Ep. 76 | Interview With MHP Appraiser Erik Hanson – How to Maximize Value For Your Sale

On this episode of The Mobile Home Park Lawyer, Ferd is joined by MHP appraiser Erik Hanson. Erik gives some advice on things that borrowers can do to maximize value before the appraiser shows up. Ferd and Erik discuss cap rates, current trends in the market, capital improvements, and Erik also shares his opinion on how he thinks MHP is looking for the next 3 years.


“There are things you should do and there are things you want to do, and those don’t always jive. You obviously want the nicest park in town, but it doesn’t always make sense to do all the things to make it the nicest part. The biggest test we have, we call it financial feasibility and that’s pretty standard language.”



0:00 – Intro
1:48 – Erik gives us insight into his background and how he got into MHP appraisal
3:38 – Erik speaks on capital improvements
3:58 – Erik states “there are things you should do and there are things you want to do, and they don’t always jive”
6:14 – Ferd asks Erik for his opinion on cap rates and value as a borrower, specifically when replacing roads
9:36 – Erik talks about maintenance budgets when planning road designs/materials
12:09 – Erik states that in general, properties with private utilities will sell at a higher cap rate
15:40 – Ferd asks Erik what he’s seeing in the current marketplace
20:45 – Ferd and Erik discuss property tax bills as being a wild card
24:27 – Erik mentions how there’s an uptick in prices on new homes
27:51 – Erik states how there are still good deals on the market but they’re just hard to find at the moment
30:05 – Ferd and Erik mention how the general consensus at the moment is that the MHP business is going good and keeps getting stronger
31:43 – Ferd asks Erik to give us some final tips and advice as borrowers
36:53 – Erik gives us some final advice with the statement “if something has been out for sell for a long time there is a reason for it so be cautious”



Email: ehanson@ebgres.com



Ferd Niemann: Welcome back mobile home park nation, Ferd Niemann here again today. Another episode of the mobile home park lawyer podcast. Great guest for you today. This is the first one I’ve had on the show as an appraiser by trade. He has got almost 20 years in the industry, works nationwide. He’s based out of Wisconsin. Ten years, really focused on MHP. He works at BBG incorporated. One of the bigger national appraisal shops. Please help me in welcoming Erik Hanson. Erik, thanks for coming on.

Erik Hanson: Hey, thanks. Appreciate being here. Yeah, it’s nice to talk to people that are kind of in the industry and understand the language that we speak, which can be foreign to some people that aren’t used to the asset class. But yeah, it’s great to be here.

Ferd Niemann: Well, great. I want to hear more about you and just the industry in general. I ran into an appraiser one time and this was his sales pitch or his elevator speech, he said, for a reasonable fee that will give you a reasonable appraisal, for an inflated fee,  I can give you an inflated appraisal. None of the bankers in the room thought that was funny. I thought it was hilarious.

Erik Hanson: That’s great.

Ferd Niemann: As you know, they now keep the borrowers and their appraisers kind of at arm’s length and for a good reason, but at least here today. Tell us a little bit more about your background and what you do now. And we can go from there.

