I work for a GP doing value-add in traditional MF, industrial, and (formerly) office assets in non-primary markets. Our value-add strategy is pretty standard: capital improvements & mark to market.
I'm curious about a MHP deal since it might be worth breaking into a different niche in the MF space. But I have no idea how to value or scrutinize the deal/product given our lack of experience in this realm.
Can I please get some guidance on how I should be looking at a MHP deal? Some specific questions:
- How does the "leasing" of a MHP differ from that of traditional MF? How are the tenants once they've leased - are they generally very sticky? Do they have a higher rate of delinquency?
- How does OpEx differ? I assume they are minimal across R&M, regular services, property management fees, and even taxes & insurance? Is there a category that's larger than a typical MF property's?
- How capital intensive are they? What are the biggest improvements that would need to be made for a "value-add" MHP? Is a tenant leaving their mobile home behind (say in the case of a death) a large burden (financially or legally) to the MHP owner?
- Has institutional capital made all vintages/classes of MHP's oversaturated? What is the trend of hype around this product type?
- What are some impactful nuances unique to MHP's? For example, are rent-to-own mobile homes a thing? Or perhaps buying a tenant's mobile home and reselling it?
- What are some general potential legal hurdles you've seen with MHP's? Are delinquent tenants any easier/harder to evict? Once you're able to evict the tenant, do you "reposses" their owned mobile home, or is it still their property and they get to keep it but now you're responsible for hauling it away?
- What is lender appetite currently for MHP's (sub-$10mm)? Is it underwritten similarly to traditional MF?
- Any other noteworthy considerations?
Thanks in advance.
Google has a lot of this. But quick answer - it’s an operationally intense business with lower cap rates the multi family and stickier tenants in tenant owned home communities. Stable cash flow. Park owned homes are tough with lots of regulation of selling them to tenants but many do so, successfully.
Tenants own their home and lease the land that you own. Unlike MF, tenants have skin in the game and have a much longer length of stay. At institutional-quality MHPs, average length of stay is generally 10+ years.
Categories are the same, R&M, Utilities, PM, Payroll, Taxes, Insurance, Administrative. Where you'll see a lot of variation is where R&M is spent. You may not have any structures or amenities to maintain, which leaves underground infrastructure, roads and landscaping as the areas that require ongoing maintenance.
Think about it as curb appeal. You can improve an MHP through 1) home improvements, 2) beautification and 3) construction of amenities. 1) Nicer homes make it more attractive for prospective tenants. This can be done by providing a credit to residents for home improvements (e.g. new paint, siding, etc.), or by purchasing older units, pulling them out, buying a nicer unit and selling that to a new tenant. 2) Beautification - improve your roads, landscaping, just the general look and feel. 3) Amenities - think this one is self explanatory.
Disposing of an MH can be expensive, but if you focus on buying parks that have good home equity, you're far less likely to receive any homes given they have value.
Not exactly sure what you're asking here. Institutional capital has increased quite dramatically in this space, but for good reason. Fundamentals are about as strong as any CRE sector. While MF rents are slow or declining in many markets, MH market rents continue to increase 5% - 10%+ in core MH markets. Occupancy at an all-time high, still difficult to build new parks (unless you're in TX), housing affordability is increasing generating strong tailwinds for this sector, etc.
Cap rates haven't moved much at the institutional level post-rate hikes, though there haven't been very many trades.
Some operators pursue a rental strategy, but few institutional players do this by choice. Many homes you'll own are decades old and require constant repair. Delinquency is an issue as well.
As far as buying and reselling, you're unlikely to make any money doing this. The point of this strategy would be to improve home quality -> tenant quality in your community, allowing you to push rent more aggressively.
Yes, if you evict you take possession of the home. Nuances are very state specific though.
Rent control exists in several locations across the US. Need to understand that dynamic as well.
At that level you're likely looking at regional or local lenders. Think that's too small for agency debt. Feel free to DM me with more questions.
I should also add - insurance is tricky. Premiums have skyrocketed, especially in coastal locations. Saw 4x in FL. More importantly though, how you fare in the event of something catastrophic differs greatly compared to MF.
If a storm whips through and destroys all of your homes, you’re in big trouble. Business interruption exists but generally taps out at a year or so of income despite the re-lease period being measured in years. The cost of this coverage largely isn’t worth it given where premiums have gone. And since you don’t own much in the way of physical assets (most of what you own is leases), property coverage pays out quite little. You’re in effect self insuring more than you realize given no insurance product exists in the market that will make you whole in this event.
Fascinating comment, I never knew the details of how these operated. I grew up in a Texan single family neighborhood with a ton of MH / trailer park parks nearby. Went to school with a lot of kids who lived in MHs / trailers. I know many of them would have been on the street if not for the abundance of trailer parks in Texas. Really interesting stuff.
I will try to answer this based on the way you laid out your questions.
I'm going to leave my comments here. You need to go do some of your own research. There's plenty of reading material out there and based on your questions you've done zero leg work. Go do some work and then come back here and ask very specific questions.
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