Mobile Home Park Investment Calculator

A "good" Cap Rate (Capitalization Rate) for a Mobile Home Park depends heavily on market conditions, location, and asset quality. In primary markets with stabilized, high-quality parks (often 4-star or 5-star), investors typically see cap rates between 6% and 7%. These lower rates reflect lower risk and steady income. Conversely, in secondary or tertiary markets, or for "value-add" opportunities requiring significant turnaround work, investors often target cap rates between 8% and 12% to compensate for the increased operational risk. The Cap Rate is calculated by dividing the Net Operating Income (NOI) by the Purchase Price, serving as a primary metric for gauging the unleveraged return on investment.

Net Operating Income (NOI) is the lifeblood of commercial real estate valuation. For mobile home parks, it is calculated by taking the Gross Potential Income (total lot rents at 100% occupancy) and subtracting Vacancy Losses (empty lots) and Bad Debt (uncollected rent). From this Effective Gross Income, you subtract all legitimate Operating Expenses such as property taxes, insurance, management fees, repairs, utilities, and landscaping. Crucially, NOI excludes debt service (mortgage payments) and capital expenditures (large one-time improvements), offering a pure view of the asset's operational profitability before financing structures are applied.

The Expense Ratio (Total Expenses / Gross Income) for Mobile Home Parks typically ranges from 30% to 45%. This is generally lower than multifamily apartments, which often run at 50%+, because MHP owners lease the land while the tenants usually own and maintain their homes. Parks with city water/sewer where tenants are directly billed often see expense ratios in the low 30s. However, older parks with private utilities (wells, septic systems, lagoons) or those paying for water/trash master meters may see ratios closer to 45% or even 50%. Accurate expense underwriting is critical to avoiding overpaying for an asset.

The "50% Rule" is a quick heuristic used by investors during initial deal screening. It assumes that 50% of the Gross Income will be consumed by operating expenses (taxes, insurance, maintenance, management). While high-quality Mobile Home Parks often outperform this metric (operating closer to 35-40% expenses), using the 50% rule provides a conservative safety margin. If a deal cash flows positively using the 50% rule, it is likely a strong candidate for deeper due diligence. It prevents investors from being seduced by overly optimistic "pro forma" numbers provided by sellers.

Valuing Park Owned Homes (POH) is tricky because banks typically lend on the real estate (land/infrastructure), not the chattel (mobile homes). Sophisticated investors and lenders often separate the income streams: Lot Rent is capitalized at the market Cap Rate (e.g., 7%), while Home Rent is heavily discounted or treated as temporary income. POH often requires higher maintenance and depreciates over time. Therefore, savvy buyers might pay "shell value" or wholesale value for the homes (e.g., $5k-$15k each) rather than capitalizing the home rent income, ensuring they don't overpay for depreciating assets.

Cash-on-Cash (CoC) Return is the primary metric for measuring the efficiency of your invested capital. It is calculated as Annual Pre-Tax Cash Flow divided by Total Cash Invested. Total Cash Invested includes your down payment, closing costs, loan fees, and immediate capital improvements. Unlike Cap Rate, which measures the property's performance, CoC measures your specific investment performance, taking into account the leverage (debt) you used. Many MHP investors target a CoC return of 10% to 15%+ in year one, with growth potential as they raise rents and fill vacancies.

Physical Vacancy refers to empty lots with no homes or vacant homes on lots. It is visually obvious. Economic Vacancy is more subtle and often more dangerous; it includes occupied lots where the tenant is not paying rent (Bad Debt) or where the owner is offering concessions (free rent months). A park might be 100% physically occupied but suffer from 20% economic vacancy if management is poor. Diligent investors analyze rent rolls and bank deposits to uncover the true Economic Vacancy, as this reflects the actual cash flow reality.

Interest rates have an inverse relationship with property values. As interest rates rise, the cost of debt service increases, which reduces the Net Cash Flow available to the investor. To maintain a desirable return on investment (like a 10% Cash-on-Cash return), the purchase price must decrease. This dynamic causes Cap Rates to "expand" (increase) when interest rates go up. Smart investors stress-test their deals using this calculator to see if the investment still makes sense if interest rates rise by 1% or 2% before they refinance.

A "Stabilized" Mobile Home Park is one that is performing at its optimal operational level. Typically, this means an occupancy rate of 85-90% or higher, with tenants paying market-rate rents, and operating expenses normalized to industry standards. Stabilized parks qualify for the best financing terms (like Agency debt from Fannie Mae/Freddie Mac) because they are viewed as low-risk, income-producing assets. Investors buying stabilized parks are usually looking for steady cash flow and wealth preservation rather than aggressive growth or turnaround projects.

