Posted by Joe C. (AR) on March 25, 2005 at 14:14:29:
When you talk about the “big players” there is another aspect to consider. There is a considerable amount of depreciation to be gained from a MHP. You can depreciate the utility piping, the roads, any common buildings etc. These folks are investing to offset other taxable income. They are buying a “depreciable asset” that will pay for itself, defer tax liability, and appreciate over time. They are not interested in MHP’s per se. It’s a numbers game for them.
The Real Estate Investment Trusts (REITS) commonly buy MHP’s (over 100 spaces). When the stock market tanked a few years ago, MHP’s were a good alternative to generate the 8-10% returns they were looking for. The problem is that they drove the prices up on these parks because thier return requirement was so low. This was good if you had a park to sell but hurt other buyers who were looking for a higher return. Apartment complexes and shopping centers, in some cases, were also affected. As the Stock market works back up, many of these properties will be for sale again and I assume “real REI’s” will drive the prices back down or these properties will sit on the market indefinately.
Just my .02
Joe C. (AR)
How to make money on Parks? - Posted by Bill Taylor
Posted by Bill Taylor on March 24, 2005 at 16:05:33:
Seems like all you see is what I consider low cp rates for your returns on your investments in these parks. Can someone tell me the true secrets of this business. I don;t think making 8-10% on my moeny makes it worth the risk to get into this investment.
Re: How to make money on Parks? - Posted by Joe C. (AR)
Posted by Joe C. (AR) on March 24, 2005 at 23:40:50:
You’re right Bill, 8-10% cap isn’t enough to make a MHP investment appealing unless you just have nothing better as an alternative. You need to understand cap rates and the unique attributes of MHP’s as an investment, and how those attributes can be manipulated to produce a higher cap rate after purchase. It’s all about increasing income and reducing expenses.
Like all other RE investments you can increase the rent. With apts., you run a high risk of losing tenants. Mobile home “owners” are not usually very transient.
When evaluating a park for purchase, you should be looking at actual income and actual expenses. If you are looking at a park with a 15%+ vacancy rate, there can be a lot of money in bringing in homes and selling them Lonnie style. This gives you higher income with limited extra investment. Result = higher cap rate.
Another strategy is reducing expenses. The major expenses in a MHP are utilities. I bought a park with master water and gas meters. Over two years I sub- metered the water and gas and started billing the tenants for usage. This alone reduced expenses in this small (under 50 space) park by $16K year. That improved my 14 cap park to a 30 cap or to look at it another way it increased the value of my park by $160k using a 10% cap as my analysis target. Total cost for meters under $10k, payback 6-7 months.
My favorites are the almost empty rundown parks. We are looking at a 29 space park with only 7 tenants. It’s a negative cap right now at $80k. But we can do rent increases, meters and Lonnies and within 2 years have it 90%+ occupied giving us a 60+ cap.
It’s all about manipulating the variables.
Joe C. (AR)
Re: How to make money on Parks? - Posted by BILL TAYLOR
Posted by BILL TAYLOR on March 25, 2005 at 13:43:26:
Thanks for the input, I was wondering who might be interested in such low returns on the investment. I would think if you know that going in you are not going in. I had some realtor on a 131 space park try to talk to me like I was some idiot. There was no way this park would support itself and he was telling me the players want these large parks all day long. The park was about 35% unoccupied and he wanted a price like it had no vacancy. He said the players were shying away right now because they wanted to see occ rates higher. I suppose the players are interested in one thing, MAKING MONEY!