In February 2023, my business partner and I purchased a mobile home park in South Louisiana for $4.2 million. Just one year later, it’s valued at $8.4 million, and it’s still climbing.
Here’s a simplified version of our journey.
Don’t Miss Any Updates. Each week I’ll send you advice on how to reach financial independence with passive income from real estate.
Sign up for my newsletterFrom Purchase to Profit: The First Steps
Finding the Opportunity
The park is strategically located between three of the largest metropolitan statistical areas (MSAs) in Louisiana. My business partner, who already owned several parks in the area, was familiar with this one. His primary broker contacted him about a potential opportunity and shared the initial offer from the seller:
- 149 permitted lots
- 140 existing lots with 120 occupied and paying tenants
- 5 vacant or abandoned lots
- a large metal building
- additional land and infrastructure for future expansion
The asking price was $4.2 million, which meant we were looking at $30,000 per pad in a market where lot rent exceeded $400. On paper, it seemed like a good deal.
The Initial Offer and Due Diligence
We agreed to the asking price and began an extensive due diligence process.
The park had been losing money for three consecutive years. Despite its prime location near high-value amenities, the previous owner had been managing it poorly, almost like a Class F facility on the brink of closure.
Of the 55 park-owned units, 30 were vacant, and the others housed tenants who were difficult to manage.
Rent collections on the existing rent roll of $44,000 never exceeded 85%, with some balances extending over six months.
Turning Challenges into Opportunities
Addressing the Park’s Problems
The vacant homes required extensive rehab to be sold or rented through a rent-to-own (RTO) program.
Since we don’t rent, we offered the seller a choice: either we’d withdraw our offer, or he could rehab the worst homes with our crew. He agreed and spent two months rehabbing 25 homes.
The vacant homes required extensive rehab to be sold or rented through a rent-to-own (RTO) program. Since we don’t rent, we offered the seller a choice: either we’d withdraw our offer, or he could rehab the worst homes with our crew. He agreed and spent two months rehabbing 25 homes.
Rehabbing and Repositioning the Property
We split the down payment 50/50. The park’s rents were slightly below market, having been raised from $200 to $385 during COVID. The market lot rent was $400-$450. The park-owned homes (POHs) were rented at half the market rate, and the existing RTO units were at 70% of market value.
We knew this would be a heavy lift, but we were well-prepared.
We planned to raise the lot rent from $305-$385 to $385-$410, which would immediately add $10,000 per month to the rent roll. We also planned to evict all tenants from the park-owned units and have buyers ready to purchase the homes.
Achieving Financial Success
Increasing Rents and Stabilizing the Park
Before the purchase, we tested the market by selling five RTO homes, all sold within a week. We had developed a waiting list of buyers who had passed background checks, had $5,000 for option payments, and were willing to pay an average of $900 per month.
On day one, we signed the sale papers and evicted 200 people from the property. Yes, 200. This drastic move eliminated collection issues, drugs, violence, gang-related activity, and loud music that vibrated homes at all hours.
Within the first week, we put every tenant on a payment software system, removed dumpsters, and pushed all maintenance responsibilities onto the tenants.
Selling Homes and Boosting Cash Flow
By day 30, we had sold 20 homes. By day 45, we had sold 40 homes. By day 90, every vacant home—whether park-owned or abandoned—had been sold. The park was now stabilized, with a $65,000 rent roll. We also collected $300,000 in option payments, which we used to buy and rehab homes to fill almost all the remaining lots.
The Results: A Thriving Investment
Doubling the Park’s Value in 12 Months
As of January 2024, the park’s rent roll was $74,000, and after selling a few used units we brought in, February’s rent roll was $76,000. Our first lot rent increase took effect in March 2024, raising the rent roll to $80,000.
Our expense ratio is under 30%, and our net operating income (NOI), excluding home purchases and rehab costs, is currently $660,000 per year, with a projection of $720,000 after the rent increase.
Forecasting Future Growth and ROI
We are planning to refinance the park this year. Initially, the park was considered an 8-cap investment based on day one numbers. However, after a massive cleanup of tenants and expenses, the park now operates at a 17-cap and could be sold as an 8-cap or better park.
Relate article: What’s a Cap Rate?
This project was a heavy lift, with numerous components needing to align in a short window. This is not something most investors or operators could accomplish, nor should they try.
Lessons Learned from La Casa Park
Key Takeaways for Real Estate Investors
As of August 2024, La Casa Park has become a fantastic place for tenants. We have three empty lots and one development lot, none of which have ever held homes in the park’s history and were not included in the pro forma rent roll.
These lots will be filled with tenants moving in independently by the end of this year. The current rent roll is $79,000, and monthly collections exceed $80,000, including late fees.
Why Mobile Home Parks Are a Smart Investment
We sold the office building for $150,000, which removed $18,000 in yearly real estate taxes from the park’s books. We also negotiated an additional $8,000 per year in taxes to be removed due to how the parish calculates property value.
Between the rent roll increases, the office sale, and the removal of excess taxes, we’re now seeing a return on investment (ROI) of over 30%. That’s tough to beat in the stock market!
This does not include the massive benefit from the cost segregation study, which yielded well over $1,000,000 in year-one depreciation. We’re also forecasting a refinance event soon that should repay all of our initial contributions while maintaining current returns. Again, you won’t find that kind of return in the stock market!
Within the next 12 months, we plan to pave the roads in the park, which should elevate the property to a class C or possibly even a class B investment. The proceeds from the office parcel sale will cover this expense, not from our personal funds.
The Future
The area’s future looks bright. This park has become a sought-after destination for home sales. The market lot rent is now $485 locally, with other parks ranging from $435-$460. The next rent increase will bring this park to $460.
The only future projects we’re considering are sub-metering water, adding shut-off valves to water mains in strategic areas, and connecting utilities to the lone undeveloped lot. Any of these projects, if implemented, will be paid for by tenant billbacks for water and sewer and by the rental of the last remaining lots.
Join the Passive Investors Circle