Erik Hanson: Yeah, well, our fees are the same, whether it’s good, bad, or ugly, so I don’t care where it comes out. But a kind of brief introduction, I have been appraising for almost 20 years now. Started with a couple of different local offices here in Wisconsin. And I got into the MHP space sort of by accident about 10 years ago, just happened to be working for a couple of lenders that were starting to get in the space more seriously. And they had some borrowers that were very active, both buying and selling. So that’s how I kind of got introduced. And it just sort of took off from there. In general, there’s not a whole lot of appraisers around the country that know much about mobile home parks and RV parks and campgrounds. So it’s a sort of a specialized niche. So I joined BBG last fall. So I head up their appraisal wing as you may, focuses on mobile home parks, RV parks/campgrounds with sort of some variations and crossovers in between those asset classes. So the one neat thing about BBG is as you said we are nationwide, we get into all different metros. We’ve got offices all over the country. But the other thing that’s neat about our company is we also have an assessment department that does environmental surveys, Alta surveys, property condition reports, Zoning reports, and all those things are important when you’re talking about Fannie or Freddie loans, any of the agency debt they require all those reports. So we’re kind of the one-stop-shop for all of those and the appraisal on top of it. And I want other companies to offer that sort of thing. So yeah, that’s kind of my sales pitch there and a little bit of background. So let’s get started. We had a little conversation on LinkedIn about capital improvements. And this is a pretty common question. You acquire a park, needs some work, need some turnaround. What can we kind of do to maximize our dollars, maximize the value of the property? And I kind of look at it a couple of ways. I kind of look at it as there’s things you should do and there’s things you want to do. And those don’t always jive. You obviously want the nicest park in town, but it doesn’t always make sense to do all the things to make it the nicest part. The biggest test we have, we call it financial feasibility and that’s pretty standard language. Do the dollars I spend capitalize into value. So there’s a couple of ways you can look at it. You can look at it as if I do this improvement, do my expenses go down, or if I do this improvement, does my income go up or if I do this improvement, does the income go up and the expenses go down?  So that’s kind of different ways to look at it. And an example would be if I bill back water and sewer, the overall expense likely to go down because tenants will use less if they’re paying for their own. You might also get an income stream off of that. We see now in some States where you can actually bill back on private utilities. And the standards are fairly straight forward where you charge rates similar to the municipalities in the area. So when you’re on well and septic, you can actually bill back for water and sewer and actually earn a profit above and beyond what your cost to maintain those systems are. So, that makes sense. Does sub meter and, and build back water and sewer, that sort of thing. We get questions a lot about roads. One way to look at it is, are we constantly repairing the roads cause they’re so terrible. We’re spending thousands of dollars every year to keep replacing sections. Is it better off to tear the whole thing up and start over and have very little maintenance for several years? So that could take away the expense side of it. It also could make the park look a lot nicer.

Ferd Niemann: Can I jump in on that one?

Erik Hanson: Yeah, yeah, go ahead.

Ferd Niemann: Cause that’s one that comes up a lot and not just obviously if I replaced my roads, my expenses go down, it’s nicer. But as the borrower, I’m curious what your opinion is on, how does it impact my cap rate and my value? I mean, I could spend $2,000, $3,000 a year patching roads or $200,000 replacing them just from a pure cost analysis, probably better to just band-aid them every single year. But if it comes in and the cap rate is your opinion, you’re driving around the potholes are making you spill your coffee in your lap. You get mad at me or you think it looks like a crappy trailer park, you’re going to hit me with a seven cap instead of a five and a half cap, it behooves me to bite the bullet pre appraisal, pre refinance and pay for the roads. So I’m curious what your opinions on that and how much stuff from a basis point adjustment that may have in a cap rate from something as major as, the roads are one of the more expensive repairs you can have, especially a full replacement.

Erik Hanson: Yeah, it really is, that question comes up all the time. From a basis standpoint, you know, it might be anywhere from 50 to 200 basis points and you can kind of look at one of the ways we get sales is, are cap rates, excuse me, as from properties that have sold. So generally the nicer properties that have newer roads and the newer infrastructure will sell at more cap rates. So that’s one side of the equation and it’s of course, fairly subjective. The other side is, well now we’ve got this really nice-looking road. The park in general looks better when tenants pay a little more to live in that park than one with a gravel road. In most cases, the answer’s yes. You also have a little bit of income increase, whatever that number might be if it’s 25 a month or 50 a month. So there’s kind of two sides to that equation versus just the cap rate. And it’s a hard question to answer, but overall, your park is going to be worth more if you put new roads in.

Ferd Niemann: Overall probably worth it, it sounds like.

