NAVIGATING THE CHALLENGES OF ACQUIRING MOBILE HOME PARKS WITH PARK-OWNED HOMES By Frank Rolfe

Acquiring mobile home parks often presents a unique set of challenges, particularly when a significant portion of the homes within the park are owned by the park itself. The key to successfully navigating these transactions lies in the delicate balance of negotiation, especially regarding the valuation of park-owned homes. While some parks may have a negligible number of such homes, making little impact on the overall deal, others can feature a substantial percentage, ranging from 20% to over 50%. This scenario places the valuation of these homes at the forefront of the negotiation process.

The True Value of Mobile Homes

The valuation of mobile homes is not as straightforward as one might expect. Unlike automobiles, for which a guide like NADA provides a fairly accurate estimation of value, mobile homes defy easy categorization. The valuation discrepancies can be vast, with estimates often missing the mark by as much as 100%. This variance is primarily because mobile homes serve as basic shelter for residents, who typically prioritize the functionality over the brand or aesthetics.

To approach valuation with a realistic lens, consider mobile homes in three distinct categories based on age, design, and condition. The first category includes older models from the 1960s and 1970s, offering basic shelter and valued between $1,000 and $4,000. The second category encompasses homes from the 1980s and 1990s, featuring more modern designs and larger living spaces, with values ranging from $5,000 to $15,000. Lastly, homes built in the 2000s, which boast current designs and attractive aesthetics, can be valued between $16,000 and $30,000. These valuations, however, are heavily influenced by the market location, highlighting the importance of contextual understanding in valuation.

Valuation Missteps to Avoid

A critical mistake in valuing park-owned homes is applying the same capitalization rate (cap rate) used for the park's lot income to the homes themselves. This method can lead to grossly inflated values, ignoring the significant expenses associated with mobile home upkeep and the inherently higher risk compared to lot rent income. Instead, valuations should reflect the actual commodity value of the homes, focusing on their role as basic shelter rather than income-generating assets.

Strategies for Negotiating with Sellers

Negotiating the value of park-owned homes with sellers can be challenging. Demonstrating the real economics of renting mobile homes — including the costs that often offset or exceed the rental income — can help in these discussions. In situations where sellers maintain unrealistic valuations, an effective strategy might be to allow them to retain ownership of the homes, thereby facing the realities of their profitability directly. This approach can lead to more favorable negotiation outcomes or eventual concessions by the seller.

Conclusion

While mobile home parks with park-owned homes can complicate acquisitions, understanding the intrinsic value of these homes and employing strategic negotiation techniques can lead to successful outcomes. Focusing on the lot rent income, the core revenue stream of the park, while acknowledging the homes as a secondary consideration, allows for a pragmatic approach to these complex transactions. By doing so, investors can navigate the challenges and opportunities that mobile home parks present, positioning themselves for profitability and growth.

By Frank Rolfe

Frank Rolfe has been an investor in mobile home parks for almost 30 years, and has owned and operated hundreds of mobile home parks during that time. He is currently ranked, with his partner Dave Reynolds, as the 5th largest mobile home park owner in the U.S., with around 20,000 lots spread out over 25 states. Along the way, Frank began writing about the industry, and his books, coupled with those of his partner Dave Reynolds, evolved into a course and boot camp on mobile home park investing that has become the leader in this niche of commercial real estate.