The definition of "case study" is "analysis of a particular case to illustrate a thesis or principle". In that spirit we offer this case study of a mobile home park in the Midwest in which around $3 million of value was created over a seven-year hold. We’re going to show you the exact steps, what they yielded, and the lessons learned. If you have been considering a mobile home park investment, this video answers many questions on the potential of these type of income-producing assets.
For comprehensive insights into identifying, evaluating, negotiating, performing due diligence on, financing, turning around, and operating mobile home parks, attend our Mobile Home Park Investors’ Boot Camp. This three-day live immersion weekend includes continuous Q&A, providing tools for professional investment, such as a nearly complete list of the 44,000 U.S. mobile home parks, a reference library of essential contracts and forms, Park Evaluator software, and personalized deal reviews. Hosted by Frank Rolfe, co-owner of over 20,000 lots across 28 states, the boot camp draws from extensive experience, earning Frank the title of “the human encyclopedia of all things mobile home park” by The New York Times.
MHP Case Study With All The Details - Transcript
This is Frank Rolfe. You know, to us there's nothing more illuminating to how Mobile Home Park should function than to look at case studies, both parts that have done well, parts have done poorly, parts who have performed just exactly as you originally anticipated.
The best way to learn how parts function is simply to look at those real life examples and learn the takeaway. So I wanna give you this case study, it's a Mobile Home Park in the Midwest. Yes. One of those flyover states. And here are some stats on the market itself, metro population 967,000 people, so it's a very, very large population. Single-family home price $252,100. So again, a high single family home price for most markets. Three-bedroom apartment rent, $1530 a month, and the two-bedroom apartment read $1140 a month. And what that means is the housing is relatively high for most midwestern markets. So we know this is a good market as far as its statistics.
Now some facts about this park. It has around any lots, it's on city water and city sewer. It has paved streets, and the gas and electric is direct bill, so we'd avoid many of the roadblocks that often frightened buyers, such as private water, private sewer, master meter, gas and electric. This park has none of those issues. This park is a very, very clean and simple park. We bought this park in 2017 for around $4.1 million, and when we bought it, it was already 100% occupied with a lot rent per month, and the park paying all water, sewer and trash.
So what was the turnaround plan? Well, the turnaround plan was simply two items, number one, to raise rents to market, and you know I mentioned a moment ago, the two-bedroom apartment rent is about $1140 a month. And there's a general rule in our industry that Mobile Home Park lot rent should be at least half of two bedroom apartment rent, so that would mean that the lot rent should be more about $570 or roughly about $200 more than what mom and pop were charging. Now why would they be so low? We see this all the time in our industry, moms and pops don't keep track of anyone's rents and they often don't raise them in line with inflation, so that really isn't that shocking.
The other part of it is to have the residents pay their own utilities. Why would we do that? Because they need to be responsible for their own utilities. Throughout single-family, duplex, apartments, everyone today pays their own utilities. And it's a conservation item among others. Typically, when you pay your own utilities, you use 30% less. So then you might say, what happened with this deal? What happened now? Well, we just recently had it appraised, and here's our current stats, we're still 100% occupied, we started off that way, but the lot rate is now to $643 a month with the tenants paying their own water, sewer and trash.
And as a result it appraised at around $7.2 million, which means in only seven years, we created about $3 million in profit. Now, what are the lessons learned? Well, number one, Mobile Home Park lot rents are ridiculously low, it could be raised substantially and still be the lowest thing in the market, where the Dollar Tree of housing, so as Dollar Tree recently went from $1 to $1.25, our rents can still go up and we're still a great bargain. Also, residents need to pay their own utilities, because clearly it's the only way you can be accountable for what you use. And not all turnarounds are based on increasing occupancy and to us, that's great.
The bottom line is, mobile home parks are the best contrarian option in US investing. And for more information on how to correctly identify, evaluate, negotiate, perform due diligence on, renegotiate finance and turn around mobile home parks, please attend our Mobile Home Park investor's bootcamp on July 19th to 22nd. This is Frank Rolfe with mhu.com. I hope you found this case study informative and talk to you again soon.