Lot-Rent Expenses: Things To Consider

In the MHP industry, we don’t underwrite POH expenses. That’s because there’s no income being capitalized on from them. Lot-rent expenses are the only ones underwritten. Never forget Rule 101 in MHP investing: don’t capitalize POH revenue or expenses. You have to be able to remove these from a seller’s PNLs.

That’s because from value’s perspective, you have to exclude them. As Glenn points out, “like with property tax. You don’t put in the property tax on a park owned home, you only do the property tax on the land.” Another example is in insurance; you only include liability and weather damage insurance.

Insurance Expenses In MHPs

In short, you have to exclude any channel in the personal property tax and use only the real estate property tax. Something else to note is owners are often are under insured. This forces you to have to adjust to the market and relevant environmental factors. Be sure to exclude insurance for the park owned homes as an expense.

Typical insurance rates are around $50-$100 per year, per lot. Factors can vary based on risks, locations, and more. The majority of the deals that aren’t in a flood or hurricane zones are on the cheaper side. Still, most homes aren’t fully insured, and that’s a big risk.

Repair & Maintenance Expenses

When it comes to repairs and maintenance for lot-rent expenses, you only underwrite things related to the park. Most well underwritten deals will likely run somewhere between $150 and $200 per lot per year in this way.

Glenn also speaks to “repairs and maintenance in park owned home communities. You’ve got to extract all that” from your expenses. This same goes for landscaping. This can vary by region and environment. If not you can underwrite to a full service landscape service. “You’ll typically use $10-$12 per lot for full service mowing. Or if the tenants mow their own lot, you might drop it to $5-$7.” Glenn notes that’s the MHP’s chosen method.

Dealing With Snow and Ice

Like with maintenance and landscaping, this category is mostly dictated by environmental factors. If you’re located in the north, you may need year round snow insurance. But in the South, year round snow insurance may not be as large of a priority. Likewise, some regions may require insurance for flooding and water damage. Keep an eye on your locale’s attributes to know what full coverage takes.

Glenn admits that utilities are often “all over the place.” They can take a great deal of attention to understand. For example, there are several possible scenarios for water utilities. This could be rent, billed directly to the tenant, or billed back from the landlord to the tenant. You also have to consider the difference between private utilities and public utilities. Even private ones can incur expenses, like testing, and more.

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