenants will accept pretty much whatever you raise the rents to….within reason!
That's the entire roadmap to success. It's not complicated. It's not hard to understand. Yet people are making errors on this strategy every day. In an effort to buy something quickly, many people will sacrifice their lives and buy a mobile home park that can't possibly make the owner money even if it tried.
If you respect yourself, you have to hold your ground with our strategic deal points. If the seller won't sell at a 10% cap rate – walk away from the deal. The same is true with all the other subpoints. Without the correct alignment, the park is going to be only a “tar-baby” that you can't get rid of. And there is certainly no money in that.
Want to make a million dollars in the mobile home park business? Then don't try and get fancy and violate all of the successful formulas that have come before you. Follow our plan, and you will have your best chance at winning.