PART 3: WHAT WE LOOK FOR WHEN BUYING A MOBILE HOME COMMUNITY
Updated: Nov 11, 2021
Have you ever wondered how we choose our mobile home communities? Rather than choose what community is available and trying to fill it with tenants, we put a great deal of thought and work into developing each community. Listed below are some of the crucial factors we must consider before investing in a project:
The Schools in the Area
It might seem off to consider school districts. However, many of our clients have children attending school. Our clients must think about the quality of education their children will receive, based on where they decide to live. Did you know there is a close link between school quality and housing prices? In fact, people are often willing to pay more for a home to be closer to higher-quality schools. Therefore, when locating mobile home communities in our preferred regions such as Springfield, MO, and Branson, MO, we choose locations with the best school districts. Bringing our clients one step closer to these institutions helps us win them over and makes for a happy community.
Does the economic state of a residential market matter? Absolutely! Most people are either running businesses or employed. In either case, they rely on the stability of the economy to make a living. If the economy no longer serves this purpose, they leave and move on to greener pastures. Such an economy is not suitable for investment as it cannot guarantee a steady income stream and can hurt the NOI (Net Operating Income). When assessing the economy in Springfield, MO, and Branson, MO we were satisfied with the key economic markers. These are vibrant economies, attracting top investors who now act as some of the best employers in the market. The result? A strong economy that can sustain both livelihoods and a steady rental income.
How often do you think about the downtown section in a city? While you might not know this, a vibrant downtown is the key to a thriving economy. It increases the quality of life, creates more jobs, enables small businesses to thrive, protects property values, and retains employment opportunities. A city with a thriving downtown is more likely to survive and provide for the locals than a downtown area that is fading. Can you see why Springfield, MO, and Branson, MO, are such good options?
Now this one is easy to crack. When the population in a city increases, residential space hardly ever keeps up. Naturally, this supply shortage coupled with an increasing demand leads to increased property prices. People resort to paying much higher prices. Take the example of Springfield, MO, with a population of 455,000 people. Do you think the housing supply is enough to accommodate the current population plus the growing population? What about Branson, MO, with a population of 86,000 people? The housing supply gap has been widening over the years. With this comes a need for more affordable housing, which is where we come in with our lots!
The Median Family Home Sale Price
To gauge how much people are willing and able to pay for housing (demand), we start by assessing their median income. In Springfield, MO, we are looking at an average of $43,000 a year, and in Branson, MO, it stands at about $38,000 a year, give, or take. However, how does this compare to the median housing prices? A potential homeowner in both regions is looking at the cost of about $156,000. Given that people can now purchase mobile homes at a fraction of this price, the allure of a mobile home is only increasing.
Certainly, the median sale price is not all we investigate. We also consider if people would want to live in affordable housing. Is there a market for such housing? Mobile homes come with several benefits including cost-effectiveness, control, and much more. Most importantly, you no longer share walls with your neighbors and can live your life freely. How many times have you turned down the volume of the TV from fear of waking your next-door neighbors? A major advantage of mobile homes versus apartments is for this reason – the freedom and accessibility. Additionally, mobile homes are much cheaper than single-family homes. Although, it’s not always a guarantee that a mobile home community will be a hit. We counteract this by continuously digging further into the actual demand aspect.
When looking into demand, we use the digital tools available to us such as Facebook forms. For instance, when using Facebook, we place an ad and ask potential clients if they would be interested in affordable housing. Given the responses, we can then pull stats from the form and decide if a mobile home community is a hard sell or could give us the NOI we want from the investment. After all, the demand is the foundation for any investment, mobile home communities or otherwise.
The Lot Rent
Our investment premise involves charging a fee to mobile home community tenants, known as the lot rent, site rent, or plot rent. This fee, payable per month, goes into maintaining the communities and constitutes our NOI. It seems easy enough. However, when selecting the lot, we must consider two crucial factors. One is the current lot rent and two being the market lot rent. To better understand, let’s put this into figures. For example, a community currently has a rent fee of $200 a month per lot, and the market rate is $275 a month per lot. That is a $75 gap that can be capitalized on. Thus, once we purchase the lot, we can bring it to market standards and upgrade the amenities. This will help us acquire the extra $75 a month, bringing us closer to our target NOI.
The Infill Potential
Vacant spaces do not make investors’ money. Instead, the vacant spaces take money out of the investors’ pockets due to the community upgrades not being fully optimized. To avoid this, we look at the number of lots we can carve out of the space, and whether the residential market can fill them. The goal is to obtain more lots from one community and fill them all – the dream!
Do you want to learn more about investing in mobile home communities? We would love to tell you more about the investment opportunities in Fairfield, Cedar Lane, Suburban Acres, and Rolling Meadows, and how you, too, can be a part of it! Visit us at https://www.suncrestcap.com and leave us a message under "Contact Us."