The world of real estate investing is vast, and its challenges are legion. If you’re new to mobile home park investing in particular, it can be lot to take in. While there are some scattered resources out there to help you wrap your head around mobile home park investing, we’ve tried to save you time by compiling a brief summary here.
We’ve created a questionnaire for first-time mobile home park investors that takes you all the way from forming an investment strategy to closing a deal. As you’re working through this list, check out the steps and our suggested tips and points of interest for each one.
Set Your Goals
- What is your budget? Consider how much you can realistically afford and set a financial threshold.
- What is your risk tolerance? In theory, more mobile home units per park equates to lower risk, as your assets are spread out.
- What is your ideal appreciation? Are you looking for a higher cash flow? Or building equity over the long-term?
- What is your ideal cap rate? Estimate the ideal rate of return on your property investment by dividing your yearly net operating income by the purchase property. The higher the cap rate, the “better the investment”, right? Not exactly, often the higher the CAP rate means more risk exposure and more headaches. For the first time buyer, Glenn recommends a simpler deal in a stronger market. Often that does mean a lower return initially, but you should be able to achieve a higher return with proper planning and guidance from your MHP advisor.
Find the Right Location and the Right Property
- What is the lot size? How many units? The number of units factors heavily into your risk and cap rate over time.
- What is the neighborhood like? Who lives there? Ideally, you are investing in a community, not just a collection of homes!
- How far is the park from schools, hospitals, public transportation, or highways? Where is the nearest Wal-Mart? Sounds odd but it is an important factor for many buyers. These are imperative for a quality of life. Close proximity to these fundamentals can ensure more stable, long-term tenancy.
Understand the State of the Market
- Where is the market? Recession, Recovery, Expansion, or Hypersupply? (It’s important to note that mobile home demand and occupancy hasn’t flagged over the decades, even as mobile home park construction has.)
- Talk to a mobile home park broker who can provide more insight into the current market.
Consider the Investment Potential of Your Mobile Home Park
- What is the price-to-rent ratio? Will you be able to rent the property at a price that can cover the cost and expenses over an acceptable period of time?
- What is the appreciation potential? How much growth can you realistically expect over time?
- How much positive cash flow? Determine the consistent park revenue you can you realistically expect after operating expenses. One of the primary reasons for investing in mobile home parks is the relatively low purchase costs and low maintenance costs.
Evaluate Your Property & Perform Financial and Physical Due Diligence
- How are the mobile home lots constructed? Assess the below ground elements of the lots. Replacing the lots infrastructure can be one of the most expensive undertakings, so be certain in the quality of the infrastructure.
- What is the state of the water, electricity, and sewage? Are these compliant with quality standards, or will these need to be addressed?
- How is the park managed? The overall state of the park is a good indicator of the community experience and can point to potential maintenance costs in the future.
- How do the finances of the park look? Review the park’s P&Ls, bank statements, tax returns, rent-rolls, utility bills, and any other financial information you can get your hands on.
- Note: Some mobile home brokers offer advisory services to guide your evaluation and investment.
Make an Offer and Close!
- Work out your financing options. Will you be paying all cash? Seller financing? Bank loan?
- Make an offer and negotiate terms with the seller.
- Fill out all pertinent paperwork to secure the deal.
Learn How Glenn Esterson Can Guide You Through Your Mobile Home Park Investment
Mobile home park investing is steeped in complexities involving many steps, but that doesn’t mean MHP investments aren’t right for first-time investors — in fact, the exact opposite. With the help of resources like ours and partnership with a mobile home broker, your first mobile home park investment can be a hassle-free and highly profitable endeavor.
If you’re interested in purchasing a mobile home park, Glenn Esterson provides the expert guidance and partnership you need to make these complex processes feel simple. Whether you’re testing the market or ready to buy, our advisory and brokerage services will help you maximize profits.