MHP expense ratios are pretty simple to understand. It refers to how much of your revenues are being used for expense, and what that process looks like. The optimal number comes after the park is fully maximized, meaning no more vacancies, you’re at market rents, and you’ve made all your expenses as efficient as possible.
In short, you’re pretty much at the mailbox money stage. From this level, the ideal expense ratio in non-rent controlled states, as well as in states with lower tax rates, is gonna be about 30%. This is after removing the water and sewer revenue and expenses. Anywhere above or below this figure, from a long term standpoint, means you’re either underfunding some part of the park, or charging too much for rent.
The Impact of Rent Control
That said, in some markets, I have personally seen, with perfect, 25% expense ratios by owners who manage their parks well. This isn’t the norm by any stretch of the imagination. Rather, it’s a rarity to be that far below 30% and still be optimal.
If you’re in a state like NY, your taxes are through the roof, and there’s rent control. Oftentimes, two to three months of revenue is put towards taxes. You may also be stymied by being below market rent (because of rent control), and thus unable to catch market rent. This will throw your ratios off.
Finding The Right MHP Expense Ratios
In this case, you may be aiming for more in the 40-45% optimal expense ratio range. In almost all situations, you will either fall between 30-45% in increments of 5 percentage points. As stated above, it depends on the market you’re in.
In truth, there is no perfect number. As brokers, when we are underwriting with a maximized PNL, we look for that sweet spot of 30%. As stated, this excludes water and sewer revenues and expenses.
Talk With The MHP Expert Today
Ultimately, the goal is to make sure you have more revenues than your expenses. Try getting that down as far as you can without compromising your revenue shares. Need more help navigating this, and other aspects of the industry?
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