Guide

How to Underwrite a Mobile Home Park, Line by Line

A mobile home park is two businesses wearing one name: a land lease and, often, a fleet of depreciating houses. Underwriting one starts with separating them, because they earn differently, cost differently, and finance differently.

Start with who owns the homes, not the price

Before a single number, find out how many of the homes belong to the park. Tenant owned homes, TOH, sit on a lot the tenant leases from you: your income is lot rent, your asset is dirt and infrastructure, and your tenant is unusually sticky because moving a home off the lot costs thousands of dollars and often is not physically possible for an older unit. Park owned homes, POH, are yours: you collect a higher combined rent, and in exchange you own roofs, HVAC, floors, skirting, steps, and appliances on a depreciating structure.

The POH share is the most important fact about the property. It changes the expense ratio, the turnover cost, the reserve, and the financing. Agency lenders and most banks cap how much park owned home income they will count, and a park past that line gets underwritten as a different asset entirely, so confirm the threshold with the lender you will actually use before you build a model around POH revenue. Ask the broker for the lot count, the number of lots occupied, the number of POH occupied and vacant, and the rent roll broken out into lot rent and home rent as separate columns. If the rent roll comes back as one blended number per tenant, that is your first request, not a detail to sort out later.

Rebuild the income lines from the T-12, not the offering memorandum

Take the trailing twelve month P&L and sort every income line into four buckets. Lot rent is the durable core: it is land income, it carries almost no expense of its own, and it is what a buyer is really paying for. Home rent from POH is real income, but it arrives attached to repairs, turns, and depreciation, so keep it on its own line rather than blending it into lot rent. Utility reimbursement, whether submetered billing or a ratio billing system, is recurring but it exists only because there is a matching cost, so it must always be underwritten next to the utility expense it offsets, never as free income. One-time income does not belong in NOI at all.

Home sale proceeds are the trap in that last bucket. A park that sold six homes to residents last year booked real cash, but that is inventory turning over, not recurring operations, and the buyer who leaves it in NOI has just paid a multiple for a one-time event. Read the T-12 line by line and classify each entry on purpose. Then check occupancy three ways: lots occupied, homes occupied, and economic occupancy, what actually got collected. A park described as 95% occupied with twenty empty homes sitting on leased-up lots is not a 95% park, and the difference between those numbers is usually where the value or the problem is hiding.

The utilities decide the deal

No line item kills more mobile home park deals than infrastructure, and it is the one least visible in a P&L. Find out exactly what serves the property and who pays for it.

• City water and sewer, billed directly to residents. The clean case. Your exposure is the private lines from the meter into the park, which still age.
• City water and sewer, master-metered with the park paying. Every leak and every long shower is yours. Ask what submetering or ratio billing your state actually permits before you underwrite a reimbursement upside, because the rules vary state by state and some of them make the plan you sketched illegal.
• Private well, septic, lagoon, or a package treatment plant. The highest risk case by a wide margin. You are now a regulated utility operator with state permits, testing obligations, and a capital item that can run from five figures to well past six. Pull the permits, the last several years of testing records, and any consent orders or notices of violation before you price the deal.

While you are there, get the road ownership and surface condition, the age and material of the water lines, and the electrical amperage at each pedestal. A park still running original lines and 60 amp service is carrying a capital project whether or not anyone has written it down.

The expenses a mobile home park actually carries

Rebuild the expense side on what you will pay as the owner, not what the seller paid. Five lines do most of the damage.

• Management and payroll. Most small parks are owner operated with no management fee and no payroll for whoever mows, collects rent, and handles the 9pm call. Add a market management fee and a realistic on-site figure, because that work will be done and it will be paid for.
• Property taxes at reassessment. In many counties the sale triggers a reassessment, so the bill you inherit is not the one on the seller's statement. Park owned homes may also be taxed separately as personal property, with their own titles and registrations to keep current.
• Insurance at today's quote. Get a current quote on this park with this home count, not a policy priced years ago in a softer market.
• Water, sewer, and the leak you cannot see. Ask for twelve months of bills. On a master-metered park, a water bill that runs well above what the occupied lot count should consume is a leak report, and it is your leak the day you close.
• Repairs and turns. Budget POH turns per home in dollars, not as a percentage of revenue. A percentage hides the fact that one bad turn can cost more than a year of that home's rent.

Then sanity-check the operating expense ratio against comparable parks. A stabilized park that is nearly all tenant owned homes on direct-billed city utilities runs a genuinely low ratio, which is the whole appeal of the asset class. A park with a heavy POH count, a private wastewater system, or master-metered utilities runs far higher. A ratio that looks great on a park with private utilities and thirty park owned homes is not superior management, it is understated expenses.

Reserve for the land and for the houses, separately

Most buyers carry one reserve line. A mobile home park needs two, because you own two aging things.

The first is a per lot infrastructure reserve for the roads, water and sewer lines, electrical pedestals, and any common buildings. Size it against the age, material, and system type you found above, not against a percentage of revenue: wear tracks the physical asset, not this year's rent. The second is a per home reserve for every POH, covering roofs, HVAC, skirting, steps, flooring, and appliances. Homes depreciate on their own schedule regardless of occupancy, and a park owned home that has been rented for fifteen years without a roof or an HVAC replacement is not a bonus, it is a bill with a delivery date. Leaving either reserve out does not make the cost disappear, it just moves it into your first surprise capital call.

The stricter view: underwrite the lot rent only

Plenty of experienced buyers will not put park owned home rent into NOI at all. Their reasoning is that a mobile home park is a land lease business and everything else is a side business you happened to inherit. Home rent arrives attached to maintenance, turns, vacancy, personal property taxes, and a structure that is worth less every year, so capitalizing it at a land cap rate prices a depreciating asset as though it were dirt. Strip it out and what remains is the income a lender will actually count and a future buyer will actually pay for.

Underwritten that way the homes stop being income and become two other things. They are a balance sheet item, worth roughly what they would fetch as depreciated structures, and they are a business plan. Selling park owned homes to residents, often on a note, converts a repair liability into a tenant owned home paying lot rent, which is the classic value add in this asset class. That upside is real. It just belongs in your plan rather than in the price you pay today.

Run the deal both ways. The spread between the all-income number and the lot-rent-only number tells you exactly how much of the asking price is riding on houses rather than on dirt, and on a POH-heavy park that spread is usually the whole negotiation. If you are running the deal through RVP Underwriter and you want the strict version, ask for it in the chat box under your analysis, in the panel headed Talk it through with the underwriter. An instruction as plain as "underwrite this on lot rent only, exclude park owned home rental income" is enough: it will rebuild the numbers that way and show you which lines moved.

Turn your NOI into a price, a loan, and a floor

With a defensible net operating income in hand, the rest follows quickly. Build it in the NOI calculator, then divide by the cap rate the market actually trades at to get the price your numbers justify, using the cap rate calculator. Size the debt on the DSCR calculator so you know what a lender will really lend against this income, remembering the POH cap your lender applies. Then find the floor with the break-even occupancy calculator: the gap between break-even and current occupancy is your margin of safety.

If the gap between your normalized numbers and the seller's is large, that is not a problem with your underwriting. That is your negotiation, and it is why you did the work.

Related guides

• Underwriting an RV park
• Rebuilding the seller's NOI
• Requesting the right financials

Part of the RVP Underwriter guide library: practical guides to underwriting and buying income property. Browse all guides, or read the complete free guide with a full worked example.