At the end of the day, the only thing that matters with income properties is just that: money. So that being the case, we prepared the above video to demonstrate the methods and potential of a mobile home park we own in the Midwest.
The average mobile home park deal is a very simple business model. You are normally bringing old, mis-managed communities back to life by making needed infrastructure and aesthetic improvements and bringing in professional management, and then increasing the net income and value of the property by 1) filling vacant lots 2) increasing rents to appropriate market levels 3) sub-metering water/sewer usage to foster conservation and 4) cutting excessive costs where possible.
In this case study we show the approximate numbers and impact of these steps in bringing old mobile home parks back to life – both financially and spiritually. It’s a win/win relationship where both owners and residents prosper.
For more information on the science of how to successfully identify, evaluate, negotiate, perform due diligence on, re-negotiate, perform due diligence on, finance, turn-around and operate mobile home parks then consider attending our Mobile Home Park Investors’ Boot Camp. It’s a three-day immersion weekend that is completely live and featuring continual Q&A throughout.
You will also come away with the tools you need to professionally invest in mobile home parks – such as the one shown in this case study – which includes:
- The nearly complete list of all the 44,000 mobile home parks in the U.S.
- The reference library of just about every contract and form you should ever need.
- The Park Evaluator software that allows you to calculate and graph your rates of return.
- Quick Deal Reviews where we give you our personal opinion of your deal and how to make it better.
The event is hosted by Frank Rolfe who, with his partner Dave Reynolds, is the 5th largest owner of mobile home parks in the U.S. with over 20,000 lots in roughly 28 states. But he started with just one mobile home park in Dallas, and the portfolio has been organically grown from hundreds of parks – and case studies – such as the one features in the video. That’s why the New York Times calls Frank “the human encyclopedia of all things mobile home park”.
Case Study: Midwestern Mobile Home Park - Transcript
People ask me all the time, "What would be the ideal first park to buy?" And for many people, this would be it. This is Frank Rolfe. Want to go over one of the properties we currently own and operate in the Midwest, tell you why we think it's an ideal type of part for you to buy, what the key lessons learned are if you're trying to buy just the right first mobile home park.
This property has 106 lots. It also has a little apartment building and even a stick-built home that used to be mom and pop's original dwelling. But we're only going to focus on the lot portion because many properties don't have additional stick-built. So let's just stick with the main purpose of mobile home park ownership. So, when we bought the property, we had a few things going in that we knew that we liked. First, the market itself. It's a town of 20,000 people, but inside a metro of 2.8 million and the town has very strong housing stats. Median home price, $141,490. Much higher than the $100,000 home price we typically seek. Three bedroom apartment rent of $1,218 a month, which is again, higher than the $1,000 a month we're typically looking for. Vacant housing rate of 10.7% versus U.S. average of 12.2, which again, we're just trying to hit the average or better if we can.
So we knew the market's good. We liked the way the market's constructed. It's a very diversified employment with a whole lot of healthcare, education and government jobs. So the market was good, but then what about the park itself? What makes this park stand out from the pack as far as stability, and being something that's attractive to invest in? Well first off, the park has really, really good infrastructure. Mom and pop built this park by hand, but they did all the right things. They put in pave streets, paved parking pads, kind of a nice curving street feature that makes it feel a little bit like a subdivision.
It's got some typography, but it's all very well done. It's got a little office building that goes with it. So all in all, even though it was a one-off custom creation, it looks like it was done by a top architectural designer. So the design, the infrastructure is very, very good. Another thing we like about the park is that it doesn't have a lot of park-owned homes. From the beginning, almost all of the homes in here are owned by the residents. And that means we don't have a lot of worries and CapEx cost regarding a lot of park-owned homes. So that was also very attractive to us. But one of the key features of this property, and the one that would make it a perfect ideal first park for somebody, was the fact that he had has stabilized with upside economic potential. And what do I mean by that?
Well this property, when we bought it, it was 90% occupied. So it already met the stabilization rate of 80% or better, at a lot rate of $240 a month. So the NOI at purchase was about $164,000 a year, which based on what we paid works out to about an 8.2% cap rate. That meant it was easy to get a loan on, always liquid, not really taking a big risk, not sticking our neck out on a property that needs a whole lot of work before it even would be bankable. But we knew from the onset, there was a huge amount of potential in three categories. One, making the residents pay their own water and sewer. Number two, increasing the occupancy because even though it was in a great location, we were only at 90%. And then number three, raising a lot rent. We didn't know how high we could raise it at the time. When we bought the property, the prevailing lot rents were about $360, $380. But today we've gone from $240 a month all the way up to $440 a month.
So what has that done to our NOI? Well, let's look at that for a moment. When we bought it, the NOI was around $164,000. Today, the NOI is about $377,000. So we have increased the NOI by about $213,000 a year. We put this into perspective for you. If you had gone ahead and bought this property just based on it having enough cashflow just to cover the mortgage, today you'd be able to put about $213,000 a year in your pocket. And if you look at the value of that additional NOI, at the cap rate we paid for it in the first place, then we've increased the value of this property by about $2.6 million. And we still own it. And we're still raising rent. And we're still going to fill some more lots. So what are the lessons learned in this kind of property? What are you looking for really when you're trying to get a really, really good first buy investment grade property?
Well, to me, it would have to have three components. Number one, a strong market, because at the end of the day, this is real estate. Location, location, location. You want to be in a place where your phone rings off the hook. Number two, good infrastructure, paved roads, paved parking pads, large yards, just a well engineered feel to the property. And this property has really good infrastructure. And then finally, stabilized with upside. The property is already stabilized at purchase. I can get a loan on it. It's liquid. I could have resold it again if we wanted to. But beyond that, it still has a lot of upside in the NOI.
In this case, all the upside was really the majority was in rent increases and then to some degree in occupancy boost. And then of course that one-time shot in the arm of moving the water, sewer, and in this property even the trash, the responsibility for those bills over to the residents. When you have a park that's stabilized with upside, you've really, really lowered your risk on the front end, yet you still have a huge reward on the back end. This is Frank Rolfe. Just thought you'd enjoy this little case study of our park in the Midwest. And we'll talk to you again soon.