A Case Study On Making Money With Rural Mobile Home Parks

First, you have the urban core, then suburban markets encircling that core, and then finally, the exurban markets that are the next layer out. Once considered “rural” by investors, these markets are making a stunning comeback as Americans flee urban markets in search of lower home prices, reduced crime, and good public schools. In this case study, we follow the outcome of the turnaround on two exurban mobile home parks and show the actual numbers on financial performance – as well as what contributed to those profits.

A Case Study On Making Money With Rural Mobile Home Parks - Transcript

This is Frank Rolfe. This is a case study of two mobile home parks we own in exurban markets in Texas. They're not both in the same town. They're in different towns. They were bought as one deal. And exurban parks are becoming much more popular now because with the advent of COVID in 2020 and the increase in crime. You have the urban core of a city and then you have the suburban, which is the next group of towns or cities outside of the metro and then you have the exurban markets which are beyond the suburban. And we have many more people today who are pressing farther out in search of lesser crime and better schools and more privacy and lower housing costs. So you can do quite well as you'll see even with these exurban styled parks.

At purchase it was two different mobile home parks which the sum of both of them combined is 100 lots, 73 of those lots were occupied at time of purchase. The lot rent then was $225 per month and that included all utilities. And if you're saying, gosh that seems insanely cheap, yes it is. As you'll see in a minute, that was a ridiculously low number, but that's what mom and pop had elected to choose as their rent, despite the fact that the average home in the market is nearly $300,000 and the average apartment is over $1300 a month.

We paid for both properties combined $878,000. But that's great and all, but how do you then make money with these two exurban properties? Well, our first mission was to fill 21 vacant lots with homes. So we went out and we bought new and used homes and we brought them into those vacant lots and we rehabbed them if they were used and didn't have to if they were new. We ran ads and we answered the phone and we showed homes and we ultimately sold the homes with the financing being carried from such groups as the CA$H Program from 21st Mortgage, Performance Equity Partners, also known as PEP, Zippy, or Triad. And here's how much value was created. By filling those 21 vacant lots, we picked up a $429 a month lot rent, which is the new and current lot rent, and then times 12 for 12 months of the year, times 0.7 because these parks have a 30% expense ratio, which we'll get to in a moment, and we value that stream of income at a 7% cap rate and we end up with over a million dollars of value creation. But we're still not done. There's still more we can do to make these properties work better.

So then we raise the rent annually by about $40 or $50, which is more than a reasonable amount. And we raised the rent from $225 a month to $429 per month. And in so doing, we increased the lot rent by a total of $204 per month. And even at $429 per month, we're still insanely cheap, the average home being $300,000 and the average apartment $1300 a month. But we raised the rent up some to make it closer to market and in so doing we ended up picking up $204 per month per lot times 73 because these were the existing customers paying $2.25 a month, not including the new ones which were at full rent, times 12 and then we again value that stream of income at a 7% cap rate and in so doing we increase the value by over 2.5 million dollars. But there's still more that we can do. Because when you include all utilities in the rent, what you do is you fight the whole concept of conserving utilities because the customers don't care how much they use because they don't pay for it. So by pushing that cost back to the residents, it drops the volume of utilities used by roughly 30 percent and it also increases our stream of income. So it's kind of a win-win.

We then end up with 73 lots, again those occupied lots, which included the utilities, at 429, which is the new lot rent, and then you'll see times 0.1. Why is that? Because when we changed the system from all utilities included to no utilities included, our expense ratio dropped from 40% to 30% and then we value that new stream of income at a 7% cap rate and the value created was over half a million dollars. Now these two properties combined recently appraised for over five million dollars which gave us a total profit of over four million dollars.

Now what are some of the lessons learned on these two exurban properties? Number one, there's big money even in exurban parks if you buy them properly because in our industry we're able to go with the flow. People are leaving urban core centers and moving farther out and that's exactly where most mobile home parks are located in suburban and exurban markets. So there's no problem making good money even in those areas that you push farther out into. Next, even at the new rent levels, the rents are still incredibly cheap. Even at our new rents, we're roughly $900 per month less than an apartment, which is an astounding sum. And as for a single family at a $300,000 price point, forget it. It's not even in the game. Could our rents go up farther? Of course they could. They could probably go up again several hundred dollars more in the years ahead at a rate of probably S40 or $50 once a year increase because we're just super incredibly inexpensive. We're literally the dollar store of housing.

Another lesson learned is despite COVID, high interest rates, and looming recession, mobile home parks work just fine because we are in the necessity business. And as the US economy begins to fall apart, which it probably already is, every different signal of a recession is flashing very loudly right now, from the M2 money supply to the decline in trucking shipments and the forecast from most large companies like Walmart would suggest that we are already probably in a recession. But the safe place to be when times are bad is being in the necessity business because people will always need that product. In this case there's no greater demand in America than for affordable housing.

Now if you want to learn more about the mobile home park investing industry I would urge you to attend our next and last for 2023 Mobile Home Park Investors Boot Camp that's coming up on December 8th through 10th. It's 100% live, yet 100% virtual. You have no travel time or cost. There's live Q&A throughout, and you will learn the correct way to identify, evaluate, negotiate, perform due diligence on, renegotiate finance, and turn around mobile home parks of all shapes and sizes, including exurban properties such as these. This is Frank Rolfe with mhu.com. Hope you enjoyed this and hope to talk to you again soon.