Most mobile home park owners tend to amass a portfolio of several parks, simply because, after acquiring the skill sets, it seems wasteful not to buy “just one more”. But, in reality, they only need to buy one mobile home park to be set for life. How can this be? There are several reasons.Sufficient scale.A mobile home park is a mass of different income units. Because of this volume, small improvements in revenue or expenses on just one lot are multiplied by the sheer volume of lots. For example, a small $20 lot rent increase in a 100 space mobile home park yields a cash flow improvement of $2,000 per month.In a single family home, or a duplex or four-plex, by comparison, a $20 rent increase yields under $100 per month in cash flow.Opportunity for massive improvements in income.Many mobile home park sellers are moms and pops with little professional management experience. As a result, there is room for incredible improvement in their operating numbers. Let's just look at three areas that they normally struggle with.The first is the level of lot rent. Many owners that have had the park for a long time are enormously under-market in their lot rent. If the market rent is $300 per month, and they are charging $150 per month, then there is $150 per month upside. Why would they be so low? What normally happens is that they become too friendly with their tenants, and refuse to raise it out of fear of making “enemies”. Another common reason is that they simply don't follow the market or do any research on the lot rent level of their competitors.The second is the water and sewer expense line item. Many have a leaking system with many abusers that spike the cost up to ridiculous proportions. These issues can be fixed quickly, and the water and sewer cost shifted over to the residents. Since water and sewer is normally 10% of total revenue in a mobile home park, this benefit is enormous.The third area is management cost. We've seen parks that have a $50,000 per year manager on a 50 space park. How can they be so wasteful? Normally, just like the rent level, they got too friendly with the manager and kept giving them annual raises even when the total compensation was far above the norm. In some cases, the manager is a family member. What's the world record? We've seen $100,000 management packages at parks before. Think you can cut that down?No future obsolescence.The nice thing about mobile home parks is that they are incredibly low-tech. There is no great invention coming down the pike to derail them. If you owned a record store in 1960, and thought you could retire on it, you'd have been mistaken when they brought out the CD, internet and ipod. But there is nothing that can alter the need for affordable housing. And the market just keeps getting larger as America gets poorer.In addition, since you only own the land in a mobile home park, you do not have to worry about saving for building upgrades like replacing roofs or siding. There are few big capital hits you have to save for (or borrow for).Some practical examples.If you bought an average 50 space park for $500,000, with $100,000 down, here's what you could expect to do with it after closing.You might raise the rent $40 per month, for a net gain of $24,000 in cash flow. Then you might submeter the water and bill it back to the tenants, for a savings of another $24,000 per year. And then you might fire the manager and hire a less costly option, for another savings of $10,000 per year. So, in a nutshell, you've increased the cash flow after debt payment by almost $60,000 per year. That's how much you could put in your pocket. And none of these steps required any time, effort or risk on your part. And they did not require any large capital expenditures.So you'd have $60,000 per year in cash flow from the park, while it is still servicing its debt. And after it's paid off, you'd have over $100,000 of cash flow. All from an investment of $100,000 in the form of the down payment.Now do you see what we're talking about?Conclusion.You truly can retire on just one mobile home park. No other form of real estate investment can make that claim (or at least support it). Mobile home parks produce more investment wealth than any other option.
How To Retire On Just One Mobile Home Park
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