POH vs. TOH and How Each Type of Residence Should Be Valued

In this episode, we explain the difference between a park-owned home (POH), a tenant-owned home (TOH) and a hybrid model that’s a little of both. Then you’ll learn how each type of housing unit is valued when determining a market price for the community you’re thinking of buying or selling.

As always, this episode, hosted by Maxwell Baker, was brought to you by The Mobile Home Park (MHP) Broker’s proprietary Community Price Maximizer. With our system and our very experienced brokers, we’ll guarantee you a higher price when you later sell your mobile home or RV community.

Here Are The Show Highlights:

• A park-owned home (POH) is one which community owners own. They’re responsible for repairs, and they lease these units to tenants much like they’d rent any apartment unit if they were a landlord. (00:42)
• A tenant-owned home (TOH) is one that’s owned by the resident. The park owner just rents the lot, or the space in an RV community. (3:00)
• In the hybrid model, the mobile home or RV is owned by the park owner, but some of the monthly payments are dedicated to financing the unit by the tenant n a rent-to-own lease arrangement. (1:08)
• Many investors prefer parks with TOHs for their hands-off simplicity, especially situations in which water, sewer, electrical and trash pickup are directly billed to the tenants.(3:00)
• POH communities are less highly sought by buyers because they’re inherently riskier than TOH parks, so investors expect a higher return on investment. (2:51)
• The hybrid model can be problematic for investors and park owners. First of all, it can be difficult to legally determine whether a delinquent payer can be foreclosed on or must be evicted. That might be based on how much equity they’ve built up and the jurisdiction in which the park is located. (2:02)
• One of the most desirable models is when the city owns the roads, water and sewer lines and other infrastructure, because the park owner is not responsible for the cost or involvement in maintenance or repairs. (3:45)
• Other factors determining market price include lot size and location. (15:39)

Hello, and welcome to the mobile home park brokers tips and tricks. This is the podcast where we talk about mobile home park investing, because that’s what we’ve been involved in for the last decade. Let’s dive into today’s episode. Here’s your host, Maxwell Baker.

00:22 Maxwell Baker 

Hey y’all. Welcome to another beautiful episode of the mobile home park brokers tips and tricks podcast. This episode, we’re going to go about how we as a company price park owned homes(POH) versus tenant owned homes(TOH), when we take a mobile home community out to market exclusively.

00:42

So just to jump right into it. A park owned home is a home that you rent out to people. It’s like an apartment, you collect rent, and you usually make the repairs. I say usually because we all know there’s some people out there that don’t make repairs and are running slums. But those are becoming fewer and fewer because people are demanding higher quality assets to live in. So that’s good because it’s improving the community which in turn is going to improve the value. I digress here.

01:08

There are also things called the park owned home hybrid model, which is when you rent-to-own the mobile home or owner finance the home to someone. These are a little bit more complicated because when you go to sell them, there’s four variables we as a company look at when it’s time to look at these assets and these agreements.

01:30

Those four things are the age of the home, the seasoning of that tenant that’s been living there (Seasoning means how long the tenants been living in that home), how the paperwork is set up (paperwork, it’s extremely important, depending on local magistrate) and if there is any debt on the home, whether that’s new home debt, or you’ve got some other debt from some third party, we look at that as well to see some things I’ll talk about later.

02:02

Some other people might be sensitive to tenant profile, the demographic of the tenant and how conservative or liberal the magistrate is, with how they view the paperwork that you’ve put together to finance these homes. Some areas of the country will say look, the tenants built up equity, you’re going to have to foreclose on them, you can’t evict them.It just depends on where you are in the country, and how the magistrates going to look at your paperwork. It’s always important to try and find the smartest contract attorney that has a relationship with the local magistrate. And they know each other by first name, hopefully, and do the paperwork, right. Because they’ll go in spitball the idea with the magistrate, and they’ll basically quarterback them to success. So always important to know how the magistrates are going to look at your paperwork You want to ask your park owner how they put the paperwork together.

