What are You Building On Part 2

Last time we looked at some of the considerations and regulations involved in choosing and prepping a pad for a mobile home install.

Today, we will briefly examine the kinds of pads.  The primary job of any type of pad is water drainage to prevent both the functional problem of a home unleveling, as well the cosmetic problem of cracks, which can also create a structural issue.

Types of Pads

Gravel 

The most basic, but also very effective.  A gravel bed, typically 4”-6” deep and usually about 1’ wider all around than the base of the home.  For example, a 14’x76’ home would require a 16’x78’ gravel pad.  Cost can range from $2,000-$4,000.

Concrete

Considered a step up from gravel, concrete can be installed as long ‘runners’ or as piers for the home to set on.  FHA loans typically require concrete bases for mobile homes; flood zones or city codes may also dictate the need for concrete pads rather than gravel.  Cost can be from $6,00-$10,000.

In sum, when choosing a pad type consider local regulations, flood zone status, as well as budget. 

What Are You Building On Part 1

Site prep for placing your mobile home is an important part of the process, but it does not need to be a difficult one. There are a few considerations to keep in mind to help decide which route to go -

Flood Plain - is this home going to be in a flood plain? Not sure, visit the FEMA Flood Map site here for clarification. Some homes may require their base to be elevated a given number of feet (usually 1’-3’) if they are located in a flood zone.

CIty Codes - contact the local municipality to find what their regulations are. Depending on the size of the township or city and the subsequent department, you may get a very prompt answer or may need to send several follow ups. Be persistent; its your right to have their information.

Financing - if bank financing is involved, there may be additional guidance on the type of pad they find acceptable.

Next time, we’ll jump into the kinds of pads, along with their pro’s and con’s.

A Little Building That Can Be A Big Problem

Sheds…they can be a little structure with a big eye sore.  Its not uncommon to drive thru a park, finding yards mowed, vehicles cleaned and houses in good repair, only to catch sight of a shed on the same lot crying out for help, whether it be structural or cosmetic.  Many times, parks have several lines of sight, making them visible from many angles.  In this case, sheds which may be on the backside of someone’s lot, may be squarely in the field of view of a neighbor or nearly adjacent to a road, giving passerby clear view of this blight.  No matter the case, sheds fall under the same expectations for upkeep as the rest of the park.  And the good news is, this can often be done very inexpensively.  A coat (or many coats) of paint, new plywood or similar materials can often be purchased for a relatively low cost that pales in comparison to the return on investment it provides in improving appearance of the park.  Sheds can be an important part of the park, as they allow tools, toys and clutter a neat place to reside, rather than on a porch or strewn about one’s yard.  In sum, keep the sheds, keep expectations for appearance and keep the park looking good.

Additional Structures on a Mobile Home Park

It is not unusual for additional buildings to be included with the mobile home park. Usually these are structures such as barns or sheds for equipment used around the park, self-storage, a clubhouse or houses and apartments.

• Barns and Sheds - not much to say here; they are utilitarian, and typically not a big value add to the property, often used for storage of equipment to serve the park. 

• Self-Storage - can be useful for park residents, giving them additional place to keep belongings, resulting in a neater park with fewer items stored on lawns or driveways. Rental rates will typically be lower than self-storage at a standalone facility in the same market due in part to the stigma others may have of mobile homes parks, resulting in lower demand.

• Houses and Apartments - finding a modest single-family home on park property which previously served as the owner’s residence is not uncommon. These of course have value, though not often as much as the sellers may think. Like self-storage, these will typically rent or sell for a little below market value due to their proximity to a mobile home park. It is also important to find out the parceling situation for the house or houses; are they on the same parcel of land as the rest of the park or already parceled separately? Subdividing and selling is one option; take into account cost, if it is permitted in your area (there may be restrictions on size or acreage of lots which can be subdivided). Additionally, utilities for the house may be included on the park system, so providing an additional well or septic for the house may be necessary if considering subdividing.  For example, one property reviewed contained a single-family home already on a separate parcel from the mobile home park (all owned by the same owner), but used the well that also served the park. While this set-up served the current owner fine, to subdivide would require a new well drilled to serve the single-family home exclusively. 