Erik Hanson: In most cases yes. And there’s, I’ve seen situations where just acts of nature happen. The North Dakota last year in a town where they had some frost issues over the winter, there’s four or five parks in this town, all the roads were torn up because of the frost levels. They had some early snow and water froze. So those owners were kind of stuck making those repairs whether they want it to or not because the roads were so bad. There’s other places, if you get out into Wyoming and some of the States out West, some of those parks have gravel roads and some have nice, paved roads and you don’t see any difference in lot rent. So in those cases it probably doesn’t make sense to pave a road if you have to start from scratch, you probably got to maintain one that’s already there. And if you’re not seeing that financial side of it, just doesn’t make sense to do it.

Ferd Niemann: What about seal coat? I know, I mean, obviously fixing the road base and the asphalt is going to make it a smoother, more uniform surface for transit, but I’ve seal coat before. And it looks great for about a month and it’s like jet black, like McDonald’s parking lot. And after a month I’m like, what did I pay for? Does it make sense for me to spend money on seal coat the week before you get there, or are you going to be like, no, this is just black paint.

Erik Hanson: That’s a little harder question to answer. If you have an office building, it certainly makes everything look really nice. And the tenants appreciate that you Stripe the lines and maybe not as much on a mobile home park. But it kind of depends on your maintenance budget too. And that sort of thing and what you’re going for there. So, but yeah, overall the roads is kind of the major expense there. Another one we see is the utilities. I’ve seen situations where parks had individual septics for each home. I appraised a park that had, I want to say about 20 individual septic’s a portion of the park. But they were spending a significant amount of money pumping those tanks. There was no drain field. So the owner decided to put in an entirely new system, one tank and drain field for those 20 sites at a cost of about $150,000. But in that case, because of the reduction in expenses, the value of the park went up about $200,000. So that was pretty clear that that was a good choice there. And eventually, that choice would’ve had to been made because the septics were just failing.

Ferd Niemann: That’s a good point on septic. We just bought a park a couple of months ago, and the tanks actually failed during our due diligence. And we were able to get the seller to replace them. So now we’ve got good, brand new tanks and a nice field for the leach field and everything. But I want to talk about cap rates as it pertains to private utilities. I get asked this question all the time. I analyze this question this all the time on my own deals. What kind of spread, let’s say that the new norm is a seven cap, city water, city sewer. What kind of increase am I going to see in my cap rate if I have, I can have a number in my head, but I mean, I’d love to hear a number in yours if it’s septic, if it’s lagoon, if it’s wastewater treatment plant if it’s well, and then we can go on to some other categories like master metered electric or master metered gas, which was more rare, but you know, it can be scary as well from a buyer perspective. I think everybody knows that the ideal scenario is city water, city sewer direct bill.

Erik Hanson: Yeah. And here’s the, I’ve grown to kind of not like this question anymore because it’s so loaded.

Ferd Niemann: This is being recorded for the record.

Erik Hanson: Yeah, I know. Well, I think some investors just kind of want, you know, justification for what they’re paying or feel good about it. In general properties with private utilities will sell at least a slightly higher cap rate. And as you get into, well, for example, while water in the Midwest, that’s very common. Not much of a difference there. Septic is very common. Now, if you have more septic that you have higher costs associated with that, that’s probably a bigger issue. And then as you get into lagoons and treatment plants, it’s going to go up from there. So I don’t have a perfect answer for that. But it’s somewhere higher.

Ferd Niemann: You sound like a lawyer. I’m just going to let you know, you sound like it depends, you know, come on, man. I mean, I need a number.

Erik Hanson: And everybody watching is writing down.

Ferd Niemann: Yeah, I know I  mean I’m literally like, because I have my opinion in underwriting, I don’t even mind telling you, but you have to answer first.

