10 Ways To Add Value To Mobile Home Parks

 

Value-add investing is a great way to combine cash flow today with long-term wealth building. Most often, we think of value-add explicitly in the form of improving a park’s net operating income. That’s obviously a major component. In addition to a strictly financial improvement of a park, several other value-add items can make the park more marketable and make financing easier to come by, which have second order impacts of an improved park value.  Here are 10 ways to add value to a park:

 

1.  Raise Rents

Commercial asset values are  typically calculated as the net operating income (NOI) of the asset divided by an appropriate CAP rate. Investors don’t have direct control over the going CAP rate for mobile home parks at any given time, but they do have direct control over the net operating income of their asset. As the NOI is the numerator in the value equation, maximizing the NOI is key to maximizing the value of a park. NOI itself equals income minus operating expenses, so ultimately increasing the income portion and/or reducing the expense portion of NOI  will increase the ultimate value of the asset. As rents are the main income source for mobile home parks, raising rents is a common lever in increasing the value of a park.

2. Bill Back Utilities

Depending on the initial costs to set up utility bill-back, it can be a great way to improve a park’s value. Investors often throw this around as an easy way to increase value to the park, but billing back utilities is not simple. There are two main ways to bill back utilities:

1. Ratio Utility Billing System (RUBS) involves billing back the utility based on a certain criteria, such as the number of bedrooms in each home. This might be favorable compared to the high expense of installing submeters at each lot. However, it can introduce complexities. If there is a leak in the park, it could be difficult to determine the source of the leak. An individual tenant who has a running toilet or other leak source will likely not feel compelled to fix the leak since the entire park is splitting the extra costs. RUBS is also not legal in all states, so definitely check prior to assuming this can be implemented in a park.
2. Submeter. While the upfront expenses of installing submeters can be substantial, this will allow each lot to be billed for their exact water usage. In the case of a leak at an individual home, the resident would directly be responsible for the higher water costs.

3. Convert Park-Owned Homes to Tenant-Owned Homes

At first glance, this might seem like it could actually lower the value of a park because rents for park-owned homes are generally higher than for tenant-owned homes. Due to this, converting will generally reduce income, and therefore might seem like it would lower the overall valuation of the park. However, I wanted to include this as a potential value-add move for a few reasons:

1. 1. 1. There is a trade-off. Park-owned homes command higher rents, but they also cost more to maintain. Expenses are equally as important as revenue in maximizing net operating income. The additional revenue an owner might get from park-owned homes is typically mostly (or fully) offset by the additional maintenance and repair expenses of those homes.

      2. Getting rid of park-owned homes can streamline operations and save money in second order aspects like lower management costs.

      3. Most investors prefer parks with minimal park-owned homes, so simply converting to tenant-owned homes will increase marketability of the park.

      4. Financing is easier to obtain with minimal park-owned homes. Many lenders won’t lend on parks above a certain ratio of park-owned homes.

4. Streamline Fixed Expenses

Evaluate salaries paid to the manager and any other employees such as maintenance staff and determine if all roles are necessary. Check for unnecessary items to maintain such as mowers, buildings, and common spaces. Determine if the ongoing expenses such as lawn mowing are appropriate or if those can be reduced by switching companies, reducing the number of visits, or simply skipping some visits altogether in the off-season.

5. Review Amenities

Review contracts and pricing paid for garbage, water, and electrical. In some cases, there could be park-paid expenses that can be reduced by fixing leaks, reducing fees paid to utilities companies, or by finding ways to reduce usage overall.

6. Clean Up

Encourage residents to remove garbage, abandoned vehicles, and any other eye sores. Ensure residents are maintaining and mowing their lawns. Host a clean-up day to provide tenants a one-time opportunity to dispose of garbage, appliances, and other items they might have in their yards.

7. Improve the Homes

Even the tenant-owned ones, as this will make the park look much nicer. One idea is a matching program where the park agrees to match what the tenant pays to paint their home, replace a roof, or improve skirting. Having well-maintained homes in the park will improve impressions of the park as well as improve pride of ownership residents have, which will further motivate residents to improve their homes and keep the park looking nice.

8. Improve Infrastructure

Roads are a great way to improve a park’s value. Adding new gravel, or even paving a park, can bring a much higher valuation. Similarly, connecting to public utilities where possible can substantially increase both the valuation and marketability of a park over private utilities.

9. Make the Park Safer

If lot vacancy and turnover are an issue, evaluating the park’s general appeal makes sense. Everyone wants a safe place to live. Adding street lights, ensuring existing lights are working, implementing rules regarding pet breeds, and swapping out ineffective park management could all improve safety, and therefore appeal, of a park.

10. Aesthetic Improvements

This ensures first impressions of residents, lenders, and potential buyers of a park are good. Adding or updating signage at the entry way can quickly improve the look of a park. General cleanup of the entry so it’s tidy and clean is a good, inexpensive, start. Improving common areas by repairing any broken mailboxes, fence posts, or other fixed structures can also cheaply improve the overall aesthetic.