"Value Add" is the process of forcing appreciation by increasing the Net Operating Income (NOI). Because commercial real estate is valued based on a multiple of income (Cap Rate), every dollar you add to the bottom line increases the property value significantly. For example, if a park trades at a 10% Cap Rate, every $1 increase in annual NOI adds $10 to the property's value ($1 / 0.10). Common value-add strategies include raising below-market rents, billing back utilities to tenants, filling vacant lots with new homes, and reducing administrative waste.

A Debt Service Coverage Ratio (DSCR) loan is a type of commercial real estate financing where the lender qualifies the loan based primarily on the property's cash flow rather than the borrower's personal income. The ratio is calculated as NOI divided by Annual Debt Service. Most lenders require a minimum DSCR of 1.20x to 1.25x, meaning the property must generate 20-25% more income than is needed to pay the mortgage. This ensures a safety buffer for the bank. DSCR loans are essential for scaling a portfolio without being limited by personal debt-to-income ratios.

Amortization refers to the schedule over which loan payments are calculated to fully pay off the principal (typically 20, 25, or 30 years). A longer amortization lowers monthly payments. The Loan Term is the actual lifespan of the loan contract (typically 5, 7, or 10 years). In commercial lending, the Term is usually shorter than the Amortization, resulting in a large "Balloon Payment" due at the end of the term. For example, a "10/25" loan has a 10-year term with payments calculated on a 25-year schedule, requiring the borrower to refinance or sell the property at year 10.

Yield Maintenance is a rigorous prepayment penalty common in commercial and Agency loans. It guarantees the lender the specific return (yield) they expected when they originated the loan, even if you pay it off early. If interest rates drop and you try to refinance, the penalty can be massive—often costing tens or hundreds of thousands of dollars—to compensate the lender for the lost interest. Investors must be careful locking into long-term loans with Yield Maintenance if they plan to sell or refinance the property in the near future.

Recourse Debt means the borrower is personally liable for the loan. If the property fails and foreclosure proceeds don't cover the loan balance, the lender can seize the borrower's personal assets (bank accounts, home, etc.). Most local bank loans are recourse. Non-Recourse Debt limits the lender's remedy strictly to the collateral (the property itself). If you default, they take the park, but your personal assets are safe (barring fraud, known as "bad boy carve-outs"). CMBS and Agency loans (Fannie/Freddie) are typically non-recourse, which is highly desirable for investors.

For commercial Mobile Home Park acquisitions, lenders typically require a down payment of 25% to 35% of the purchase price. This translates to a Loan-to-Value (LTV) ratio of 65-75%. Unlike residential real estate where 3-5% down is possible, commercial lenders require significant "skin in the game" to mitigate risk. In some cases, investors can use seller financing (subordinate debt) to cover part of the equity gap, but the primary lender will usually still want to see at least 15-20% pure cash equity from the borrower.

Interest Only (IO) financing allows the borrower to pay only the interest portion of the mortgage for a specific period (e.g., the first 1-3 years of the loan), deferring principal payments. This significantly lowers the monthly debt service, boosting Cash-on-Cash returns and improving cash flow during the critical stabilization phase of a value-add project. While highly advantageous for cash flow, IO loans do not reduce the loan balance, meaning the investor builds no equity through principal paydown during the IO period.

Agency Debt refers to loans backed by Government-Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac. These are widely considered the "gold standard" for MHP financing because they offer lower interest rates, longer amortization periods (up to 30 years), and non-recourse terms. However, Agency loans have strict eligibility requirements: the park usually must be stabilized, have high occupancy, paved roads, no significant deferred maintenance, and professional management. They are typically available only for loans over $1 million.

Subordinate financing, often called a "second mortgage" or "seller carry-back," is a loan that sits in second lien position behind the primary bank loan. It is a powerful tool to bridge the gap between the bank's maximum LTV and the purchase price. For example, a bank might fund 70% of the deal, the seller carries a note for 15%, and the buyer puts down 15% cash. This reduces the buyer's cash-to-close requirement and can significantly increase the Cash-on-Cash return (infinite returns are possible if the seller carries enough). Not all primary lenders allow subordinate debt, so it must be disclosed early.

A Wraparound Mortgage ("Wrap") is a form of seller financing where the seller keeps their existing mortgage in place and issues a new, larger loan to the buyer. The buyer makes one payment to the seller (usually at a higher interest rate), and the seller uses part of that cash to pay their original bank loan, keeping the difference (the "spread"). This allows the buyer to acquire the property without qualifying for a new bank loan. However, it carries the risk of the "Due on Sale" clause, where the original bank could call the loan due if they discover the title transfer.

