The Good and Bad of Buying Value-Add MHPs

So, you’re excited. You’ve found a good deal……it’s a value-add park, it’s a “heavy lift.”

These can be advantageous for many reasons:

  1. Lower basis

  2. More upside

  3. Potential capital multiplication fast

  4. The opportunity to bring life back into a run down MHP

 

All those are reasons to look at these kinds of deals. But there are also things you absolutely want to consider and be aware of when looking at these deals:

  1. Old infrastructure. When was the park developed? Has the infrastructure ever been upgraded? If you have a lot of vacancy, is the old system able to handle increased occupancy when you fill it up? Just because it’s city water and sewer does not mean that all will be fine, in fact it could be worse. Old leaky water lines will break with increased occupancy and increased traffic driving through your property. Sewer lines will back up and probably already are on your vacant POHs that have not been occupied in a while. If your park has private utilities this could even be worse.

  2. Vacant POHs- so you want to “handyman special” these homes. Sounds easy? And it can be……BUT the people you sell these to have to vetted even more than your regular tenants. Do they have the skills? Do they have the money? Can they get it done in a reasonable amount of time? Are they going to get permits for the work that they are doing? It’s hard to monitor all of this. Also, can your vacant POHs get power? Well, that depends, in my experience it’s almost on a “have to wait and see” if the city will give you a power release or not. Sometimes that can be a toss-up. So, you sell a “handyman” special to a guy, he puts 15k into it, calls the city for electric, now they are asking him to have an electrical engineer come and rip down what he’s done to ensure it’s up to code. How do you get out of that? Not that easy. Now you have to give the guy free rent until you pay to have this done.

  3. Code enforcement- in addition to the above here’s another problem with value-add parks you want to look out for. These guys at these municipalities know your park, they know it’s a mess, but they don’t always understand what you are trying to do. All it takes is for one angry tenant who doesn’t pay, you give notices to, and they call the city and here they come! Writing you up for anything and everything, and oh by the way, they looked and Joe whom you sold that handyman Special to didn’t pull a permit, so they put a stop work order on his home. You may now have to give Joe free rent and help him get out of the code enforcement circle.

 

I could go on and on about what to look out for on value-add deals…..

 

Solutions to above?

  1. Due diligence, do your DD, spend the extra money, that additional 5k you spend could save you hundreds of thousands.

  2. Sell handyman’s with caution, properly vet incoming prospects and ensure they do things right and complete the project quickly.

  3. This one is not straightforward; I could write a whole article on this. Build a relationship with your local code enforcement inspector. And cross your fingers and hope he’s not going to give you a hard time. But the other question on this is that “do you want to poke the bear or not?”

 

These are just 3 quick tips on what to look for when buying value add MHPS, this is not the complete list but it’s 3 big ones I have learned the hard way on!

 

Be great.

 

-Derek Vickers

Vicktory Real Estate Group

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