Bought two homes in somebody else's park, about $14k to learn why that's backwards

This one's closed out so I can tell it properly.

Eighteen months ago I wanted into manufactured housing and couldn't afford a park. What I could afford was homes. I bought two 1990s singlewides sitting on lots in a 90-lot park about 40 minutes from me, $16,500 and $19,000, cash, both occupied by renters paying $850 and $875 a month. Lot rent was $340 each, which I paid to the park owner, so my spread was around $510 and $535 a month per home. On paper that's a 35% cash return and I thought I'd found something.

What happened:

Month 5, the park changed hands. New owner sent notice raising lot rent to $415 effective in 90 days, which he was entitled to do. There went $150 a month across the two.

Month 7, my tenant in the second home left. Getting a new one meant the park had to approve the applicant, which is normal and which I'd read in the lease and not thought about. Two applicants I liked got declined on credit. The home sat 11 weeks and I paid $415 of lot rent every month it sat, on a home producing nothing.

Month 9, the first home needed a water heater and then a floor repair where the water heater had been leaking for a while. $4,200 all in, which is exactly the cost I'd been telling myself I'd avoided by buying cheap homes.

Month 14, I decided to get out. Selling a home in place means the buyer needs park approval too. My realistic options were sell cheap to whoever the park would approve, or pay to move the homes, which quoted at $8,500 and $9,200 plus setup and I don't have a lot to move them to. I sold both to the park owner for $21,000 total.

Net, counting the lot rent I paid on a vacant home, the repairs, and the sale price against what I put in, I'm down around $14,000 over 18 months, plus the driving.

What I'd do differently: I'd own lots or nothing. Every single thing that went wrong came from the fact that the person who controlled my occupancy, my expenses, and my exit was someone else. Owning the depreciating box on land you don't control is the exact inverse of what this asset class is supposed to be.

8 replies

2wendy_park48CapitalPRO7

The approval clause is the whole story. Any lease where a third party can veto your tenant and your buyer has effectively taken your control of the asset, and it doesn't matter how good the spread looked. I read leases for a living and that clause appears constantly in park lot leases, because the park has a legitimate reason to screen who lives there. It's just fatal to your business model specifically.

The other thing I'd have flagged is that your lot rent had no ceiling. You bought a spread of $510 a month with one side of it floating at the discretion of a party with every reason to raise it.

1marcus_hale41CG4A

I'd put more weight on the entry price than @fathom does. $16,500 and $19,000 for 1990s singlewides is not cheap in a lot of markets, and there was no margin in either to absorb a $4,200 repair. If you'd been in at $8k each the same 18 months would have been roughly break-even and you'd be calling it tuition.

2jordan_ellis2ActivePRO6

How did you underwrite the water heater? Genuinely asking, because I've been building a list and I have a line for capex on a house and no idea what the number is for a 1994 singlewide.

1bmoreno23AB1B

This is the version of this strategy I've seen sold as the beginner on-ramp about a hundred times. Buy cheap homes, rent them, no land needed. Nobody in those videos mentions that the park approves your tenant.

1luis_carrera Get yours

@canton I don't think the price fixes it. Even at $8k each, 11 weeks of paying lot rent on a vacant home you can't fill because someone else says no is a structural problem that shows up again every turnover. Cheaper entry just means you survive it longer.

4devon_pierce Get yoursPRO5

Selling both to the park owner for $21k is the detail I'd sit with. He knew you had one buyer and it was him. That's what the exit looks like when your asset can't leave without $9k of transport.

1karen_whitfieldPG4APRO7

You've named the cause correctly. The model works because the operator owns land and infrastructure and the resident owns the depreciating structure. You took the depreciating structure and the tenant risk and left the land to someone else, so you got the worst half of a good arrangement.

The useful thing you now know is which questions matter when you do look at lots. You've lived on the resident side of an approval process and a lot rent increase, which is more than most buyers understand about what they're taking on.

1ehernandez74PO2BPRO5

$14k over 18 months to learn where the control sits in this asset class is not the worst price anyone's paid. I'd write down the three clauses that cost you the money and read for them in everything else you look at, park leases or otherwise.

Bought two homes in somebody else's park, about $14k to learn why that's backwards

8 replies