Yes, value-add deals with low occupancy or infrastructure issues often don't qualify for traditional bank or Agency financing. Instead, investors use Bridge Loans or Hard Money lenders. These are short-term (1-3 year), higher-interest loans designed to fund the acquisition and renovation costs ("CapEx"). Once the park is stabilized (occupancy raised, rents increased), the investor refinances into long-term, lower-rate debt to pay off the bridge loan. Lenders like Jaken Finance Group specialize in structuring these turnaround scenarios.

A Phase I Environmental Site Assessment (ESA) is a critical due diligence report that investigates the property for potential environmental contamination. In Mobile Home Parks, risks often include leaking underground heating oil tanks, old septic systems, or nearby industrial pollution. If a Phase I identifies "Recognized Environmental Conditions" (RECs), a Phase II (soil testing) is required. Banks will virtually never lend on a commercial property without a clean Phase I report, as environmental cleanup liability is strict and can exceed the property's value.

A "Master Meter" system means the utility provider (gas, electric, or water) sends one giant bill to the park owner, who is then responsible for the infrastructure distributing it to individual homes. This is a major liability. Master-metered gas and electric systems are particularly risky due to explosion hazards and expensive maintenance regulations. Master-metered water is common but prone to leaks that the owner must pay for. Investors aggressively discount the price of parks with master-metered gas or electric due to the high CapEx required to replace or sub-meter them.

A wastewater lagoon is a private sewage treatment system consisting of open ponds where waste is broken down by bacteria and evaporation. While they are incredibly cheap to operate (low electricity/maintenance compared to treatment plants), they are land-intensive and increasingly regulated by environmental agencies (EPA/DEQ). Many states are phasing them out or requiring expensive upgrades. Buying a park with a lagoon requires checking the permit status and remaining capacity carefully to ensure you aren't buying a future liability.

Never rely solely on the seller's "Rent Roll." To verify income, investors use Estoppel Certificates. This is a simple legal form sent to every tenant during due diligence, asking them to confirm in writing: 1) Their lease terms, 2) Their monthly rent amount, 3) The amount of their security deposit, and 4) Who owns the home (tenant vs park). If the seller claims rent is $400 but tenants sign estoppels stating they pay $300, you have exposed a discrepancy that justifies a price reduction.

Many older Mobile Home Parks do not meet current city zoning codes (e.g., density, setbacks) but are legally allowed to operate because they existed before the new laws. This is called "Legal Non-Conforming" or grandfathered status. The critical risk is determining if you can replace homes that are removed or destroyed by fire/storm. If a city has a strict "sunset clause," you might lose the right to use a lot once a home is removed, slowly killing the park's value. Always get a zoning verification letter from the city confirming you can replace homes.

An Offering Memorandum (OM) is the marketing brochure created by a commercial real estate broker to sell a property. It highlights the "Pro Forma" (projected) financials, market strengths, and upside potential. Warning: OMs are marketing documents, not factual audits. They often underestimate expenses (omitting management fees or reserves) and overestimate income. Investors must never underwrite a deal based on the OM numbers. Always request the actual Trailing 12-Month (T-12) Profit & Loss statements and bank records to determine the true performance.

If a park is on a private well, water testing is mandatory. You must test for Coliform bacteria, nitrates, and lead to ensure safety. Additionally, you must test the flow rate and recovery rate to ensure the aquifer can supply enough volume for peak usage (mornings/evenings) without running dry. Finally, verify the physical condition of the pumps and pressure tanks. A well failure is a catastrophic event for a park owner, potentially requiring trucking in water or drilling a new well costing tens of thousands of dollars.

Density refers to the number of mobile home lots per acre of land. Older parks (1950s-70s) often have high density, packing 10 to 14 homes per acre. This maximizes revenue but can feel crowded and pose fire safety risks. Modern standards and zoning typically prefer 7 to 8 homes per acre to allow for driveways, yards, and setbacks. Extremely high density can make it impossible to bring in modern, larger mobile homes to replace old ones, limiting your ability to upgrade the tenant base.

A 1031 Exchange (named after Section 1031 of the IRS code) allows a real estate investor to sell a property and reinvest 100% of the proceeds into a new "like-kind" property, thereby deferring all capital gains taxes. This is a powerful wealth-building tool, allowing investors to trade up from smaller parks to larger ones without losing equity to taxes. Strict timelines apply: you must identify a replacement property within 45 days of selling and close within 180 days.