Erik Hanson: Yeah, but I’ve seen underwriting where we’re people add 50 or 100 basis points for well and septic and even up to 200 basis points. The other side of that discussion is the market is so competitive right now to find parks. Sometimes you don’t even see a difference in private versus public. A lot of parks in Ohio are on wastewater treatment plants. And they’re kind of all around the same general cap rates versus municipal, but that’s kind of what you have to do to buy a park in Ohio from stuff we’ve seen. So it’s a really hard question. I don’t have a great answer. So some were a little bit higher. No, I actually ran into a park recently where they were on a lagoon system and the owner decided he was getting ready to sell. So he actually put in conventional septic and filled the lagoon. And in that case, that probably made the difference in selling and not selling cause there’s such a limited field of people who would take on that with the lagoon system. It just kind of a thing people don’t understand and don’t want to get into. So, that case it was you know, a little more cut and dry that this park is definitely more sellable because it’s got septic than the lagoon. So what that cap rate meant, I don’t know.

Ferd Niemann: Because that’s, that’s a great point. I mean, I think it’s changing a bunch. I know I used to have a lagoon in Illinois, and I went to the Frank Ross Bootcamp. I already had three or four parks and I went to boot camp and he scared me out of lagoons, but I got home on Monday morning and I sold that, put that park for sale. I don’t want a Lagoon in Illinois, cause it was also five miles out of town, a small 18-lot park. It’s like, if I have to look up the city sewer, that’s going to cost more than the whole Park’s worth. You know, I can’t afford that. So I guess kind of scared of some of what I’ve learned to try to understand private utilities more, but I’m with you on the cap rate increase in general. But yet some people just put a big red X on lagoon. And I think it was about 90% industry two or three years ago. I feel like people are having to losing their standards. Cause you mentioned market competitiveness. If you want to get in the game, you got to, you’re not going to find, it’s hard to find you know, public utility direct bill eight cap, 50 plus pads, no park owned homes, a hundred thousand Metro, hundred thousand single-family, home price thousand dollar apartment rent.

Erik Hanson: That doesn’t exist anymore.

Ferd Niemann: They’re hard to find. They’re hard to find on the market. The off-market once in a while. Yeah. They’re hard to find, but so you alluded to it and we’re talking around it a little bit, but what are you seeing in the marketplace? And I know what I’m seeing, but I wonder your perspective on as far as cap rates and you know, new money, new buyers pricing, everything like that.

Erik Hanson: Yeah. Very aggressive buying field out there. Now, a lot of new investors in the field, a lot of new funds in the field. Things like that. Definitely cap rates have compressed over the last few years. And that’s a combination of more buyers and also money’s really cheap right now and probably will continue to be with all the things going on in the world. But definitely some very aggressive buyers. We see some prices that just absolutely don’t make any sense, super low cap rates in small areas that just doesn’t fit, what you think a typical investor would pay. And, you know, we dig into that as best we can. We try and talk to your buyers and sellers or brokers to get the motivation. And sometimes you see, look, we had 10 31 money. We had to stick it somewhere. We know we overpaid, but we’re happy with the investment. So we overpaid overall. And that happens more and more.

Ferd Niemann: On these low cap rates. I mean, I’m curious on this. Is low caps are people paying, when you say low, is it two cap, three caps or four camp, five camp? And it’s just, it’s on stabilized deals where there’s limited upside or is it paying a one cap, like I paid a zero cap one time because there was negative NOI, but it had 50, 60 vacant lots in a good market. So I was like, okay, one on the NOI, I’m paying infinite cap rate, but within three or four years, I’ll be at 15, so I can stomach it. So there was upside as opposed to, if it was 99% occupied and I paid two cap, there’s  really cheap cost of capital because there’s nowhere to go but flat.

