10 Things To Review Before Investing Passively In Mobile Home Parks

1. The Operator’s Track Record

First and foremost, evaluate the operator’s experience. Has the sponsor successfully taken deals full cycle? Can they share case studies and connect you with current limited partners? Importantly, ask whether the proposed deal aligns with the type of mobile home park investments they typically execute. For example, a heavy value-add infill project requires very different skills than a stabilized cash-flowing property.

2. Return Of Capital Timeline And Expected Returns

Next, consider how long your capital will be tied up. Mobile home parks, like all real estate, are illiquid, so confirm that the operator has a clear plan for a refinance or sale. Typical hold periods range from one to ten years. While double-digit annual returns may be possible, preservation of capital should generally take priority over chasing the highest yield.

3. Area Demographics

Location matters the most. When reviewing a mobile home park investment, consider checking these four metrics on a site like BestPlaces.net:

• Growing MSA population

• Median home prices above

• Major employers in the area

• Average three-bedroom apartment rental rate

These benchmarks can help indicate whether the surrounding market may support sustainable lot rents over time.

4. Utility Infrastructure

Utility infrastructure is often the most expensive land improvement at any mobile home park. Mobile home parks generally have either public utilities, where the municipality provides service, or private utilities, where the landowner is responsible. Public water and sewer are typically preferred because liability rests primarily with the provider.

5. Average Age of the Homes

The age of the homes can significantly affect future expenses. As a general rule, pitched-roof homes tend to be newer and better-maintained than older flat-roof or round-roof models. Since mobile homes typically have a useful life of 50 to 60 years, older inventory may eventually require costly repairs or replacement.

6. Number Of TOHs vs. POHs

Understanding ownership of the homes themselves is critical. POH stands for “park-owned home,” while TOH stands for “tenant-owned home.” Most operators prefer TOH-heavy mobile home parks because tenants handle maintenance on their own homes. Additionally, top agency lenders, such as Fannie Mae and Freddie Mac, typically require communities to have at least 75% tenant-owned homes for the most favorable financing terms.

7. Property Management And Project Management Plans

Mobile home parks are operationally intensive. Therefore, a strong management team is essential. Ask the operator how they plan to manage day-to-day operations and, on value-add deals, how they will execute infill, renovations and capital expenditures. Execution risk is real. An operator who excels at acquisitions but lacks construction expertise may struggle to deliver projected returns on time and on budget.

8. Financing Expectations

Financing options range from agency lenders like Fannie Mae and Freddie Mac to local banks and credit unions. Carefully review the loan terms, interest rate assumptions and amortization schedule. In a volatile rate environment, scrutinize the operator’s exit cap rate and refinance assumptions. Overly optimistic projections could put your investment at risk if market conditions shift.

9. The Deal’s Structure

Syndication structures vary widely. As a general rule, an overly complex distribution waterfall is a red flag. Limited partners should typically receive their preferred return and a return of capital before general partners share in the profits. Common fees in the mobile home park space include:

• Acquisition fee on the purchase price

• Disposition fee on the refinance value or sale price

• Asset management fee on gross revenue

• Property management fee within the property’s profit and loss statement

To benchmark these fees, consider speaking with at least three different operators in the asset class.

10. The Rent Increase Schedule

Finally, review how the operator plans to raise rents. Recently, some newer entrants and private equity groups have pushed aggressive rent hikes of 50% or more in a single year, which can displace residents and generate negative press. A thoughtful, gradual approach to lot rent increases is generally healthier for both residents and long-term investment performance.

Final Thoughts

Investing passively in mobile home parks may be both rewarding and impactful, particularly given that this asset class supplies critical affordable housing for millions of Americans. That said, strong returns are never guaranteed. By thoroughly reviewing these 10 items before committing capital, you can position yourself to make more informed decisions and partner with operators who align with your goals and values.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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