Case Study: Infill City MHP
We can’t stress enough the importance of strong markets in mobile home park investing. This lesson becomes especially apparent during recessions.
It’s true that clean, well-located, well-run mobile home parks are recession resistant. But a 1-star junker in a random southern Illinois town with a 100% park owned homes and remote ownership is a ticking time bomb heading into a recession. And that’s just trying to keep the wheels on. You can forget trying to infill one of these.
The demand for affordable housing in such markets might still be strong, but the tenants just can’t afford a new home + lot rent. If bad things are happening in their life, bad things are probably going to happen to your homes ($$$ repairs).
In soft markets, rehabbing park owned homes to backfill bleeding occupancy is a wet noodle pushing contest. A lot of effort, few results.
It’s so much easier to infill in markets with tailwinds.
Market Selection
Now, relative to apartments, mobile home parks have a much wider strike zone vs. what an apartment investor might call a great market. This concept deserves it’s own post.
However, some markets are just obvious. Big population growth, above average incomes, companies building new manufacturing plants, airport expansions, etc. Ever year it seems more and more of these markets are in NC, SC, GA, FL. The center of gravity for outsized mobile home park profits is slowly shifting Southeast.
Here is a quick case study on one of our Southeast mobile home park turnarounds.
Hot Market Case Study
Quick Park Overview
~100 pads
Public utilities
12 dilapidated & vacant homes and 15 vacant lots
Pocket listing, not widely marketed
Poor infrastructure and zero maintenance of common grounds
After acquiring the property we tore the out dozen homes, sealed all open pipes, buried exposed cable and electrical lines, improved park drainage (french drain installs), tore down dead trees and resurfaced the roads.
These steps immediately improved the park appearance and reduced our liability (removed hazards).
We posted several adds on both Craigslist & Facebook Marketplace and offered free lot rent incentives to existing tenants that referred any new tenants.
We then ordered our first batch of 4 new, $50K, Clayton home single wides (using 21st Mortgage’s CASH program). Thankfully, we didn’t order all 25+ homes at once though.
Within three months of ownership, we had a few used mobile homes move into the park - straight inbound leads! This was highly unusual for us. Fast forward six months and another 3 homes had moved in. Infill was taking care of itself. About half of the leads were coming from Facebook, the other half seemed to be word of mouth.
While we prefer the look of new mobile homes to upgrade a park’s overall appearance, having 20-30 year old homes in solid condition without having to front a dime of capital (or deal with the painful new home sales process), was too good to pass up. We quickly cancelled our second batch order for new homes.
Basically we were adding $100K+ in equity to the park every month or so without having to lift a finger; every park owners dream.
Over time we also incrementally raised lot rent ~40% (over three years). We received zero move outs or complaints over these increases because the tenants could see and feel the improvements to the park vs. prior ownership.
RESULT: In three years we increased the value of the park by several million (5X+ equity multiple on our invested capital).
This is not par for the course in mobile home park investing (especially today), but it’s fun when it happens.
Lessons Learned
Facebook marketplace ads in above average markets work like a charm. We were the only park advertising on facebook in the area.
Existing tenant referral incentives can be powerful. Mobile home move ins are so valuable you can afford to be overly generous with referral rewards.
Visible park improvements made prior to lot rent increases help smooth over tenant relations during ownership transitions.
Collection issues and rules violations were few and far between. Tenants knew they had a great deal & weren’t willing to risk eviction. Parks in great markets don’t need superhero property managers.
Happy Trails,
MHP Weekly