How to Underwrite a Mobile Home Park: Complete Step-by-Step Guide

Why Mobile Home Park Underwriting Is Different

Mobile home park (MHP) underwriting follows many of the same principles as apartment underwriting — NOI analysis, cap rate valuation, financing modeling — but several factors make it a distinct discipline. The biggest difference is the land-lease model: in a well-run park, residents own their homes and pay lot rent for the land beneath them. This creates an income stream with remarkably low turnover because moving a manufactured home costs $5,000 to $15,000. MHPs also have unique expenses around infrastructure (water, sewer, roads) and unique valuation methods like the 70x rule.

Step 1: Understand the Revenue Structure

Lot Rent (Primary Income)

Lot rent is the monthly fee residents pay for their pad site. This is the most valuable and stable income stream in a mobile home park. Lot rent covers use of the land, road access, utility connections, and common area amenities.

Average lot rents vary dramatically by market: $200 to $350/month in rural markets, $350 to $550 in suburban secondary markets, and $550 to $900+ in strong metros and coastal markets.

Home Rent (Park-Owned Homes)

Revenue from renting out homes the park owns. Generates higher gross revenue per unit but carries much higher expenses (maintenance, appliance replacement, turnover costs). The industry trend is moving away from POH toward lot-rent-only models.

Other Income

Common sources include utility reimbursements (often the largest "other" category), late fees, application fees, pet fees, storage unit rentals, RV storage, and laundromat revenue.

Step 2: Analyze the Lot Mix

The park-owned home (POH) vs. tenant-owned home (TOH) ratio is one of the most important factors in MHP underwriting:

Every POH unit you can convert to TOH (through rent-to-own programs or home sales) reduces expenses and increases the park's valuation.

Additional Lot Categories

Step 3: Compare Lot Rents to Market

Mobile home park lot rents are frequently well below market. Many parks were purchased decades ago by mom-and-pop operators who rarely raised rents. Research comparable parks in the area using MHP listing sites, property tax records, and direct outreach to neighboring park managers.

If your target park charges $275/month lot rent and comparable parks charge $375 to $425, the $100 to $150/month upside per lot represents massive value-add potential. On an 80-lot park, raising rents $100/month adds $96,000 in annual NOI — which at a 7% cap rate adds $1,371,000 in property value.

Important: Lot rent increases must comply with state and local manufactured housing regulations. Some jurisdictions have rent control or rent stabilization ordinances for MHPs. Research local laws before underwriting aggressive rent growth.

Step 4: Evaluate Infrastructure

Infrastructure is the hidden risk in mobile home park investing. The park owner is responsible for all utility systems, roads, and common areas within the park. A failing septic system or water main can cost $500,000 or more to replace.

Critical Infrastructure to Evaluate

Rule of thumb: Always budget $1,000 to $3,000 per lot for year-one infrastructure improvements on an acquired park, even if the property condition report looks acceptable. Deferred maintenance in MHPs is common and often underreported.

City utilities vs. private systems: Parks on city water and sewer are significantly more valuable and less risky than parks with private wells and septic systems. Private systems require ongoing maintenance, testing, and regulatory compliance, and replacement costs can be catastrophic.

Step 5: Calculate NOI

Example: 80-Lot Mobile Home Park

NOI = $420,660 - $182,466 = $238,194

Expense ratio: 43.4% — within the typical MHP range of 35% to 45%.

Step 6: Valuation

Income Approach

NOI / Cap Rate = $238,194 / 7.0% = $3,402,771

70x Rule Quick Check

72 occupied lots x $375 average lot rent x 70 = $1,890,000 (lot value only)

Plus POH value: 12 homes x $15,000 average = $180,000

70x estimate: $2,070,000

The gap between the income approach ($3.4M) and the 70x rule ($2.07M) suggests the park is fairly well-operated but the 70x rule is conservative — it doesn't account for POH rental income, other income, or below-market operating efficiencies.

Step 7: Model the Value-Add Plan

Stabilized NOI at year 3: $336,894. At a 6.5% exit cap rate, the stabilized value is $5,183,000 — compared to a $3.4M acquisition. This represents significant forced appreciation through operational improvements.