Mobile Home Park Investing: The Real Numbers

You're staring at a listing for a 40-lot mobile home park asking $1.2 million, and the broker's pitch deck says 9% cap rate. You want to know if that number survives contact with reality, and what you'd actually walk away with each month.

Here's the answer: after real operating expenses (not the seller's), debt service, and a cash reserve for the stuff nobody puts in the flyer, a park like that typically nets somewhere between 4% and 7% cash on cash in year one, not 9%. The gap between the marketed cap rate and what lands in your account is the whole game in this asset class. Everything below explains why, and how to build your own numbers instead of trusting the seller's.

Why the marketed cap rate is almost always inflated

Sellers and brokers calculate cap rate using their own expense ratio, and mobile home parks have a habit of running at 30% to 35% expenses when the seller is doing everything themselves, family included, and paying cash for repairs with no reserve line at all.

A buyer running the same park with a property manager, a maintenance budget, and insurance quotes that reflect current replacement costs is usually looking at 45% to 55% expenses. That's not because you're worse at running it. It's because the seller's number was never a real operating budget, it was a snapshot of one lucky year with no owner's salary and no capital reserve.

Take a 40-lot park generating $312,000 in gross lot rent a year ($650/lot average, 40 lots). Seller says expenses are $109,200 (35%), leaving $202,800 net operating income. On a $1.2 million ask, that's 16.9%, well above the "9%" pitch, which tells you the seller's own numbers don't even match their own marketing. Run the same park at 50% expenses, a more honest number once you add professional management, a lawn/road maintenance contract, insurance at current rates, and a 5% vacancy allowance. NOI drops to $156,000. On $1.2 million, that's a 13% cap rate, still solid, but not the number on the flyer.

What people get wrong: they price the dirt, not the income stream

The biggest mistake new park buyers make is treating the community like an apartment building. It's not. In most parks, you own the land and the infrastructure (roads, water, sewer, sometimes utilities), and the residents own or rent the homes sitting on it. That changes your risk profile in two directions.

Upside: your capital expenditure per unit is a fraction of apartment ownership. No roofs, no HVAC replacements, no kitchen remodels between tenants. You're maintaining roads, pipes, and a fence line.

Downside: you inherit whatever condition the infrastructure is in, and septic or well systems, older water lines, and unpermitted lot counts are where deals go from good to underwater. I've seen buyers skip a sewer camera inspection to save $2,000 and find out six months later they're looking at a $180,000 line replacement. That single line item can erase two years of cash flow.

Worked example: the actual monthly number

Let's finish the 40-lot example with real debt service, because cap rate isn't what pays your mortgage. Cash flow is.

• Purchase price: $1,200,000
• Down payment (25%): $300,000
• Loan: $900,000 at 7.5%, 20-year amortization
• Monthly P&I: roughly $7,250, or $87,000/year
• NOI (using the 50% expense ratio): $156,000/year
• Cash flow before reserves: $156,000 minus $87,000 = $69,000/year
• Capital reserve (say $100/lot/year for infrastructure): $4,000/year
• Net cash flow: $65,000/year

On your $300,000 down payment, that's a 21.7% cash on cash return before taxes. That's the number that actually matters to you, not the cap rate on the listing. Notice it's higher than the "9%" headline once you finance it correctly, because the deal, at the honest 13% cap rate, still clears a 7.5% cost of debt with room. That spread is why park deals bought with debt can work even when the marketing math is soft. It also means a mistake on expenses or debt terms gets amplified the same way in the other direction.

Owned homes vs. lot rent only

Run the numbers differently if the park includes homes you own and rent out, versus lots where residents own their own homes and you collect ground rent. Lot rent only is the cleaner business. You're not fixing water heaters or replacing subfloors in a repossessed single-wide. Your job is roads, pipes, and collections.

If the park comes with 15 park-owned homes mixed into those 40 lots, price those units separately. A park-owned home renting for $850/month with a $400/month maintenance and turnover reserve is a very different return than a $650 lot rent with zero maintenance obligation. Sellers often blend these numbers together in the pro forma to make the whole package look more uniform than it is. Ask for a lot-by-lot breakdown: who owns the home, what's the rent, what's the collection history for the last 12 months.

What to actually check before you offer

Three things, in this order:

1. Utility billing structure. Is water/sewer submetered and billed back to residents, or is it a flat cost the park owner absorbs? A park absorbing $18,000/year in unbilled water because of an aging line network is a park with a repair project waiting, and a NOI number that's about to move.
2. Occupancy and collections, not just occupancy. A 95% occupied park with a 78% collection rate is functionally a 74% park. Ask for the rent roll and the actual bank deposits for the trailing 12 months, not the owner's spreadsheet.
3. Lot count vs. permitted lot count. Some parks have more homes on site than their county permit allows. That's not a paperwork problem, that's a value problem, because a buyer's lender may not finance lots that aren't legally permitted.

The honest limitation here

These numbers assume you can get financing on comparable terms and that your expense estimate holds. Small parks, especially anything under 50 lots, get inconsistent treatment from lenders. Some portfolio lenders love them, some won't touch anything under 75 lots or want recourse debt at rates a point or two above what I used above. Get a real term sheet before you build your offer around a rate you found in a forum post. The example above is arithmetic, not a promise of what your specific deal will do.

Once you've run your own numbers on a park like this, the next question is usually where to find one that isn't already picked over by everyone else running the same search you just did. That's the part Deal Machine handles, surfacing off-market park owners directly instead of competing for the same three listings every broker in the region is shopping. You can look at it at readmoneydecoded.com/deal-machine.

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