Thoughts About Buying Small Mobile Home Parks

Both my partner and I entered the mobile home park business with smaller properties, and many of our early purchases were tiny communities. Even in recent times, we have no issue with buying a great deal with a smaller lot count. However, there are many things about small parks that we have learned over the decades and wanted to share those with you to help you craft the right buying decision. As you’ll see, there are some important tips for buying smaller parks that will make your plan more successful and your experience in ownership more enjoyable.

Defining a Small Mobile Home Park

For the purpose of our discussion, a small Mobile Home Park ranges from about 10 to 20 lots with a value typically under $500,000. While there are exceptions, this definition helps to frame our discussion.

Strengths of Small Parks

Small parks offer several unique strengths:

1. Higher Comfort Level: Starting small allows you to learn the business with a lower perceived risk.
2. Less Competition: Smaller parks attract fewer buyers, making it easier to strike good deals with sellers.
3. Seller Financing: It’s often easier to secure favorable seller financing terms with small parks.
4. Great Locations: Many small parks are in desirable locations due to their age and historical zoning.
5. Sweat Equity: Smaller parks can be improved significantly with your own labor, making them ideal for hands-on investors.
6. City Utilities: These parks often have city utilities, reducing infrastructure costs.
7. Lower Risk: The overall risk threshold is often lower with small parks, making them a safer investment.

Personal Experiences

• My first small park: 15 lots in Lake Worth, Texas, bought for $62,000, including a three-bedroom, two-bath home.
• My partner’s first small park: 10 lots in Carson, Colorado, bought for $50,000.

Both parks were purchased with minimal competition and favorable financing terms, showcasing the potential for great deals in small parks.

Challenges of Small Parks

Despite their strengths, small parks come with specific challenges:

1. Time Investment: Managing a small park takes the same time as a larger one, potentially reducing overall returns.
2. Management Issues: Limited budgets make it difficult to attract professional management.
3. Harder to Sell: Small parks are harder to sell due to limited financing options and lower interest from buyers.
4. Lower Cash Flow: Smaller parks generate less income, making them less appealing to many investors.
5. Refinancing Difficulties: Securing refinancing or cashout loans is more challenging for small parks.
6. Repopulating with Homes: Smaller parks often have layout constraints that make bringing in new homes difficult.
7. City Permits and Density: Older parks might face issues with city permits and density regulations, impacting their value.

Other Considerations

• Expense Ratios: Higher expense ratios due to fixed costs spread over fewer lots.
• City Friction: Small parks may face more resistance from city authorities due to their desirable locations.
• Grandfathering Protections: Ensure compliance with current regulations to avoid issues with city officials.
• Negotiating Hard: Due to their unique challenges, negotiating a good deal on small parks is crucial.

Conclusion

Small parks can be a great entry point into the mobile home park business, offering unique advantages and learning opportunities. However, it’s essential to be aware of their challenges and negotiate deals carefully. Both my partner and I have successfully navigated the small park market and believe they can be a valuable part of any real estate portfolio.