A couple MHP Due Diligence Questions

I have some leads on a few parks for sale in my area and I had a few questions concerning the DD that is involved:

  1. I keep having parks tell me their expenses are in the 24-30% area WITH some park owned homes. Is this even possible?
  2. Assuming their expense ratios are way off, what should I use as a “standard” expense ratio to do some DD on a park? 35%? 40%?
  3. How are the expenses correlated to park size? Or is it random? As the number of spaces increases, what happens to expenses (as a % of gross) in general?
  4. Should I take 5% or so off the top for vacancy BEFORE subtraction operating expenses?

Any tips on the process of performing DD on parks for sale would be appreciated.

I can’t speak to typical expense ratios etc. but I can say you must take 5% from the gross income along with 5% delinquencies from the gross. This is money expected but not received, so it doesn’t get deducted AS operating expenses. So yes, off the top BEFORE subtracting operating expenses.


Do you mean 10% total or just 5%. I have been using 5% for delinquencies. 10% seems high, but if you can get away with it with the seller great!

From my reading I have been hearing 35% or so as a good bet for expenses. Sometimes much higher for older, tons of park owned homes, poor management, etc. 25% seems extremely low, but I guess it’s doable if it’s city water, sewer, streets, etc.

Hopefully some others chime in on their thoughts.


In Tony and Scott’s book “Investing in Mobile Homes with Land and Small Parks” their Income Analysis starts with Annual Rent (Gross Income) less Vacancy Allowance (5%) and less Uncollectible Rent (5%) = Effective Gross Rent.

I agree with your research. I have spoken to small to medium park owners who report 35-40% expenses (didn’t discuss the 10% from above) for parks that don’t own homes. For parks that own all the homes the expenses are typically reported as 50%, sometimes more. A 25% claimed expense ratio is an extremely efficient, well-run operation. If you don’t get that feel from walking the park, talking to residents (as a potential resident), or from the owner, then it isn’t.


The average expense ratio for a land-lease park (i.e. no rentals) and public utilities is about 30%-35%. This is on a cash basis, meaning historical operation with no need for an adjustment for vacancy or collection loss because only revenue received is recognized. A 5% management fee is included in the average expense.

For projection purposes, collection losses are low for land-lease parks, much higher for rental homes. I recommend using the actual rent roll with realistic projected lease-up rather than a 100% occupancy less an arbitrary vacancy rate. Assuming 100% occupancy when it’s not there is just silly.

For analysis and projection, it is helpful to understand the factors that can most affect operating performance.

Parks with private utilities such as well and septic systems typically have OpEx ratios of about 25%, again without rental homes. This is also true of parks in which the utilities are sub-metered and tenant-paid (note: not legal in all states).

Rental homes typically increase OpEx to 50% or more. It is notoriously difficult to pin down the exact numbers, as owners of parks with large percentage of rental homes typically engage in all sorts of “creative” practices. Maintenance cost is much higher, but may be understated because the owner does the work himself, hence no labor charge, or perhaps buy materials and trade the tenant for labor.

Turnover is significantly higher than a land-lease park, and in fact is the major unrealized cost of rental homes. I wrote an article a couple of years ago (Raiders of the Lost Parks) that discusses the effect of rental homes and a turnaround strategy that capitalizes on buying parks with rentals and converting to land-lease.

Shameless plug alert: For more detail than you thought existed about MHP’s and how to acquire, finance, improve and manage them, see my book DealMaker’s Guide to Mobile Home Parks, available in the CRE Online bookstore.


Ray and Dr. B,

Thanks for the great responses. I figured a park with 25% advertised expenses has a lot of maintenance being done by the owner and creative things going on. I guess a few more concerns I have are:

  1. Vacancy. What % is just too much? Say, just theoretically, you have Park A. It’s 100 total lots, 50 of which are occupied, 50 vacant, selling at a 12 cap with proven numbers (once again theoretical), 10k per lot. Park B is the exact same except it only has 15 vacant lots and it’s price is much steeper at 14k per lot. Can Park A be a deal if it can support the financing arrangements with the seller? Or is it just TOO vacant and it’s better to spend more per lot? Obviously how much cash you have to bring in new homes plays a HUGE role in the decision I would think, but still… let’s assume for simplicity sake that variable is identical in both scenarios.

  2. Are parks with high vacancy usually that vacant due to economic factors out of the owners control? Or do you find them to just have extreme cases of mismanagement?

  3. Say you take Park A from 50 lots to 75 lots occupied. Compare that to taking Park B from 85 to 100 occupied. Is Park B “more valuable” to you as the buyer simply because it is now a turnkey operation fully occupied? Sure you created more equity in Park A, but if you can’t sell it and banks won’t refi unless it meets a certain occupancy, what good is that?

Sorry if these are answered in your book Ray! I will check it out for sure.