How Can I Get the Greatest Value Possible Out of My Mobile Home Community?
The demand for mobile home park communities is on the rise. Fueled by a shortage of affordable housing in the U.S. and a senior class of baby boomers moving into retirement age at a clip of about 10,000 a day, the need for affordable housing grows daily. A recent report by the National Low Income Housing Coalition revealed a wide disparity between the demand and availability of affordable housing, especially for extremely low-income renters. Mobile and manufactured home communities can be a solution for lower income renters and retirees looking for affordable home solutions.
The gap between the existing supply and demand of affordable homes makes well-positioned properties an interesting option for investors, while providing property owners with an excellent opportunity to sell in a hot market. It’s important to note, however, that while a hot market provides an excellent opportunity to maximize sales price, not all sales prices will be maximized. While net operating income (NOI) is essential in creating your community’s base price, perceived value and confidence in the management of the community will go a long way in reinforcing your negotiating power and ability to achieve your objectives.
Four Types of Action to Maximize the Value of Your Mobile Home Community
There are four types of actions property owners can take to increase perceived and real value to new tenants and potential buyers, to maximize their community’s sales price, and to optimize return on investment.
- Short-term actions you can implement right now
- Long-term actions you can implement over time
- Inexpensive steps to increase perceived value
- Capital-intensive projects
Mobile and manufactured home community owners are busy people, so for efficiency, you’ll find below a combination of actions that will have the greatest impact on optimally positioning your community and maximizing your sales price.
Launch your quest toward maximizing price by starting with short-term and inexpensive actions you can implement right now. These actions will not only allow you to improve the visual of your community’s physicality, they will allow you to increase the perceived value for current and potential tenants. A higher perceived value will open the door for you to increase your rents, and thus your NOI, with the bonus of improving community pride. At the same time, prospective buyers will see a well-managed community that will make for a more attractive investment.
In my many years as a mobile and manufactured home community specialist, but especially more recently, I have seen very similar parks in structure and infrastructure achieve widely varying rents and offers as a result of their physical and administrative maintenance, sense of community, and general curb appeal. Well-managed and maintained properties achieved higher returns in monthly rents and, at the time of the sale, sales price.
Get started by:
Enforcing community rules: On my visits to communities across the country, I see parks where many of the rules created to keep the property clear, safe and well-maintained are not being followed or enforced. Take time to review the current rules in the book, update them as needed, and enforce them for a cleaner, safer, and more orderly community.
Curb appeal projects: Curb appeal projects are another way you can make a positive impact on your property, contribute to the perceived value of your community, and generate a sense of pride among residents.
A few suggestions:
- Remove trash and discarded items strewn throughout the park
- Trim trees, plant flowers, and add bushes for a welcoming and visually appealing entrance
- Pressure-wash homes, walls, and sidewalks to remove mildew and stains
- Replace skirting and conduct exterior maintenance
- Install or replace signs
- Change the name. The names Joe’s Mobile Home Park and Bridgepoint Park, for example, can convey very different images
After you’ve initiated some of the short-term projects, you’re ready to move on to longer-term and more capital-intensive initiatives. For example:
Pave roads: Paving roads can have a big effect on how your property looks and how your residents feel about living there. Adding paved roads is the biggest bang for your buck, as it will deliver a higher return than what you put into it.
Build a play or picnic area: Building a picnic or play area can contribute to a greater sense of community and offer a place where neighbors can gather. You also can schedule community activities such as barbecues, field days, or picnics. Be sure you provide lighting for the evenings, or enforce a closing time and no-loitering rules after sunset.
Individual metering: Utility costs can substantially impact a community’s NOI. By installing individual meters that measure water/sewer usage for each home, owners can “pass through” utility costs to tenants, greatly alleviating pressure on the bottom line.
There also are long-term, inexpensive, and even revenue-generating actions you can take to sweeten your returns.
Increase rents: Interestingly, I have found that many property owners resist raising rents. More often than not, they don’t know what their competitors are charging or don’t think their tenants would be willing to pay more.
To solve this, here’s a three-step solution:
- Obtain market comps to find out what your competitors are charging
- Apply the 90 percent rule. If your park is more than 90 percent full, you are well-poised to raise rates
- Start by taking the short-term, inexpensive actions mentioned at the beginning of this article to build the trust and support of your tenants so they are more willing to pay an increase in rates
Other Steps to Take Toward Maximizing Value of Your Mobile Home Community
Fix your financials: I have come across many situations where owners have outdated or handwritten books, or don’t have detailed records of the business. Update and formalize your financials and administrative processes to convey a message of confidence and trust, and to let people know that your park is well-managed.
Implement a lease with option to buy program: Selling park-owned homes to your tenants through a lease with option to buy program transfers the responsibility of home repairs and maintenance to your tenants, creates pride of ownership, reduces turnover, and makes the park a more attractive asset for financing. It also will provide you, the park owner, with a corresponding capital infusion from the sale and alleviate your management responsibilities, but allow you to maintain a steady stream of passive income from the land lease.
Occupy as many sites as possible: Empty lots can lead to emptier pockets at the time of the sale. Do the work to bring in new or used homes to occupy empty lots and either rehab or offer a handyman’s special for vacant homes that need to be rehabbed. The full lots will contribute to a better perception of the property and management.
Improve tenant profiles: Now is the time to begin improving your tenant profiles. If you don’t already, start conducting background checks on prospective tenants and disallow felons. There are plenty of people looking for affordable housing, offering you a good pool of prospects that will care for their home and your park.
Now that you have your checklist, you’re ready to start improving your short-term bottom line while positioning your community for optimized profits at the time of the sale. Even more important, you’ll be taking steps to provide an even safer and more pleasant living environment for your tenants, creating a greater sense of community and pride. If you ask me, that’s when you know you’ve maximized your value.
Kevan Enger is a partner and manufactured housing director for Capstone MH. He specializes in helping mobile and manufactured home park owners across the country successfully position, market and sell their properties to maximize returns.