Should We Build A New Mobile Home Park?
By Amanda Cruise
Nearly every manufactured housing community owner has considered building a new community at one point or another, simply because both the prices and demand for existing communities are so high. I’ve certainly evaluated it a few times.
If so many investors want to build new communities, why aren’t more manufactured housing communities being built? Let’s look at the factors.
Location
If you were building a new community, you’d want to build in a location with a growing population and several employers. You’d want enough resources for your residents such as grocery stores and jobs. In short, you’d want a high demand area, which means you’d be competing with single family home developers, among others, for that same land. And when demand for land is high, the price of that land goes up.
Land Cost
Manufactured homes sit on roughly the same lot size as many entry level single family homes (especially townhomes). However, a single family home is worth more than a manufactured housing lot, which means single family home builders can pay more for the same land and still make a profit once the development is complete.
Utilities
The land will also require utilities. Finding land with city water and city sewer is challenging in most locations, particularly when you factor in price. Having to install septic systems will reduce the potential density of the community, which would reduce the number of lots that could be built on the land, and therefore reduce the end value of the community.
Building Cost
If you can find land that can be zoned for a manufactured housing development and you can get it at the right price in a great location with high demand, then you are in an amazing spot. You might want to just sell the land for the highest value and avoid the headache of building a manufactured housing community! Let’ say you still want to execute though.
The all-in costs for developing a lot is about $40,000-$70,000 per lot NOT including land costs. Let’s be very optimistic and say we could do a 50 space community for $50,000 per lot + land costs, putting us around $55,000 per lot all-in. In order to make a profit or have any equity after all that work, you’d need the community to be worth a minimum of $70,000 per lot.
Lot Rent
The value of a community is driven by the income it brings in. Generally the higher the monthly lot rent per lot, the higher the community value per lot. You’d need a solid lot rent to substantiate $70,000 per lot on exit. On the very low end, let’s say $500/month in lot rent to be optimistic toward build viability here.
Circling Back to the Land
Finding land in high enough demand to substantiate $500/month lot rents is going to essentially make it very, very challenging to find that land at cheap enough prices to build manufactured housing communities. That land is in competition with commercial developers, single family home builders, townhouses, etc. ALL of those generally have more exit value than a manufactured housing community for that same land.
Where does it work?
Some people are building communities (thankfully – because we need them). How is it working for them? First off, large communities – 200+ spaces per lot are better for building. This minimizes the per lot costs of overhead work like soil analysis, planning, etc. Locations where zoning is easier, such as Texas, can also help. Additionally, some teams who have in-house construction crews are able to make the numbers work because they can drastically lower the labor costs, therefore reducing the per lot build cost.
Will We build?
We’d love to! It’s very unlikely we’ll build from scratch anytime soon, but the opportunity is on our radar. If we ever do find the right land for it, we’ll certainly evaluate it.
As always, I love talking about this stuff. Please reach out if you have any questions, Amanda@VoyageInvesting.com and if you’re looking for ways to put your money to work passively, make sure you join our Investor Circle.