anybody know what makes a good rental market?

Also is there anywhere I can view the property supply and demand values by graph (to watch the swings over the years)?

I would say high demand (i.e. a large population of tenants) coupled with low supply of rooms. Also a strong job market, its not good business renting to tenants when there is high unemployment.

College towns with a large % of students from out of town make strong rental markets even in downturns in the economy. A good property located within walking distance to a university will always rent out especially if the ratio of students to the population of the town is very high. High demand and low supply make for high rents.

Being close to the school is key though. If your property is too far its tougher renting it. First thing students look at is how many minutes will it take to get to class. Also being close to bars is good, they can walk home drunk. (students love to party).

I agree with these points as I have two college town rentals. The downside of these rentals compared to non-student is you can evict and get rid of garbage without too much of a loss. You have to screen tenants really well. If I had to evict in either of these units I would lose my as there is nobody to rent to,students don't ,move during school and Non students don't want to live near the students. I allow big dogs in these rentals because I want to fear eviction because they have nowhere to go with the dog. I am sure many people will not agree with doing this but it has worked thus far..maybe I am just running good though. The other way to make them fear you by making them either provide last month at signing and deposit and first month at move in or have their parents cosign on the lease if they can't come up with that much money.

This much can be assumed. What about the rental market in comparison to the housing market? Parallel to each other?

It seems like if people can't afford to buy homes, then they are renting or something elsewhere.

I don't know if this is right but I'm wondering what is going on on a micro level in our housing market. Jim sells his home, (+ supply, - demand), Jim needs a place to live and buys another home (- supply, + demand), and that seems like all there is to it. What else is happening to Jim that makes the market in such low demand? RENTING? Living with mom because of no job? Homeless? Why does the housing market swing so much when people simply need somewhere to live and new immigrants are always coming in? In biology, there are similar swings of predator and prey, but predator simply just dies if the prey supply is not enough, (obv not the case with people).

Spex et al.,

I'm getting ready to do my first Lonnie deal on a MH and I came across a guy needing to sell his 3 MH lots. He is asking $22,500 for the 3 lots. They are each set up with their own utilities and water. There are currently 2 homes on the lots but they will be moving. The lots are listed with a realtor and have been on the market since August. The realtor has already told me that he is very motivated and that the price is highly negotiable.

This is in a smallish rural town, but close enough to a larger city that I'm not too worried about finding buyers for homes. Also, the lots are stand alone, ie not in a mobile home park.

From my understanding this is a pretty good deal for the lots, but my reservations are in having to move homes in. First off, I know it is recommended not to move homes when first starting out. I know I can find cheap homes but don't know much about having the homes moved.

Secondly, I'm not sure how things work if I had to manage these 3 lots. Any guidance in this would be great. Are the buyers responsible for setting up their own utilities with the companies, or would any of that be my responsibility? Other responsibilities I would have, or do I just collect a rent check? Thanks for your help.

Have you considered selling the lots along with the mobile homes? I suspect you could mark up your price a ton for trailor and lot if you financed the deal.

The town I grew up in didn't have a MHP but had 3 trailors on the edge of town that were owned by the trailer owners. All three of them had garages built, nice decks and one was later pulled and replaced with a very nice house.

It just seems like there would be a market for a people that can't get bank loans but want to have their own piece of land to do what they want and take some pride in.

How much will the lots rent for? Call nearby MHPs to find out what the rent is.

Hi Spex,

Great thread! Not sure if you can answer this, but what better person to ask.

My mom has her own small little CPA firm. She's been renting for 16 years at her current office location and her monthly rent is $2700 for a 900 sq ft office suite. Her lease is ending at the end of August, so she found out there is a commercial building selling office suites 2 miles away.

The building is 3 floors, the first 2 floors are dedicated to medical related offices, there's even a pharmacy on the first floor. The 3rd floor has lawyers, CPAs, etc. She is looking at a 1400 sq ft office suite, for $290 per sq ft. The room is completely empty, so she would have to make her own tenant improvements for walls, ceiling, doors, etc.

My mom is contemplating buying the office with $500K cash ($406K for office and 94K for tenant improvements and other miscellaneous items).

Do you think it is worth it for her to purchase the office or continue renting at her current location at $2700 a month. (She doesn't plan on retiring for another 10 years minimum).

This is a big step for her, so I thought I'd ask you if there are items I need to tell my mom to look into so help her make her decision.

Thanks for reading!

I don't think its too smart to buy the property for cash, I'd want to finance it. She'd only buy it for cash if she could show that the cost of the mortgage would outpace what she could earn elsewhere. Even if she got a 7% mortgage, after tax deductions it'll only end up costing her maybe 5.5% or so. It doesn't make much sense to put $500k up to save 5.5% when you could put only $150k or so into the property and put the other $350k into mutual funds, etc making higher yields. Leveraging RE deals is almost always the best choice.

Looks like market rent is $36/sq. ft per year. At that rate it would cost her about $4200/mo to rent 1400 sq ft. If she paid $500k for the property, she's looking at putting $100k down and her mortgage would be only$3100/mo plus T&I. that same unit would rent at the market rate of $36 for $4200/mo. It is pretty clear that she is going to come out ahead on this. Based on what you've told, its a clear buy. Only financed rather than cash sale.

Really appreciate the advice spex! I'll definitely try to convince her to finance the purchase. I'll definitely update if it goes through =).

Just curious, how did you calculate the market rate of $36 per year and the rent of $4200/mo.

