Sometimes mobile home parks come with more than just land or mobile homes. So how do you value and work around these additional assets? In this week’s Mobile Home Park Mastery podcast, we’re starting a five-part series on the insider secrets to all those assets that mom & pop often convey with the park purchase, including homes, apartments, self-storage, commercial buildings and raw land. If you ever wondered what to do with the miscellaneous items that come with a mobile home park sometimes, this podcast series is for you.
Episode 24: Mom & Pop Houses Inside Mobile Home Parks Transcript
Land and mobile homes, those are typically the things you think of when you talk about making money with a mobile home park, but what do you do with the other things that often come with that acquisition? We're starting now a five-part series on the insider secrets on the other income-producing assets that you often find in mobile home parks. Trying to figure out what they are, how much they're worth, how do they work, and what you can do with them. The first one we're going to talk about is mom and pops old house.
It's very, very common in a mobile home park for you to inherit, along with that property, along with those mobile homes, some kind of housing structure. Often frame, sometimes brick, sometimes luxurious, this is the home that mom-and-pop lived in when they built, and operated the mobile home park. We have many of these homes in our inventory, very old homes from the 30s, to Brown newish homes from the 1980s. What they all share in common, is they're a little bit out of place.
Why did mom-and-pop desire to live in their mobile home park? Well, if you look back historically, mom-and-pop often used that mobile home park as a way to produce some income off the land that came with their home. Over time, the mobile home park became valuable, and ultimately worth more than their home, but when it was first built, the home probably outweighed the park as far as evaluation would be. Now, here's some thoughts, some insider secret thoughts we have on mom-and-pop's old house, the one that comes with the mobile home park.
Number one, rent it out, because if you can rent out mom-and-pop's old house, it will count as real income, because it's real property, and that will be applied to the cap rate on the park. mom-and-pop's old house, if it's income-producing, that's great rent. That is treated the same as your land rent on each mobile home. Renting it out is obviously a very good, and profitable idea. Now, some ideas on renting it out. Number one, you won't get much more rent than the mobile homes in your park, because again, it's in a mobile home park.
Even though that house two blocks over rents for $1000 a month, inside your mobile home park, it may only be like $500 a month, so don't think you're going to get the same kind of rent that you get elsewhere in the community. When you do your budgets, be sure and put a rent in that's maybe a little higher than your mobile homes that are for rent, but not that much higher. If your mobile homes are renting for $595, that stick built home might rent for $695, or if it's really nice, $795, but you're going to be appealing to the exact same clientele as in your property, and even though it's bigger, and even though it's a real stick built house, you will not get the kind of premium on it that you might expect.
Also, it's really hard to rent those houses sometimes, because you're not gonna be able to get anyone from outside of the park proper as a potential customer, only people who live in the park, or who have friends, or family in the park, are going to feel good enough, and enough at ease to live in that property. It's not a cakewalk to rent those. If the market for single families is very tight, that does not mean it will spill over into that mom-and-pop home in your park, so always be sure to adjust your budgets accordingly with a lower price, and even factor in perhaps a little bit of vacancy.
It sometimes helps you to use a residential broker, in fact, if you can, because here's how it plays out with a residential broker. They have all these homes on their docket to rent, and you will be among the cheapest, if not the cheapest. As they show, and talk to customers homes, and they find that the customer cannot afford the majority of the homes they have on their listings, which might be $1500 a month, $2000 a month, $1000 a month at the lowest, sometimes the default setting will be the home in your park, so you'll be able to obtain customers from them, and it's really a win-win.
These are people they had nothing suited for economically, and now you give them that opportunity. Now, another thing about mom-and-pop homes, are they typically have a lot of R&M issues, because mom-and-pop, here towards the end of their life, they just did not put much money in the home to keep it up. Also, as you know, a lot of times, a lot of the renovations that go on in homes are in between tenants, but in this case, there's nothing in between. It was mom-and-pop all the way from the day it was built, so they let a lot of things slide.
There was never that moment where they had to bring that home up to a better standard to rent it, because it had consistent occupancy throughout. As a result, it's not uncommon to find a great deal of deferred maintenance all hitting at one time. Foundation issues, roof issues, every kind of issue, so when you look at that mom-and-pop house during diligence, you need to figure out a budget to fix it. Sometimes it can be significant. I had a house once in Lake Worth, and my cost to bring it back into good working order was over $10,000. This was on a house that probably was only valued at $30,000.
It had everything in the world wrong with it, crazy stuff that mom-and-pop had done when they didn't know how to fix plumbing, or electricity that they did themselves, and that homestyle repair was not satisfactory in a modern, litigious world. Be sure that you build in enough fluff in order to make those repairs that you will have to do, because bear in mind, with mom-and-pop gone, and you out there trying to get a new resident in, you're going to have to provide something that's safe, and meets the habitability warranty of your state, so be sure and put in enough money into repairing that home.
Another great idea to do with a managers home in some cases, is to make that as the managers dwelling. Take that old mom-and-pop house, and bring it back to life as what it was originally designed for, and that is housing the person who's responsible for the property. Now, if you do that, what's going to happen of course, is you're no longer going to get that rent from the house, so make sure that you budget your park accordingly. If there's an old house right in the middle of the property, right by the mailboxes, completely just a natural spot for the manager, you maybe money ahead to put the manager in that house, and let them live there for free as part of their job, particularly if you're importing a manager in into a larger property.
That manager, based on the location of that dwelling, may enhance their management ability, and you may also get a much better manager, because they get that great housing option as part of their compensation package. We have a property in Muskogee, Oklahoma, and one of the biggest draws for the manager in that park, is if they manage, they get to live in this very, very nice executive style home. I'm talking a home with a giant bedroom, with a fireplace at one end, with a radio control that turns the fire on and off, and it even has a set, the movie, or the TV show, "Cheers," in the back that mom-and-pop built for entertaining.