• Clubhouse - these were a popular common place and gathering area for mobile home parks in years past. Think of a pavilion or closed structure used for social gatherings available only to park residents.  Many of these are currently shut down or in disrepair due to neglect. These may have some value or other purpose (storage for materials) depending on their condition.

  To review, it is not unusual for additional structures to be included with a mobile home park. Always assume their rent or sale value to be less than market value due to their proximity to a mobile home park, be willing to explore options of subdividing as well as the demands within your market.

Utilities - Sewer

Last time we examined the basics of evaluating the water systems of mobile home park; today we will look at it’s partner in utilities, the sewer system of a park.

Public – public sewer functions much like public water; contact your provider to see where responsibility begins and ends for maintaining lines, sewer provider is in charge of billing residents.

Septic - This is familiar to many of us as septic systems are common in residential construction. Septic systems can be maintained and function for 20-40 years depending on usage, upkeep and some luck. Luck includes good choices by park residents (not flushing items which should not be flushed), as well as the absence of tree roots growing into the system.  Replacement costs are all the owner’s responsibility; make sure to budget repair and replacement costs as part of your offer.  Finding the age of the system is recommended.

Wastewater Treatment Plant- This is a small treatment plant; though rather than serve a town, it serves your mobile home park. Many parks operate with WWTPs; they require an operator to run the plant (not a full-time job) and perform service as necessary.  Effective life of a WWTP can be up to 50 years and cost $500,000 (depending on size) to replace. It is best to get this option thoroughly vetted by a professional to get a realistic idea of life of the plant, as well as any parts which may need replaced in the near future.  While a plant can operate for 50 years, find out if you are buying a plant that someone else has operated for the first 45 years of its life.  Also make sure to include costs of the plant operator in your budget.

Lagoon- We are all free to make our own investing decisions; this option is essentially an open-air lagoon where human waste is sent to dry up. This option gives you do have the opportunity to own a lake of human waste if you so desire. No surprise that many cities and municipalities are working to get rid of this option. If you are unsure as to why, re-read the first two sentences.  Bonus tip - for those looking for high risk investing, shop for park with a lagoon located in a flood zone. That was sarcasm; don’t do it.

In sum, when shopping for a park, have a professional vet your system, speak with local municipalities as to their guidelines, as well as research EPA guidelines both present and forthcoming to see how they will impact your ability to operate your system. And always plan for repairs and replacement costs.

Utilities - Water

Type of utilities in a park can be another quick decision-making point as many owners and operators will simply say no to some utilities.  We are looking at water and sewer, in both their private and public forms; starting with water.

Public - just what it sounds like, it is water provided by a city or township. The public supplier is responsible for the quality of the water and some of the water lines, which can vary from municipality to municipality. To find out where responsibility for maintaining these lines ends with the provider and begins with you the owner, we recommend checking directly with the provider.  Water usage and billing for the tenant is all handled by the supplier; not you as the park owner.

Private – in regards to; water, there is only one option for private, which is the well.  The park owner is responsible to have a certified tester check the water, typically daily, for water quality. In addition to ensuring water quality, the park owner is responsible for maintaining all parts of the well water infrastructure, including lines, pumps, pump house and the well itself.  Well water is more responsibility and work than public water, but is very feasible, requires having a water tester and a third-party vendor to service the system. Additional responsibility includes providing notices such as a boil water notice when deemed necessary by your water service company, finding leaks in the system and providing drinking water to residents when the system is shut down for repair.

Both sources of water, public and private, are best handled by having the system inspected for leaks, obtaining a current layout of the location of water lines and a plan for anticipated maintenance issues. Water, in our experience, is typically less of a headache than our next topic…sewer.

Location, Location, Location Part 2 - The Economics

If your prospective park has cleared the first hurdles regarding population, next we will typically look at the economic factors in the area of the park. 

