Double or Nothing Numbers

A well managed, nicely maintained manufactured home community can be marketed to the general public as a superior alternative to rental apartments. To the degree that a MHP can position itself as a desirable place to live, its target audience can be expanded beyond the niche it may currently serve. The key is capitalizing on its advantages:
• Less density- more open space, with front, back, and/or side yards.
• More living space- large SWs and almost all DWs are 1000+ sq ft, which is larger than most apartments.
• More privacy- with no shared walls and no one living above or below.
• A controlled environment- to the extent that community guidelines can regulate resident behavior and outsider access can be restricted (protecting its streets, homes, and children).

As we search for additional acquisitions, one of the criteria we look at when assessing potential turnaround properties is how much it cost to bring in homes (partly a function the local repo market and county regulations) and how much apartments rent for in the area. Ideally, the total monthly payment (note + lot fee) should not be greater than comparable apartments. Then MHPs can be a real bargain for potential residents, they get more (a better lifestyle) without paying more.

Using a financial calculator:
PMT = apt rent - lot fee
I = 13%
N = 180 for DW and 120 for SW
Solve for PV, which is the max retail price (absent a large down payment)

In Madison, comparable apartments rent for $600-650/mo. We established a lot fee of $200/mo. So, that leaves $400-450 for the note payment, which means our calculated target price range for homes is $32-36k. Note: PV is actually the max loan amount, but our typical down payment is offset by sales tax, so it does not factor in.

Using this method, the retail price of the home is determined by local market factors. Ultimately, location determines worth. Even though MHP residents don’t own the ground their home sits on, generally, a MH located in a park in Los Angeles will cost more than the exact same home in a park in Topeka.

MHPs can have multiple profit centers, and one of them is determined by the differential between sales price and home cost. Finding, buying, setting up, and selling MHs is time and capital intensive. When evaluating potential MHP acquisitions where it is necessary to import homes, make sure the numbers work so that it is a profitable activity.

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