Mobile Home Park Investment Guide
Why Invest in Mobile Home Parks?
Mobile home parks (manufactured housing communities) offer unique advantages for real estate investors:
- Recession-resistant - Affordable housing demand increases during downturns
- Low tenant turnover - Moving a mobile home is expensive, creating sticky tenants
- Minimal CapEx - Tenants own their homes; you own the land and infrastructure
- Value-add potential - Many parks have below-market rents ripe for increases
- Limited new supply - Zoning restrictions make new parks nearly impossible to build
TOH vs POH: Understanding the Economics
TOH (Tenant-Owned Homes) is the preferred model. You own the land, tenants own their homes. Your expense ratio runs 30-40%, and you have minimal maintenance responsibility. Tenants are "sticky" because moving a home costs $3-10K.
POH (Park-Owned Homes) means you own both land and homes. You collect higher gross rent but face 50-60% expense ratios due to home repairs, appliances, HVAC, and turnover costs. Many investors convert POH to TOH over time through sales or rent-to-own programs.
Utility Structures
Tenant-paid (direct metered) is ideal—each home has its own utility meters and tenants pay providers directly. Zero expense to you.
Master-metered means you receive one utility bill for the entire park. This is an operating expense that significantly impacts NOI.
RUBS (Ratio Utility Billing System) lets you bill back a portion of master-metered costs to tenants based on lot size, occupancy, or square footage. Typical recovery is 70-90%.
Infill: The Highest-ROI Value-Add
Infill means placing homes on vacant lots. A vacant lot generates $0; with a home, it produces $350-500/month in lot rent plus potential home rent.
- Cost per home: $5-15K for used/refurbished, $15-25K for newer homes
- Timeline: 1-3 months per home for sourcing, transport, setup, and leasing
- ROI: Often 30-50%+ annual return on infill investment
Factor infill costs into your total cash investment when calculating returns.
Infrastructure Due Diligence
Deferred infrastructure maintenance is the biggest hidden cost in MHP deals. Budget $5-20K per lot for major repairs.
- Water/sewer: Galvanized or cast iron pipes fail. PVC is preferred. Private septic systems add risk and maintenance.
- Roads: Paved roads last 15-20 years. Gravel needs regular maintenance. Poor drainage causes ongoing problems.
- Electrical: Older parks may have inadequate capacity for modern homes with AC and appliances. Pedestal upgrades cost $2-5K each.
Key Metrics Explained
Net Operating Income (NOI) - Total income minus operating expenses, before debt service. This is the most important number for valuation.
Cap Rate - NOI divided by purchase price. A 7% cap rate means you earn 7% annually on an all-cash purchase. Lower cap rates indicate lower risk/return.
DSCR (Debt Service Coverage Ratio) - NOI divided by annual debt payments. Lenders typically require 1.25x minimum, meaning NOI must be 25% higher than debt service.
Cash-on-Cash Return - Annual cash flow divided by total cash invested. This shows your actual return on the money you put in.
Typical Mobile Home Park Metrics
- Cap rates: 6-10% depending on location and quality
- Lot rents: $250-$800/month depending on market
- Expense ratio: 30-40% for TOH, 50-60% for POH
- Vacancy: 3-7% for well-run parks
- Management fee: 5-10% of gross income