Thanks again!
<3

$2700 times 12 months divided by 900 sq ft brings you back to $$ /sq ft. Commercial is always listed in $/sq ft on an annual basis.

($2700*12)/900 sq. ft. = $36/sq. ft.

The ROI on buying vs. renting will also depend on the nets she's paying. Assuming she's renting for NNN, buying is a much better deal. Its a better deal either way though.

Mortgage plus T&I should cost her maybe $3500/mo where she'd rent the same unit PLUS likely have to spend a bunch on leasehold improvements anyway for $4200. So she's saving about $700/mo. That is a realized cash gain of 8400/year, which is an 8.5% return on the $100k PLUS probably appreciation over 10 years, PLUS principle paydown on the mortgage over 10 years. Very clear buy IMO, esp since she is using the space herself. Plus after she retires in 10 years she can refi the mortgage balance out over 20 years and rent the unit for a very good monthly cash flow.

With the numbers you've given me, there is just about no way that renting is a better choice.

Does she have plans to use the additional 500sq ft to make more money? Seems like an no brainer unless she just going to give everyone more leg room with the big size jump.

Thanks for the response spex! My mom set up an appointment tomorrow to negotiate price. One of my mom's friends purchased a suite in the building for only $275 per sq feet, so my mom is going to try to get it down to $280 per sq feet if possible. But it seems like its going to go through.

I tried talking my mom into financing atleast half of the purchasem but she said she just feels more comfortable paying it all off at once. So no dice there =(

Either way, it should prove to be a good decision in long run. I'll update this as soon as I hear more =) My mom is excited hahah.

to kjander: With the extra 500 feet, she is going to add another room within the office for my Dad to work out of. So I don't think she's going to use it make more money. Mainly just more leg room.

spex, would you say the reasons for buying and the expectations of owning a MHP have changed over the years? I have a very limited sample but the people I meet who have bought MHP in the last 5-10 years expect and usually make quite a bit of money.

Was this the case in 70s and 80s? If not, what was the reason or incentive for people buying 30 years ago? These are the people retiring and selling their parks now so I am curious if there is a difference in mindset.

It has always been the same. People that buy real estate today buy for the same reason people that buy 100 years ago bought.

Same goes for selling.

Why are Tony Colella and Scott St. Aubin using a like 30% expense ratio to evaluate cash flow on rented double wides (new or immediately renovated) in their land/home deals? This seems rather absurd, but iunno

Well, I dunno for sure. It was definitely a different market in the 70s and 80s. At that time your tenants could get financing for mobile homes. that isn't really the case anymore. Plus, for the last 10 years its been possible for a lot more people to buy stick-built homes because financing has been so easy. In the 90s and early 00s a lot of the companies that were financing MHs went out of business because their loans were really poorly structured. The lack of financing MHs and ease of financing SFHs has been a detriment to MHPs overall.

So as a result of all that, MHP owners that bought in the 70s and 80s started losing more tenants as homes were junked or pulled out and never replaced. These days in order to keep a MHP full the park owner has to pull in homes and seller finance the homes himself. That is the only way to keep the lots full. But this is a huge change from the days of the 70s and 80s. So most of the guys that bought 20+ years ago end up in 2009 with a half empty park to sell that nobody wants to buy and no bank will finance.

This is a tremendous opportunity for the smart RE investor. If you can structure smart deals with sellers, you can make a lot of money by turning parks around, and modernizing the business model. So while both the 1980 buyer and the 2009 buyer expect to make money, there is a marked difference in the business model. One can make a lot of money flipping MHPs.

Hum, maybe I should start a company with some of the guys from BFI flipping MHPs. Anyone want to invest $20k?

There is nothing wrong with Tony & Scott's method. They are very through in their model. Its a hard question to answer. First off, taxes are lower on a DW than stick-built. Second, trailers are cheaper to repair than stick-built. Whatever accounts for the difference, its obviously working for them since they've been in business a while now.

If you are serious I am totally down. I had looked into MHPs as per your advice but it seemed too daunting so with my total lack of RE experience I decided to start with SFHs in my area. If I could plunk down 20k and learn the MHP business riding shotgun on a couple deals while making a nice return, thatd def be something Id be interested in.

I'd be interested in investing in almost any RE project spex comes up with (subject to due diligence etc) because he has a track record of success. I'd hope it would be profitable and educational.

Given you're likely to have several people interested and therefore plenty of capital why flip the parks rather than keep them and use them as a source of Lonnie deals?

I would have thought that keeping them would generate better long term returns than a flip. Or by flipping do you mean business turn-around rather than a quick buy low sell high?

I think almost anyone in BFI would be willing to put money along side spex in an investment. Just PM me if BFI Corp gets started .

Thanks. After some thinking, they exclude the value of their time in most of their cash flow valuation which would put them much more in line with the other estimates that I've seen you and others do. Between that and the points you listed, I can get the gap reasonably narrowed to see how the figures line up with what everyone else does.

This is a question that the NPR (net present value) calc can answer. What you'd do is calc the NPR of different scenarios and choose the highest. But I can tell you right now that if you take a $500k, turn it into a $1.5M park in 10 years, you are better off taking your $1M profit and buying two more flippers. But that depends a lot on what your goals are.

Update! My mom purchased the office suite today. This is what she told me,

$285 per square foot plus (Gross space is 1,446 square feet) plus Tenant Improvements of $40 per square feet (net space of 1,176 square feet).

Total cost comes out to be $460K.

I bet she is excited. Its something new to her life.

Thanks Spex.