Erik Hanson: Yeah. That’s a really good question. So if I see like a five, five and a half, something like that in most markets that has, that has a little bit of meat left on the bone and there’s some upside or runs or filling sites, stuff like that. But if you get into major Metro, you might see a five on a stabilized park. But generally, you get away from the metros a little bit. That deal has some upside there. That’s kind of what we see on those. But I’ve seen deals that just not operated anywhere near what they should be. They’re overpaying for the payroll, not reporting all the income. You basically have a negative cash flow. So there really isn’t a cap rate. So you’re going to have to go off of realistic proforma to see where that comes out at. And when we talk about cap rates, everybody kind of analyzes those a little bit differently. Some people use management fees or replacement reserves, others don’t. So you kind of got to weed through those and see what’s the real NOI. Now, if you’re looking at an appraisal, we use the management fees or replacement reserves, so lenders want to see that, and they expect to see that.

Ferd Niemann: That’s what I would think is 5% management, 2% reserves plus or minus that’s about where you’re at?

Erik Hanson: It depends. I’ve seen three to six on management and that number can go down a little bit, the higher your effective gross income goes. And I like what you said about percentages. Cause that’s an interesting topic. A lot of people in the industry talk about, well, it’s 35% of effective income. It’s 40% and they analyze deals like that. I tell people to manually underwrite. And here’s why. If you buy a park and you’re at $200 lot rent and it’s way under market and in two or three years, you’re going to be up to $400. Likely your insurance expense has not gone up. Likely your salary for your manager has not gone up or has it doubled, probably cost you the same to maintain the roads two years from now, even though your income’s doubled those types of things. So if we just get stuck on these percentages, I think you might miss out a little bit, you’re almost kind of cutting yourself short on the upside if that makes sense. But it’s standard industry talk. We’re always talking about percentages.

Ferd Niemann: I think it’s lazy, frankly. I agree with you. I mean, we’ve got 20 different rows. I see them, it’s like, Oh, we’ve got insurance taxes, management, miscellaneous repair, or other I’m like we go through and get bids that we, you know, are you going to file tax return? Okay, well what’s your CPA be going to be? Are you going to have any evictions here? What’s your legal going to be, you are going to be doing marketing. You’re going to have road repair. You’re going to have pre-trimming, you’re going to have mowing and it’s just go through the whole, some of banks make you put life insurance in the borrower, that’s in there. You obviously got property cash, have workers’ comp, you going to have overhead, are you going to put it to side reserves, all these things, I see people just yeah, you hear the norms, you know, 30% of tenants pay the water, 40% landlord pays the water, but that’s upon stabilization. The biggest wildcard in there, in my opinion, is your property tax bill.

Erik Hanson: Oh, absolutely. I agree. And if people don’t know about Wisconsin every township, municipality, village, city in Wisconsin has a different assessor. It’s fairly unusual. So consistency is non-existent.

Ferd Niemann: And a pretty high property tax rate levy, cause you got the most sales tax. You have no local sales tax.

Erik Hanson: So trying to predict where those taxes might go can be difficult. Now across the board, in all the States we work in, we’ll use tax comparable if available, we’ll also look at properties that have sold. What did the taxes do a year or two after that sale that kind of gets some trends and it’s not always possible to get trends. I worked at a park one time in Minnesota, it was the only park in the County. Now there was six or seven parks across the state line in North Dakota. But when you’re talking about a different state, a lot of different counties, really tough to make a judgment there. And the bank was of course concerned about where it might have gone. And what we ended up doing on that one, there was a prior sale of the subject from three or four years before. And the assessment went out, I’m just going to make numbers on maybe 5%. So we said, well, that’s what happened last time. It’s the same assessor, maybe a low 5% this time. But the thing I like to talk about too, if you look at the actual expense of the taxes, if they do go up, a lot of times you can make that up with a really small increase in rental revenue, $10, $15, $20 a month. So even if your tax is double, it doesn’t take you long to make that back up.