02:51

Park owned homes are going to be inherently riskier, there’s more variables, so there’s going to be more risk, which in turn organically means investors are going to want higher returns on these types of assets.

03:00

Now that we’ve talked about the park owned homes- Let’s talk about tenant owned homes. Tenant owned homes are going to be where people rent a lot or lots from you, and they pay you a monthly payment to park, that’s the old school way of saying it or rent the dirt underneath their mobile home in your community or RV site. It’s almost like a triple net ground lease on a Starbucks or CVS, you literally don’t have to do anything. In some cases, the best situation you can ever find yourself in is by finding a community that’s all tenant home direct billed city water and sewer. Direct bill means the city bills the tenant for the usage for city water and sewer, you have nothing to do with it. And sometimes you don’t even own the water and sewer lines in your park. Same with trash, electricity, gas, all direct bill, you don’t mess with it.

03:45

One of the rare things out there is the dedicated roads or public roads. So, in that instance, if you get a pothole you just call the municipality and they’ll come out in theory and fix the pothole for you. That’s like the cream on thetop when it comes to mobile home parks. That’s basically the infrastructure you want and the stuff that’s going to get some crazy cap rates when we price them because there’s just fewer variables, which means you’re going to get a higher price, less risk, right?

04:22

These types of parks, like I said, are very rare, and they’re rare because it costs a lot of money for the local municipality to invest into a community like this. Tenant owned homes are always going to be less risky than parked on homes because like I mentioned earlier, “Can anybody guess?” they have fewer variables, and that they’re usually going to pay higher prices for these because they inherently do less to manage them. They kind of run themselves once you get all your system in place. That’s the name of the game. If you don’t got to do much, that’s the best investment you can ask for. You can sit on the beach and drink your pina colada. That’s what people want to be doing instead of going crawling under their mobile home fixing it.

05:04

Let’s go into pricing them here at the mobile home park broker. Park owned homes are tough in evaluating because there’s a lot of things you need to consider when you’re looking at them. Let’s go over and quickly.

05:14

Age of the home, each year manufacturers come out with a new model mobile home or manufactured home depending on how fancy you are. If you’re buying a park owned home community, you want to make sure that you’re not overpaying for the park owned homes. It’s all about the value of the home. I always say that whatever the home will trade on Craigslist or Facebook marketplace is what it’s worth, that’s black and white. Don’t let people try and tell you anything different. It’s simply not true.

05:40

Values also fluctuate based on lot rent. Believe it or not,a 1970 singlewide in Beverly Hills is just going to be way pricier than 1970 singlewide in beautiful Tifton, Georgia. The demand for affordable housing out there in Beverly Hills is just way greater than it is in Tifton, Georgia. Real estate values are cheaper, lot rents are cheaper, thus mobile homes are going to be cheaper. It’s the exact opposite for Beverly Hills, California.

06:12

Now let’s talk about how we evaluate notes when you purchase them. Notes are funny in that some people will put a crazy value of the home knowing it’s really worth much less, and then finance these homes for the tenant. Most of the clientele out there really just care about how much down and how much a month. So, when they see they have to make payments for years, 20 years there, I’ve even seen a 50-year note on like a mid-80s mobile home, crazy. When they see that they’re just going to treat it like a rental, y’all. It’s just my humble opinion that if you do that, you better be checking on it every year. Just put down your contract, because they’re just going to tear it up, you know the whole theory behind, Oh, they’re going to make their own repairs and whatnot and they will if they think that they’re going to be able to get ownership of your title fairly soon. But if it’s a 50-year note, you need to get in there once a year just to check it and to see what’s going on. They just care about how much down and what is it going to cost me a month all in. So, if you’re going to invest in park owned homes, save those receipts, a lot of times with our lenders, they will look at those receipts and move the needle-based off of how much you’ve invested in it, not what NADA value is.

