How to Turn Around a Mobile Home Park Part II
|Now is the best time to buy a Mobile Home Park. There are so many opportunities in various parts of the country that new investors are taking advantage of. As experienced Mobile Home Park & RV Park Investors, we hoped you gained plenty of insight and was able to implement a plan to revamp and increase profitably of your park using the Turn Around Plan Snapshot to guide you. In the conclusion of, How to Turn Around a Mobile Home Park, we will share with you one of our most recent personal experiences of buying a undervalued park and the remaining key areas involved with turning around a park.|
Raising Lot Rents
We just took over a park that had rents of $90 per month in a market where the rents were in the $250 to $300 range. Crazy Huh? After purchasing while hanging around the park and training the new management, several of the residents came up and most of them asked about the rent raise. They were expecting it. The normal question went something like this: How much is the rent being raised because I am on a fixed income, on disability, between jobs, or name the excuse. The answer was easy and went something like this: "I am not sure yet but the park down the road charges $275 and then another close by park charges $300 and most other parks in this area are in that range. I don't think the rent will go to $300 per month but we will evaluate the market and come up with a fair amount".
Everyone seemed to be ok with this answer and a few people said it would be ok if the rent did not go up above $200 or $250 per month. A few weeks later, the residents received their rent raise letter bringing the rents to $250 per month and offering a $50 discount if the rent was paid by the 5th of the month. The only person that we lost over the rent raise was someone that had an RV on one of the lots and was using it as storage. There are a few other issues to deal with in this park but the rent was the big one. With an extra $110 per month per lot, the park's cash flow will support the other improvements to be made without a problem.
Filling Vacant Lots
Turning around parks that need to be in-filled are the most difficult, time consuming and costly types of turnarounds. You cannot count on others bringing homes in to fill your vacant lots. It is something you have to do. Don't get suckered into thinking that the dealers will fill your park up.
There were several lots that were vacant in the park we purchased. We decided that it would be best to buy homes and fill the vacant lots. Here is why and what we learned:
When you are buying homes, make sure that you budget enough to cover all of the costs of getting the homes setup and ready to go. If you have $100,000 to buy homes with, you can only pay $10,000 per home installed, rehabbed, and ready to go. If you have 50 vacant lots then you may opt to go for lower priced homes first so you can get more of them rather than buying only a few new homes. After all, the lot rent is going to be the same on a new home versus a decent older home.
I was recently talking with a successful investor (new to the MH Business) that was looking at a community with about 300 vacant lots. He was thinking about spending 3 million for the deal with only 100 occupied lots. He thought he could fill the park up within 3 years. I asked him if he had about 3-4 million in additional funds to buy the homes to fill it up. He said no, but had figured that the local dealers would bring homes in and sell them onsite and it would not be a problem filling it up. I know the market where this park is well and also know that there are probably less than 25 new homes being put into communities per year in this market from dealers (and this is a big market). I told him that if he marketed like crazy, offered big move-in specials, and did everything right, that he would be lucky to get 10 homes per year. At that rate, it would take about 30 years to fill the park. This is the reality now and unless you are going to buy the homes and move them in, it is difficult to fill lots.
Additional Random Thoughts
Also remember that a park that has mostly older and smaller homes (more of a trailer park) will need to be much less appealing than the newer park with big lots and newer homes. An older park will attract a different clientele than a 4-5 star park and there is nothing wrong with that. I have no problems owning the oldest parks in town. With older parks, focus on the cleanliness and safety of the park and not new clubhouses, pools, new asphalt, and replacing all the homes with new ones. Instead focus on trying to get the residents to maintain what they have and try to get them to keep the outside painted nicely, the skirting up, a nice set of steps, and junk piles that are at least stacked up nicely. Think: Safety and Cleanliness!
Also, I have found it useful to educate these residents on how to keep the rain from coming into the homes with sealant for their roofs and also around the windows. After all, you want the homes to last a long time and water is the biggest enemy.
As you move up to nicer communities, your focus will not really change but you will want to keep up the common areas and amenities a little more. Focus here on keeping the grass mowed, the streets patched, and the entrance inviting and so on. You will also have to enforce your rules stricter as you don't want someone to bring in a pile of junk and a trash heap next to $30,000 and $50,000 homes.
Not that you can't allow older homes into the community, you just need to make sure they are kept up well and have good paint outside and attractive skirting.
Remember in the mobile home or manufactured home business, as a community owner, you will make the same amount of money (if not more) from the older homes and communities than you will for the fancy 4 and 5 star ones. For one, you can usually charge the same amount of rent because your residents on the older home parks don't have mortgages and can actually afford to pay the same lot rent as their counterparts in the 4 and 5 star parks that have big mortgages on their homes. Those big 2006 doublewides sure look nice but in many cases they are ticking time bombs with big mortgages on them. The question for many community owners is not if, but when am I going to have to buy that home from Greentree as a repossession to keep it in my park. After all, if I do not buy it then it will be a sad day when the mover shows up to move it down the road to another park.
Another reason that newer and older parks make about the same amount of money is that in older parks your maintenance expenses are usually lower, there are fewer repos, higher occupancy levels, and less common areas and amenities to worry about.
Don't forget about the Trash! Converting from large dumpster pickup to individual receptacles in the way to go. At most parks that are currently on a centralized collection system (dumpsters), we will tend to go toward individual pickup in a short period of time. Not only is this more desirable for the residents, but it also helps to save all the problems with dumpsters. The biggest one that we have experienced is people overloading them with items that don't belong in them as well as being too lazy to actually get the trash into the dumpster. Also, with dumpsters it tends to be a place that both residents and non-residents like to drop off appliances and couches and tables.
Turning around a mobile home park can be a rewarding project but needs to be well laid out in advance with reasonable budgets and expectations. If the turnaround is management related, and you can solve the management problems, these are relatively easy. If the turnaround is market related and the issue is occupancy then strap yourself in and get ready for a bumpy ride. These can be done, but they take lots of time and money. And remember, taking the time upfront to plan out your chanages will have immediate returns.
|Dave Reynolds is a successful real estate investor that has specialized in the purchasing of Mobile Home and RV Parks for the past 12 years. He has the keen ability to quickly assess deals, cut through hype, measure upside vs. downside risk, and make sound decisions. He has owned and operated over 55 Mobile Home & RV parks over the past 12 years in 16 different states. He currently owns over $10,000,000 in mobile home park real estate.|
Dave Reynolds received a B.S. in Accounting from Mesa State College in Colorado in 1992 and attended graduate school majoring in Accounting and Taxation at Colorado State University in 1993-1994.
Frank Rolfe was born in Missouri, the "Show Me" state, and has been starting up businesses since high school. He has had two big successes: a billboard business that he sold to a public company in 1996, and a mobile home park business that he sold to various buyers beginning in 2004. He always has several start-ups in the hopper - currently an old time photography business, a web-based educational products business, an art school, and a return to the billboard business. Frank Rolfe holds a B.A. in Economics from Stanford University.
Dave Reynolds and Frank Rolfe have combined forces to bring the real estate market a better perspective on the multiple successes you can have with Mobile Home Parks. Together they have a combined experience of 20+ years and over $100,000,000 worth of deals under their belt.
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