One of the big attractions to owning mobile home parks is their very passive nature. You rent land and you collect rent. There’s no toilets to fix and no units to show. But even with a simple business model, complications grow as your holdings do, and many owners prefer to keep their involvement in day-to-day activities at a minimum. So how can you keep your mobile home park investing passive even as your holdings grow in size?
Hiring a third-party management company
One option is to hire a third-party management company, such as M. Shapiro. These groups typically hire, supervise and fire the on-site manager, as well as provide full accounting of revenue and costs and production of income statements. They are not inexpensive, with guaranteed minimum fees of 5% vs. around $1,500 per month for their services, but to keep this in perspective you have to compare this cost with the standard rate of hiring a stand-alone person to do the same thing plus the cost of producing your accounting. One shortcoming of third-party management companies, based on what I hear from owners who utilize this service, is their inherent difficulties in “customizing” what their role is. Standardization is the rule for most of these groups, so they can often run into difficulty in selling off park-owned homes or filling vacant lots. These roles require extreme customization and constant analytics of bids, costs, contractor management, advertising, sales – which does not fit cleanly into a standard management program.
Hiring a manager to supervise your managers
Another option as you grow is to simply hire a person to “manage your managers” – essentially act in the same capacity that you have been, in order to free up your time to do other things. This person typically has a background in multi-family, and knows the difference between high and low priority items, has good supervisor and people skills, and makes smart decisions based on facts. In the business org chart, you would be at the top, then this person, and then the managers of each of your mobile home parks. You would no longer be the point of contact for your on-site staff, and would only talk to the “manager of managers” on perhaps a weekly basis to go over all that’s been accomplished that week. For this to work, you have to find the right person since you are delegating so much responsibility, and keep constant tabs on their performance by always glancing at the key gauges of rent collection, property condition and budget/actual/difference. But this can be one of the best steps you can possibly make. Even if you simply want to focus 100% of your time on finding more parks to buy, there is no greater feeling of freedom than not being accessible to the folks in the field at all times – as long as it’s being competently handled.
Being a capital partner
Another option for those who are seeking putting money at work while maintaining a passive role is to be the capital partner in a mobile home park. There are many people who want to grow their holdings but have exhausted their personal capital and are now looking for investors. While this can be very profitable, there are many issues you have to watch out for including:
- The track record of the person you will be investing with. It’s imperative that they have a strong affinity to properly buying and managing mobile home parks.
- The details of the park you will be buying. There are some things that a good operator can fix and others that they can’t (like a bad location or too high density).
- How the preference of profits will be distributed (typically first to your capital, then to your preferred return and finally to the profit splits).
- A mechanism to get out of the partnership if it sours (often a buy/sell agreement).
There are several methods to grow your mobile home park investing while remaining in a passive role. As always, you need to use good judgement and let past experience be your guide, but the opportunities abound for the role of deploying capital while remaining in a passive capacity.