07:22

We have several lenders obviously that know how to do that, and will do that. And if you work with us, you’ll be able to take advantage of them. The lot rent is always going to be more sustainable. Mobile homes are going to always go down in value, they’re depreciating assets, there will always be some outliers out there with people that do land banking, or if the demand for affordable housing starts skyrocketing. But generally, lot rents is where it’s at.

07:45

Let’s jump to the next part of this, I’m kind of bashing a little bit the park owned home model, but really, it’s just about risk and reward in exiting at the highest price possible. That’s not to say that the business model of parked owned homes is not successful or profitable, it totally can be, and it totally is if you’re willing to deal with the drama that takes to manage that. But it’s just another business and you’re going to need the infrastructure system in order to manage those types of homes or the business model of renting mobile homes or doing the rent to own so there are some third parties that will manage the note for you – just give us a call at 678-932-0200 or info@themhpbroker.com. But like I said, it’s just another business that is going to require some time, energy, and effort to automate it. And that’s just going to be a lot of above and beyond just renting lots to tenants.

08:45

The other thing I was going to mention is the seasoning of your tenants. There are some areas in the country that have a revolving door of tenants. They just abuse these homes. The lifespan of a tenant in some of these communities are 30 days, 60 days, and then they jump to the next park down the road. And they just keep playing this shell game trying to live rent-free. I know several markets that are like that, and we typically try to price them aggressively to show that because we do an enormous amount of upfront due diligence on all of our exclusive listings. This tenant profile is extremely difficult to manage. If you find a park that have tenants that have been living there multiple years, then you’ve got something to be pretty excited about. I’ve seen some swindlers out there selling parks saying they’ve got great collections, a great rent roll, all that jazz, great record keeping, and then after they close, there’s a mass exodus. Then you’re basically operating at a much lower occupancy. There are several swindlers out there that do that. So, if you ever have any questions, feel free to reach out to us but always follow your gut. That’s the biggest thing I can tell you about is that if something’s too good to be true, it probably is but if you use us as your broker, we’ve seen it all after a decade of selling parks.

I think we’re close to 300 communities now that we’ve sold in our lifetime, man, it’s crazy. I know the personality types; I know all the people out there that have a history of doing that and we try to avoid those people.

10:16

Let’s move on to the debt portion that I want to talk about here with y’all. There’s a lot of programs out there that talk about debt, like, you know, you got 21st, legacy housing, then you’ve got your local banks that are out there that we mess with, and they’ll finance new and used homes for you. A lot of these programs will offer 95 to 100% financing on brand new homes cross country. Some of these programs are great, and some of them are meh. Great in theory, but the mobile home they’re selling you is not so much. Occasionally we’ll get a community where an investor will purchase a slew of new mobile homes or manufactured homes to fill up these empty lots that they have tenants in and then have them qualify with the manufacturer or lender, or you as the park owner will finance them for the tenant. There are some issues with that, I know that a couple of lenders out there will say that “Hey, we’ll finance a tenant but if they default, you’ve got to take over the payments if it goes dark longer than 30 to 60 days”.

11:15

For me, I’m not a debt guy, I’m more of a cash kind of operator. That’s just my humble opinion, not saying it’s not a good way to run your business. If you want to grow really, really fast, the new home model is very good. You can get an infinite amount of brand new homes, if you’re willing to spend the $40,000 to $60,000 per home to get it over there. A lot of times they’ll 100% finance it for you. It’s a great way to fill up that park quick but it does come with some risk, obviously with the debt. A lot of park owners will come in and they’ll fill up these empty lots, it’ll increase the gross income extremely quickly.

11:50

There are some areas in the country that just can’t sustain a brand new mobile home and I’ve seen a lot of park owners kind of scratch their head and say, “Look, I’ve got these new homes, but for some reason, I just can’t get rid of them”. The problem is, these markets can’t sustain $700, $800, $9,000 monthly payments on a brand new mobile home. They can only sustain $400 to $700 on a used home, or a lot of tenants don’t like to live in debt, surprise. They like to live on a cash basis. There’s some demographics out there that don’t do debt at all. If it’s less than $25,000, you’re going to have a lot of people come to the table with some cash. Obviously, it depends on the market. You’ve got to be real sensitive to what the culture is like in your area that you have in your park because it’s not one of those, if you build it, they will come kind of concepts.