Opportunity Zones are federally designated economically distressed census tracts. The program incentivizes long-term investments in these areas by offering capital gains tax deferrals and reductions. If an investor holds an Opportunity Zone asset for 10 years, any appreciation on that asset is tax-free upon sale. Many older mobile home parks fall into these zones, making them attractive targets for funds looking to deploy capital for tax-efficient, long-term holds.

Bonus Depreciation allows investors to deduct a large percentage of an asset's cost in the first year of ownership rather than spreading it out over 27.5 years. Mobile Home Parks are uniquely tax-advantaged because 60-80% of their value is often in "land improvements" (roads, concrete pads, fences, utility lines) which have a 15-year life and qualify for bonus depreciation. A Cost Segregation Study is used to identify these assets, often generating massive tax losses that can offset other income for the investor.

Implementing a "Bill-Back" system (RUBS or sub-metering) transfers the cost of water, sewer, and trash from the landlord to the tenant. This serves two vital purposes: 1) It encourages conservation (tenants use less water when they pay for it), often reducing the total bill by 30%. 2) It directly reduces operating expenses, which increases NOI dollar-for-dollar. Since commercial value is driven by NOI, implementing bill-back is often the single fastest way to increase the value of a mobile home park.

Moving a mobile home is expensive, which creates a "moat" around the business model (high tenant retention). Moving a Single-Wide typically costs $5,000 to $10,000, while a Double-Wide can cost $10,000 to $20,000+ depending on distance and setup requirements. Because the cost to move the home often exceeds the value of the home itself, tenants rarely leave once they move in. This stability makes MHP income streams far more reliable than apartment rentals.

The Dodd-Frank Act introduced strict regulations on seller financing to protect consumers from predatory lending. For MHP owners selling homes to tenants on payments, this means you cannot simply write a loan on a napkin. You must verify the borrower's ability to repay, avoid balloon payments, and adhere to interest rate caps. To stay safe, most owners use a licensed Residential Mortgage Loan Originator (RMLO) or use "Rent Credit" / "Lease Option" structures carefully to ensure compliance and avoid severe legal penalties.

In-fill is the process of bringing mobile homes onto vacant lots within a park. This is a primary strategy for increasing revenue. It involves sourcing homes (new or used), paying for transport and setup (skirting, stairs, utility hookups), and finding a tenant/buyer. While capital intensive (often costing $10k-$50k per lot), filling a vacant lot transforms it from a liability (mowing grass) into a revenue-generating asset that pays lot rent forever, significantly boosting the park's overall valuation.

The management decision depends on scale. Small parks (under 30-40 lots) often cannot support the salary of a full-time manager or the fees of a third-party firm (typically 6-10% of gross revenue with minimums). These are usually self-managed or run by a "resident manager" who gets free rent in exchange for basic duties. Larger parks (50-100+ lots) generally require professional off-site management or highly paid on-site staff to handle the complexity of collections, compliance, and infrastructure maintenance effectively.

Rent Control refers to local or state laws that limit how much a landlord can increase lot rent annually (e.g., CPI + 1%). This is common in states like California, Oregon, and New York. While these markets often have high demand and 100% occupancy, the inability to raise rents to market rates caps the potential NOI growth. Consequently, parks in rent-controlled areas typically trade at higher Cap Rates (lower prices) to account for the diminished upside potential and regulatory risk.

Legacy residents are long-term tenants who have lived in the park for many years, often under previous "Mom and Pop" ownership. They typically pay significantly below-market rent and may have older homes. While they provide stability and low turnover, they also represent a "loss to lease" (the difference between current rent and market rent). A value-add plan often involves gradually raising legacy rents to market levels over several years to minimize turnover shock while improving park revenue.

Wholesale Value (NADA book value) is what a dealer or park owner pays to acquire a used home for cash—typically very low ($5k-$15k). Retail Value is what a consumer (tenant) pays to buy that same home, usually via monthly payments. MHP owners arbitrage this difference: they buy homes at wholesale cash prices, bring them into the park, and sell them to tenants at retail prices with financing. This creates a win-win: the tenant gets affordable housing, and the owner fills a lot and generates note income.

Yes, FreeMobileHomeParkCalculator.com is designed to be a 100% free, industry-standard resource for investors. Our mission is to provide professional-grade underwriting tools—comparable to expensive software—to help both new and experienced investors make data-driven decisions. We believe accurate deal analysis should be accessible to everyone in the affordable housing space to promote better management and investment practices industry-wide.