Ferd Niemann: Yeah. And I think some states, depending your lease, you can pass the taxes through, even the real estate taxes, but still the practical problem is, your residents only have so much disposable income. Just like water sewer, or any sort of expense, I’m rooting for my tenants to save money, right. They’re better credit borrowers, better credit tenants. And then future increases are more palatable and practical. But I’m biased coming, having been a tax assessors. And I’ve seen the innards of the process and it can totally change the deal on a real estate investment.

Erik Hanson: Yeah. And we get calls about appealing the taxes or appealing the assessment. And always the first question is who would you sell it for? What it’s assessed for? And it’s almost always, no, I’d sell it for way more than that. Then you really don’t have an argument, you can’t go in front of them and say, well, I think it’s worth twice as much, were my assessment, just doesn’t hold a lot of weight there.

Ferd Niemann: Definitely makes it tougher. I had a, used to be a business partner and we had a, actually, I think it was in Lee’s Summit, Missouri. And he was like, I had a bunch of retail pad sites and that was his broker. I was just trying to sell him. And then he had me go do the, go do the tax appeal. And I said you realize you’ve got these listed on LoopNet at a million dollars. They just raised our assessment from 200 to 230 and you’ve got it listed it for a million. You realize the County assessors department has access to LoopNet and be like, Oh, can we take the price down? Like, it’s a little for that, you know, they’ve already, better to just suck it up and eat the expenses. Like a 15% increase. Better just eat it then go, you know, rattling the cage.

Erik Hanson: Yeah, definitely. Another thing, you know, kind of talked about the market in general. Definitely seeing an uptick in prices on new homes. Talked to an investor a couple of weeks ago. He told me that same model, 16×80 this year versus last year was about $7,000 to $9,000 more for the exact same home. And I think you’re seeing that across the board, just with construction costs, slowdowns, cause of COVID, different reasons. And also, I hear a lot that used homes are a lot harder to find now. Mainly because there are so many turnaround parks and people are just trying to find whatever they can get, that’s reasonable to get into their parks. So those are two kind of interesting discussions as far as what’s going on when you talk about the infill part of the turnaround park and that’s of course it’s a big part of the industry now.

Ferd Niemann: Sure. Yeah, I see it every single day. It’s just used homes are harder to find more expensive, new homes, it’s like impossible to get them to this right now. And if you can’t get them, they’re 30 plus percent higher than they were a year ago. It’s just, I don’t think it’s sustainable from the affordable housing standpoint. We’ll see if it changes. Another trend I’ve seen not everywhere, but I’ve seen it and, I’ve lost out on a few bids. I’m curious how much you’re seeing is, you know, two, three, four years ago the conventional wisdom was, if a lot is vacant, it’s basically worthless. So you’re running your valuation based on, in-place income, in place NOI, vacant lot has frankly negative value almost because you got to mow it and you got to pay insurance and taxes on it. I’ve seen people pay 50% in some instances of future value of the vacant lot as if it’s full and I’ve seen people pay proforma rents, you know, I just bought a deal in Iowa and rents were 500 in the market,  on the park was 400 and it was priced as if the rents were already 500, but I didn’t think it was practical to go from 400 to 500 in a single year. Obviously, there was a runway to get there in the next three or four years. And then the 500 was going to likely go up in three or four years. So there’s definitely room for rent increase, but if the pricing felt offensive to me, like, man, you’re already wanting me to pay at 500 and we’d pay 50  cents on the dollar for the vacant lots and a six cap. That’s like a three-cap on actual, you know?

Erik Hanson: Yeah. I’ve seen that, especially in the last year or so. I’ve seen where let’s say the part based on actual is worth 3 million. And once it’s infilled and raised to market, it’s worth seven, eight, someone and will go and pay 4 million for that as is, they almost are giving up, you know, a chunk of that profit or upside just to get the deal. And a lot of that goes to, there’s just not enough deals out there. So that’s the real world. Yeah. And we see so many of these off-market too. And there’s good deals on market too. Don’t get me wrong. But probably the best stuff is still off-market. If you can find them and they’re out there, there’s still a lot of mom and pops that are running and operating their parks and they’ll eventually come up for sale. That sort of thing. So there’s still stuff out there, but definitely harder to find than it was a few years ago.

