HOW TO SUCCEED WITH SMALL MANUFACTURED HOME COMMUNITIES By Frank Rolfe

It’s often been said that the best things come in small packages – and that’s often true of manufactured home communities. While large properties tend to be the most often discussed and written about, there are thousands of smaller mobile home parks in the U.S. that are worthy of investment, and often offer outstanding financial returns with much lower risk. So how do you succeed with these smaller communities? Less competition often leads to lower prices One reason that smaller parks often have such high rates of return is that there are very few buyers seeking them out. Like anything else, supply and demand is a fundamental equation is how high asking prices can rise. Not many people are looking for smaller properties, therefore you can often get a really good deal. How good? My second park purchase was a 15 space community in Lake Worth, Texas that I bought for $60,000 – and that included a three-bedroom brick house. I was the only one who ever contacted the seller about buying it, and he named the price. Seller financing commonplace That $60,000 deal had a unique structure: I put down $5,000 and the seller financed the other $55,000 at a low interest rate. Indeed, seller financing is very prevalent with smaller parks. This has grown out of necessity, as it gets progressively harder to finance a deal with a traditional bank as the loan value drops – particularly on loans under $250,000. Since seller financing is the best debt imaginable, this is a huge asset to creating a successful small park purchase. Often great locations Small parks have some of the best locations in the industry, namely because they are typically from the 1950s and 1960s (although some date from the 1930s), and occupy sites that would never be approved for a mobile home park use today. I can think of a park in Austin that is right off the downtown area, and another in Dallas that is right across from the Arboretum. Most small properties are from a different moment in time, and those locations that were not impressive in 1950 can be in between two office towers today. Typically city utilities Most of the smaller mobile home parks in the U.S. are on public water and sewer. There are two reasons for this. First of all, most small parks are right in the heart of the city, where public water and sewer lines are abundant. Second, most small properties simply don’t have room for water wells or private sewer services to be built. As city water and sewer is preferred, this is a great thing for small parks. A priceless education One benefit to small parks that some buyers seek out is the ability to learn the business on a small scale before making a larger purchase – kind of like a real-life case study to learn from. My first park was kind of that way. I bought it for $400,000 with only $10,000 down and a non recourse seller loan. My theory was that I could always get out of it if I hated it, and only have a small loss. This gives many initial buyers greater piece of mind. But the positives are also negatives in the future Although smaller parks have some great things going for them, many of these same benefits become disadvantages down the road. When you change from a buyer to a seller, you experience the same issues that the person you bought from faced, such as not many buyers to choose from and the difficulty in the buyer obtaining a loan and, as a result, asking you to carry the paper. Try to hit $500,000 or more in “finished” value One way to improve your position – to really harness the potential power of a small mobile home park – is to buy it when it’s “small” and make it “large”. To many investors, a “small” park is not about the number of lots but the overall deal size. Nobody considers a $500,000 mobile home park to be “small”, so if you can buy a mobile home park for $200,000 (which is considered “small”) and increase the value to $500,000 or more when you go to sell it, then you escape all those negatives that a small park owner often has to accept. So how do you do that? By buying properties where you can greatly increase the net income as a result of increasing the rents, cutting costs, renovating and filling vacant homes, and filling vacant lots. If you buy a small park that has little upside in pushing the net income, then this mission is virtually impossible. So the best small parks to buy are those with lots of room for improvement. Some examples Let’s look at the results of that 15 lot deal in Lake Worth, Texas. I bought it for around $60,000, and put down $5,000, with the seller carrying the paper on the balance. I sold it as commercial land for around $120,000 about seven years later, which was twice what I paid, but more importantly 12 times my down payment. But I was unable to make it into a “big” park. However, I did another small park deal in Lake Worth that had an even better ending. I purchased a run-down 24 space deal on the lake front for around $100,000. I cleaned it up, renovated and filled vacant park-owned homes, raised the rents substantially and filled vacant lots. I sold that park for around $400,000, which allowed the buyer to get a bank loan and me to have a great return on investment. Conclusion Small parks can be terrific investments, if you play the game properly. Use their advantages to the fullest, but remember that the best deals are those that can take the property from “small” to “large” in net income, value and return on investment. Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 5th largest community owner in the United States, with more than 23,000 lots in 28 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top-selling ones in the industry. To learn more about Frank’s views on the manufactured home community industry visit www.MobileHomeUniversity.com. This article originally appeared in the Manufactured Housing Review, subscribe for free here.