• Wal-Mart Nearby – Typically we prefer within fifteen to twenty minutes or so. A Lowes or Home Depot nearby is nice as well. These large companies perform much research before moving into an area; their presence is generally positive signs for an area. Additionally, they often serve as anchor stores, bringing in several smaller stores and businesses around them.

• Jobs - diversity of employment promotes economic stability. Education, health care and government jobs are traditionally considered stable sources of employment.  Places to avoid are where one large employer or industry employs a disproportionately large number of your population.  While there is no hard and fast rule concerning this, ask yourself what would happen if the largest employer left, a specific industry was disrupted with new technology or legislation?  To be cliché, make sure all your eggs are not in one basket.

• Crime - online searches will yield information about crime as well as crime maps; often with breakdown of violent vs non-violent; as well as comparison to the national averages. In consideration to crime, we simply asked ourselves if we would feel safe and responsible asking a loved one to hold an open house showing in this area?

• Median Home Price - average home price for a typical single-family stick built home above $100,000. This typically ensures enough spread between the cost of a mobile home and the cost of a single-family stick-built home that you are not competing to sell your mobile homes with stick built single-family homes.

• Apartment Rent - apartment rent above $700, as a rough rule. Much like the median home price in the prior point, this ensures enough cost differential that there will be interest to rent a lot or mobile home and lot rather than an apartment. Again, $700 is a rough number and can adjust based on lot rent in your market.

• Median Household Income - this ensures again, that on average, people living in your chosen market will have enough income to pay rent. Usually around $35,000 will provide a reasonable income to cover rents, varying some due to cost of living in different markets.

Hopefully the above list provides some ideas for you to build your own criteria in evaluating your potential parks based on your personality and investing goals. Next time, we will look at utilities within the park.

Location, Location, Location Part 1 - The Geography

Indeed, where your park is located is the one thing you cannot change about it. I will divide this into two parts; today we will focus on the Geography and population of the park, next time we will look at the economic drivers in the area in which the park is located. It is important to confirm that where the park is located is an area that people want to live in; as well as using information to make our best predictions that this will continue in the future. While this list is not all encompassing, it has served us well and will hopefully provide you with some useful information to start -

• Population Trend - a simple online search for ‘population trend’ or ‘population growth’ in your selected area will give you a pretty good idea as to trends in the area. Positive growth over a number of years (ten or more is nice) is of course the preferred. Maintaining population is also reasonable, though total size (maintaining population in a town of 4,000 people is different than maintaining in a city of 125,000 people) should be taken into account. Additionally, employment options (diversity & stability of employment) should also be strongly weighed to gauge if this population growth has a good chance to continue, or is one event away from people fleeing the area for greener pastures.

• Meropolitan Statistical Area (MSA) - of at least 250,000 people. An MSA consists of a city of at least 50,000 people and includes the communities in the region surrounding it; typically made up of several smaller cities and towns. This is important not only to have an adequate tenant base to draw from, but also ensures economic stability and (hopefully) a variety of employers. An MSA of 250,000 or more should also provide the necessary vendors to address your needs as park owner; especially in emergency or when 24-hour availability is needed.

In sum, finding an area where people want to live, as supported by a positive population growth trend, as well as an MSA of greater than 250,000, are both positive signs for your prospective park. Next time, we will examine the economic drivers in your market.

How to Select a Mobile Home Park to Purchase

How to Choose a Park?

Having an established criteria for buying a mobile home park saves time when considering a deal, as well as keeps you true to your investment strategy. Considerations such as how long one as been investing, cash on hand, as well as personal risk tolerance and knowledge will alter criteria for each investor. For instance, a newer investor may want only to stick with public sewer and water; whereas a more experienced investor may feel comfortable taking on some risk with a septic system in need of repair in light of the potential upside. Factors considered when evaluating a park include location, utilities, additional structures, breakdown of park owned and tenant owned homes as well as market conditions. Additionally, we will explore what I will call park infrastructure; an all compassing term for road conditions, trees, lights, etc. We will start next time with looking at the one thing we cannot change about a park...