Ferd Niemann: I want to ask, you know, it’s funny, you mentioned that I think we looked at the same park because I thought it was worth 3 million. The upside was seven and somebody else paid four, and I said, it’s not bankable, you know, cause it’s not going to praise it for, and then not get a loan on four, and the other guy just said I don’t care here and paid cash and there was no bank, right. So you can do that. I didn’t happen to have $4 million laying around with nowhere to go. Believe it or not. How would you have appraised that part? Obviously, you’re going to get a purchase contract. It says 4 million. And I always joke about appraisers, no offense, but I say, if we want to see how good appraisers really worked their job, we wouldn’t give them a copy of the purchase contract and we’d see what their number is. A lot of times they just happen to hit the number where you’re like, great, you hit the number. But in this instance, if I’m the borrower and I know I’m overpaying, you are the appraiser, you know, I’m overpaying, the loan is based on 75% of 4 million. So 3 million. We all need this appraisal to hit 4 million. How often do you say it’s going to, is it going to hit the four, which would be the new market, going to hit three and I’m going to bring a whole bunch of cash to closing.

Erik Hanson: Yeah. So then the question becomes, well, what’s your cap rate going in? What are you using for that 3 million? Are you using a seven, which is basically the stabilized cap rate where we’ve got sales, you know, based on actuals that show three or four cap rates because there’s so much upside? So there’s not an easy answer to that question. And sometimes deals just absolutely make no sense and you just call it what it is. The thing is 2 million they’re paying for. They want to buy it and overpay. Great! But more and more, we’re getting requests from lenders to give a stabilized or value per completion once they infill and turn the park around. And I’m not privy to those discussions as to how the lenders finance those then, you know, if it’s, once it’s stabilized, it’s where seven, how do they structure that, I’m not sure. But definitely, probably the last six or seven I’ve done. That was the request, you know, once this thing’s full, what’s it worth? Now the hard part about that is okay, what’s the market for three years. We have to kind of assume it’s at least as good as it is now, if not better, otherwise, none of these numbers are going to be worth anything.

Ferd Niemann: I think everybody agrees that that’s where it’s going though. Isn’t it? I haven’t heard anybody say the mobile home park business is going to get worse.

Erik Hanson: No, absolutely not. And we’re seeing in different areas of the country, you’re actually seeing start from scratch. Basically like a residential development, mobile home parks. We haven’t seen any of those are not a significant number for years. We saw a few expansions over the years, but now you’re seeing and one of the publications had an article on that. Was it mobile home insider, their monthly publication had a nice article on some new parks. So that’s an interesting trend. And I think overall you’re seeing kind of more leeway from a lot of the municipalities, and more acceptance for the asset class, as far as, yeah let’s give permits to this operator to expand, he’s running a nice operation or let’s give them a permit to build a new mobile home park and it’s going to be, you know, basically like a subdivision and that kind of the stereotypical mobile home park. So we’re seeing more of that. I think that’s going to continue cause the spread between the affordability for homes or manufactured homes and stick-built homes is, it’s greater and greater every year. So I think we’ll see more of those new developments popping up.

Ferd Niemann: Great, Erik, before we go, I want to hear if you’ve got any more tips or tricks for us as borrowers, things we can do before the appraisers show up to maximize value, whether it’s hours, obviously clean up trash, cut off the tongues. What kind of tips do you have that push value legitimately on borrower’s side?

