“Is a property manager worth it?” is a question I usually get from people who are sick of the daily tasks involved in running a mobile home park. I can’t blame them. It’s a lot of work to run a park. When an MHP owner is done dealing with the day-to-day, they’re going to consider hiring someone to do it for them. If you’re wondering how to choose a property management company for your mobile home park, there are a few things you need to think on.
The biggest consideration is cost. Sometimes, that property manager is going to eat up your profits, meaning you’re barely going to break even. While they do a lot for you, you’re going to pay for it. Before you consider hiring a property management company, you should do the math. If you sell your mobile home park to a direct buyer, who will keep your park open, it might be a better option. Sometimes, it’s better to cut your losses than to spend money you don’t have.
Property managers run the gamut from boots-on-the-ground live-in managers to full-service agencies that do just about everything for you. Let’s focus on property management companies that essentially turn your park into a turnkey, hands-off operation. Some of the tasks these guys manage include:
These are all the things that a full-service agency is going to offer. If you’re looking for someone to manage your park entirely, then it might be worth the cost. This is especially true if you’re out of state and can’t manage the property yourself. However, not all agencies are created equally. Really, you get what you pay for. If you try to cut corners, you could wind up signing on with a bad company. When that happens, you’re the one who must answer for everything they do wrong.
Your property manager is your representative. That means they have the authority to make decisions on your behalf. When you have a good property manager, that’s a good thing. When you have a bad one, all of their mistakes are going to blow back on you. Here are a few of the things that could happen if you hire the wrong company:
The problem with hiring a property manager is that you’re doing it under a contract. It’s a bit like quicksand. Once you’re in, you’re probably not getting out. By the time you start having problems, it’s going to be a challenge to end that contract early. If you really want to find a property management company, I recommend getting personal referrals, rather than picking a name out of the phone book. Also, before you sign on the dotted line, you need to make sure your park can sustain the additional cost.
One thing to know is, the cost of a property manager is going to change based on the type of property to be managed. For a mobile home park, the property management company is going to cost you 5 to 6% of the gross on a yearly basis.
To decide if spending that amount is feasible, you need to look at your park’s total revenue as well as its operating cost. The revenue is easy to figure out. It’s the total gross amount of all rents received. Operating costs are a bit more complex, as they incorporate a lot of different expenses. Some to think about include:
This list is by no means comprehensive. There are a lot of costs that most people forget about when operating a park because they think, “Well, I don’t own the homes so how expensive could it be?” The truth is, pretty darn expensive. If your mobile home park has a loan on it, then you must make those loan payments too. In the end, you might not be grossing very much overall. Now, consider the cost of that property management company.
Sure, your park may be grossing $100,000 per year, but with loans and expenses, you might only pull in $10,000 of profit after the mortgage is paid. If you’re paying a property management company, you’re only paying for the management—not the expenses for the park too. That means that $6000 is going to come out of your profits, leaving you barely earning anything on your investment. Really, property management only works if your park is highly profitable and you have money to burn. Otherwise, all your earnings are going to get eaten up in expenses. An alternative might be to consider selling your mobile home park to a direct buyer.
Some owners aren’t particularly worried about the profits from their park when they hire a property management company. What they’re really worried about is keeping their park open and running smooth. If you’re in this position, where you want to sell but fear your park will get shut down if you do, selling to a direct buyer can be a good alternative to outsourcing park management. This is especially true if you’re in a position where you can’t afford a property manager because your park expenses are too high.
Direct buyers who focus only on mobile parks don’t buy parks to shut them down. They buy them for the purposes of collecting income from the park’s operation. As these people are experienced park owner/operators, they know how to reduce the expenses in a park by leveraging their experience and funding.
This means that they can afford to offer a competitive price. In some cases, this will allow you to pay off any outstanding loans on the property while also walking away with a profit. This is much different from selling on the open market, where you have to pay to list the property, and choose a realtor, agent, or broker to sell your mobile home park–and pay them too. In addition, you don’t have to deal with the hassle of managing the day-to-day operations of your park.