MFREE 117 Trailer # 4 with Kevin Bupp: Why do most institutional buyers avoid owning homes?

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In this episode, Kevin Bupp breaks down how real value in mobile home park investing comes from the land, not the homes. Since the homes are considered personal property, like cars or trucks, they tend to lose value and create more management headaches.

The better play is to own the land, collect durable lot rent, and sell off the park-owned homes when possible. Doing this simplifies operations, reduces turnover, and increases exit value by making the property more attractive to buyers who don’t want the hassle of owning homes.

Kevin explains how this model leads to more predictable cash flow, lower expenses, and even cap rate compression when it's time to sell.

 #MobileHomeParks #CashFlowStrategy #OperationalExcellence

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Episode Transcript

Speaker 2 (00:00):
The durable income we want is on the lot.

(00:02):
Income itself, not on the actualincome from the home if it's a
rental.
These homes are personalproperty.
Classified as what's calledchattel.
And so they're no different orno different classification than
like a vehicle, a car, a truck.
So, they tend to depreciate invalue because they're personal
property.
They're not attached to realproperty.
When we buy a new mobile homepark, that has units owned by
the community, we evaluate itseparately.

(00:23):
We capitalize the income on thepark, and come up with a
valuation in that manner.
And then we just put a shellvalue on the home itself.
What happens is, when we cansell that home off the end user.
The desirability goes up quite abit because most other buyers in
the marketplace, especiallyinstitutional buyers, don't want
to own any homes.
They have no interest in owninghomes.
They don't want, they don'twanna be in the rental business
'cause they know that it's justa lot more turnover.

(00:45):
The income's not as sticky.
Typically what we'll see is caprate compression.
If we can get rid of.
All the park owned homes over aperiod of time and then turn
around and sell that property.
Whereas if it had park ownedhomes originally, it might have,
maybe it sold for six cap.
But if we can get rid of allthose park owned homes and sell
it as a fully stabilizedproperty with no rental units it
might get a 25 basis point,maybe even a 50 basis point
premium on cap rate.

(01:06):
So we actually get my some caprate compression because now
we're selling an asset that.
it's got lower maintenancerequirements.
We don't have to have as much,involvement from a community
manager to oversee it.
We don't have to havemaintenance guys on staff.
It's really simple and there'svery little turnover.
We're not involved in leasinghomes.
We're not involved in sellinghomes.
It's a very simple businessmodel.
Once we can get to that point.