Erik Hanson: So as far as numbers side, get the books cleaned up. We still see a lot of our own home expenses run with the park, as far as maintenance and even income. We’ll just get a statement. Here’s the income, it’s got everything walk together. So then we have to make some assumptions and sort that out, as accurate as we can. So that’s the thing we still see a lot. And you know, just the general appearance of your park matters. You know, do you have signage so people can find your manager? I still see that a lot, which surprises me because signs are a relatively inexpensive way to advertise. I still see, you know, like a handwritten piece of wood so-and-so mobile home park. Okay. If I’m trying to come and look at homes, how am I going to know who to call or go to email? Or how do I know where to find the manager? And I’ve been in situations where I got to drive around and find somebody walking around to find out where the manager is. And it’s lot 79. There’s no sign, there’s office, anything like that. And that really surprises me because those are really simple things to do to just kind of improve the park and find new tenants.

Ferd Niemann: Yeah, makes sense. That’s a good Erik. Anything else before we part and if not, how can we find you after this episode?

Erik Hanson: Oh yeah. So my email address is ehanson@ebgres.com. So you can email me, and you want to talk about mobile home parks, and we didn’t get into campgrounds or RV parks. That’s a whole another discussion.

Ferd Niemann: That’s over my pay grade.

Erik Hanson: That is probably over mine sometimes too. That’s just a whole different world.

Ferd Niemann: I Will ask you before I go, I didn’t mention RV. I will ask you this line before we part then because I’m looking at a park, it’s a mobile home park, but it’s got about 30% RV. How do you value that RV income different than the MHM income if it’s different? I mean, let’s assume that there are quasi permeant RVs, not transient, like the campground. I know I get different lending terms. And do I get an expense ratio?

Erik Hanson: Probably yes to all three questions there. Probably a little higher cap rate, just because those tenants could pull out at any time. We certainly look at the historical income to try to gather some trends on what are we actually seeing for RV space rent in that park. It’s sort of like an additional income like pet fees or late fees or something like that, but it can be pretty extensive and kind of in general, the more RV side of it you have, the higher the cap rate, but not always. We see RV parks that are all permanent sites or seasonal sites. So it’s six or seven caps down in the South and Southwest. You know, sometimes some of those are even more aggressive than mobile home parks. But yeah, kind of a blended one is going to be a little bit higher cap rate. And just in general, you have more management and labor and things like that with it.

Ferd Niemann: I think I’m on the same page. Now I need you to call the broker and tell them that we’re right. And he needs to lower his price.

Erik Hanson: I learned a long time ago. I can’t talk brokers out of anything. So I don’t even try. I’ve got broker friends.

Ferd Niemann: I wish I had their level of optimism on pricing.

Erik Hanson: Yeah. But no, I get it. You know, if you’re buying, try to buy off-market, if you’re selling, absolutely pick one of the good brokers out there and maximize your exit there, it makes sense to me.

Ferd Niemann: But I’ve got a friend who’s a broker and he called me one time on this deal. And I was super excited. It was in my hometown. It’s like 110 pads. This is the lot rent.  And I’m like doing the quick math and I’m like, I’m getting up. I’m putting my jacket on. Like, I’m going right now. It’s like 15 minutes from my house. And I go, how much is it? And he tells me, I was like, wait a second. That’s like a 2.5 cap. He goes, yeah, well, I sit back down, I take off my jacket. I was like, what the heck man? He said, well, let’s just say, and I told him, I go, what the heck? And he’s like, let’s just say the price that we listed it at was the price that it took to get the listing, not the price we thought it was worth.

Erik Hanson: Sure. I get it too. I see that, but from the really good brokers that have been around a long time or sell a lot of parks or RV parks, that’s not their strategy, they know that they’re just wasting everybody’s time. So yeah, but we see it too. And I tell people if something’s been out there for sale for a long time, there’s a reason for it. It’s either overpriced or got some major issues. So kind of be cautious on that.

Ferd Niemann: Yup. All right, Erik, this is fun. Thanks for coming on.

Erik Hanson: Yeah, absolutely. We’ll catch up down the road.

Ferd Niemann: All right. Take care.

Erik Hanson: All right. Thanks.

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