It has a solid wood bar, with a brass rail, and even taps for the beer, and it also has a three car garage. That's an unbelievable quality of living for mobile home park managers, so sometimes that's an actual asset to the property. It gives you a better manager, who's also able to put in a little more effort, because they're really, really happy in their job. Now, sometimes however, despite everything I just told you, you are better off subdividing, and selling the home off. Why would that be? Well, sometimes you'll find that when you rent that home, given the clientele, given the rent level, given the cost of repair, it's more profitable to let somebody else get in the home business.
I'll give you a few examples. I had a park in North Richland Hills, Texas that had homes to the left, to the right of the entrance. One was mom-and-pop's original residence, the other I think was another family member's residence. They were much, much older than your typical mobile home park mom-and-pop home. These homes dated to probably the 1930s or 40s, and they were in very, very poor repair. I ran the numbers on it, and I found if I poured maybe $10,000 in each one, all I would get in rent out of them in a rental market, was about $400, or $500 a month, but then I also found that if I was to subdivide, and sell them, that pride of ownership was worth more to somebody than it was economically to rent it.
Now, why would that be? Many Americans really treasure their home, and they love that idea of being a homeowner, and they're willing to pay premium. Think of your own house, if you went to rent your house right now, and take out the actual cost of operation, what kind of cap rate would that be? For many people, it would be nearly 0, maybe a 2% cap rate, 3% cap rate, so a lot of people, when it comes to single-family homes, they're not in it for the money, they're in it for the lifestyle, they're in it for all the great benefits that come from being a homeowner.
As a result, sometimes you're better tapping into that feel, and subdividing, and selling the homes off. Now, when it comes to subdividing, and selling off homes, there's some insider secrets you need to know about that. Number one, cities don't always grant those subdivisions. I learned that the hard way with a park I had in Denton, Texas. Here, the middle of the park was a really, really nice two-story, brick farmhouse. This house was built at a time in which whoever owned the property was very affluent, and then I don't know how the mobile home park came to be, but over time, it was in the backyard effectively.
You had a situation, he had a grassy field, which was the front yard of the home, then you had the home, and then you had the park behind it. However, the entrance, and exit to the home, all came from the park. All the roads were shared with the mobile home park itself, so minding my own business with this brick home, which I'm renting out for not a lot of money, I get contacted by a member of the faculty at North Texas University, and they, this person is very, very interested in buying this brick, two-story home, because they've always wanted to have a historic home from that era, and it's near the campus.
I'm thinking, "Great, this will be a total score. I can sell this home to a really upscale faculty member of the college, he'll keep it up looking nice, and probably do even improvements to it, and I'll be much better off financially," because I was not making that much money renting it to for what I was renting it less repair. I went down to the city of Denton hoping I could subdivide it, and sell it, and I was denied being able to subdivide. The reason was, the home since it's set up inside the middle of the park, to subdivide, we'd have to come up with this very, very strange looking footprint to the land that would contain the home.
It would be basically almost like a needle, a very, very long, and narrow rectangle, and they did not feel their subdividing laws would support that, because that's simply not what they like to do. They like subdividing properties that have some kind of future purpose, and they like for them to look a certain way, like at least a rectangle, or square, not a needle, so they just would not let me pass it. I tried every which way to make it possible. I tried to see if they would subdivide me a triangle with more of the grass area from the front of the park with the home at the very point of that triangle, but again, to no avail, they would not allow me to subdivide.
On the flip side of that, was the home that I subdivided, and sold in Grapevine, Texas. Mom-and-pop, in this case, lived in a custom home that was just outside the entrance of the park, and a little to the left. Did not share any roads, or any utility connections with the park, and it was incredibly easy to subdivide. It made complete sense of the city, they weren't even sure why it had been z-barred together in the first place, because clearly it was a freestanding home.
Before you get into the process of subdividing it, you need to think about a few other insider secret issues. Number one, do you have the ability with mom-and-pop, whoever's carrying the lending, it could be a bank, to subdivide, and sell it off? You can't just do that without permission, whoever's got the loan on the property, who has that home as part of its collateral pool, it will have to release that, before you would be allowed to sell it, and additionally, they will have to sign all documents as far as the property being subdivided.
Don't even think about the process until you're ready to figure that out. If you have a home that you think perhaps it's better off to subdivide, and sell it, then to rent it, then you need to approach your lender on the front end, and tell them your plan, see if they support it, because they'll have to sign all the subdivision agreements, and secondly, if, when you sell it, they will release it from the collateral pool, which requires a release price.
It's very, very important that you get everyone's permission prior to doing that. Additionally, consider the fact that when you subdivide, and sell that home, you then have no control over who is going to be in it, or what they're going to do. When it's part of your park, and you rent it out, you can vet any renter to make sure they meet your minimum criminal, and credit standards.
It also falls under the park's rules, and regulations of what they can do with the property. When you sell it, you lose all those rights. The person you sell it to, he doesn't have to meet any of your rules, and regulations, and you have no control over who he might rent it to. He may do no vetting at all, criminal, or credit style, and you may end up with some kind of crazy hillbilly, with three pit bulls on a rope right in front of your mobile home park, so you definitely need to make sure, before you subdivide, and sell, that you have a plan to try, and control what goes on.
How do you do that? Well, you could put deed restrictions perhaps might be one option. Also, I would make sure that the home you're going to sell is in good order prior to selling it. If it's not, it will only attract a very low class buyer, and that's where most of your problems will come in. Again, this is Frank Rolfe of Mobile Home Park Mastery starting our five-part series on insider secrets on other income-producing assets inside mobile home parks, glad you're here, talk to you again soon.