12:48

You got to be careful because some of these deals that I’ve seen will sell the park and then you also have to absorb the debt that these people have used to buy brand new homes. Not only are you paying a price on the park, but you’re also having to absorb the debt on these brand new mobile homes. So that’s a tough pill to swallow and when you go look at it, and they’re like, “Why haven’t you sold these?” and these people are like, “Oh, well, you know, we couldn’t find somebody”, you know, but you just got to be careful, because you really need to see what’s going on with the local culture and local market and what they can sustain. I’ve just seen it multiple times these park owners will have these brand new homes and they’re like, “I can’t sell that and I don’t know what to do” and they just try to discount and try all these incentives.

13:30

A lot of people just don’t want the newest and greatest thing. They just want used mobile homes, they want to pay cash, and they want to live minimalistic and that’s it. The other thing I’ll mention about the private loans of some park owners do is pricing the note extremely high or selling the mobile home extremely high on an asset that’s worth very low. Occasionally we’ll have a deal that we’re working on where the note balance is like $30,000, but the mobile home is worth like 10 grand. I get it, we all like to make money but when it comes to selling your park and you have a bunch of notes on assets that are worth a third of the value of the note, be prepared to have that note discounted to the correct asset value. Buyers are getting smarter, and it’s just tough to try and justify getting a premium on these type of notes. So that pretty much wraps it up for the park owned home stuff.

14:23

We’ll move real quick to the tenant on home or TOH, it’s really not that complicated. The tenant owned home is a lot easier to do versus the park owned homes. That’s why you see a lot of brokers chasing these deals. If you get to a broker out there, you’d rarely see the park owned home on the market. They’re just tough to sell. We sell a lot of those because we’re good at selling park owned home deals because we evaluate it properly. It really just depends on where the market is, how the infrastructure of the utilities is set up and management and lot size on these tenant on home profile parks.

14:53

Like I mentioned earlier in this podcast, the gold standard is the direct billed everything. Water, sewer, gas, electric, trash and having public or dedicated roads. If you’ve got a lot of spread in between where the park is charging lot rent and where the market is. We’re going to take that into consideration when pricing your community. We will also take into consideration management because management is another variable that’s extremely important when it comes to pricing. If you make the transition easy and management is set up, you’ve got website out there, you’ve got a good person that’s been working there for a while, you’ve got some video cameras, then you make it easy for the next person to run this park. You’re going to get a good price for it, especially if it’s a tenant-owned home community.

15:39

Another variable is lot size. Some of these inner-city mobile home communities, the lots are super small, and you really can’t update them because the only thing that can be put on those lots are a tiny home, or a park model mobile home, because the lots are just not made for a 16 by 80, or even a 14 by 70 singlewide. So those typically have a higher cap rate or occasionally the land is worth way more than what the park is worth and will price it as such. At the end of the day, you really just have to have two things in mind when you’re looking at a deal. How much risk are you comfortable with and how many variables do you want to deal with?

16:19

In today’s market, you have to be flexible as the perfect deals are extremely difficult to find. If you want to be taken seriously by a seller or broker, set your minimum criteria and just start shopping, going through your deals, and set expectations of what you’re looking for with these agents. You go in there wishy-washy; they’re just going to show you everything. There’s going to be big-time vampires, is what I like to call it.

16:45

So as always, this episode is brought to you by the Community Price Maximizer. It is our proprietary system that will guarantee you the highest price you can get on your mobile home, manufactured home, RV community when you go to sell it and list it exclusively with us. We’ve set a lot of records on the price per pad and cap rate here in the 15 states that we are working and growing, and I would love to do that for you as your broker on your next park. So, give us a call 678.932.0200 or email me at info@themhpbroker.com. Looking forward to hearing from you all and as always, let’s keep moving forward.