You just bought a mobile home park—congratulations. Your due diligence checked out, and the rent roll shows $16,000 a month. You did well because the current rents are $200 below market. With 30+ units, that’s a lot of cash flow to capture. You project the returns for you and your investors, showing how you will take over the park, do improvements, and raise rents to market levels. You create processes, institute your leases and rule books, and show assumptions of a 5% or even 10% vacancy rate to account for turnover. The projections look good, and the future seems bright for both you and your investors. Well done, Mr. Operator.
This is how we all imagine the day after closing to go. It’s achievable if you prepare for what can happen. As an operator, I often tackle projects from Mom & Pop owners who leave behind operational inefficiencies, neglect, poor occupancy, and delinquent tenants. Especially with park-owned homes, the niche we specialize in, we often buy communities with homes to either continue renting or sell to promote home ownership.
The Reality of Due Diligence Gaps
However, when buying these kinds of parks, we often face gaps in our due diligence. Missing leases, lack of proof for rental amounts, no formal collection verification—sometimes the bank statements don’t even match the stated rent collected. It’s easy to take the word of the seller, tenant, broker, or wholesaler, especially when you want to believe in the scenario that makes the deal work.
But as operators, we tend to overestimate our ability and underestimate what can go wrong. That’s why we must build conservative assumptions into our pro forma, accounting for both income and expenses realistically. If the deal still works with these conservative numbers, then it’s a green light. But when it comes to park-owned homes, many operators fail to fully account for just how bad the tenant base can be.
The 1/3 Rule
Here’s where the reality check comes in—my 1/3 Rule. When you buy a park-owned home community, expect 1/3 of the park to leave within the first 3-6 months, another 1/3 to complain and demand what the previous owner never gave them, and the final 1/3 to pay their rent, adapt quietly, and go along with the changes as expected. This applies mostly to C-class and below communities. In higher-end rentals, the quality of tenants tends to be better—formal leases, significant security deposits, and a lower tolerance for delinquency are the norm.
However, in C-class parks, especially those run by Mom & Pop owners, you’re often dealing with no leases, month-to-month agreements, and tenants who have been there for decades with little to no screening. In these parks, the 1/3 Rule shows up most clearly.
Tenant-Owned Homes: A Different Story
This trend doesn’t always carry over to tenant-owned units (TOHs). In my experience, we still see two of the three groups—those who complain and those who adapt quietly—but we don’t typically have tenants leaving in the middle of the night, hitching their trailer to a beat-up 1993 Dodge Ram, and dipping out to the park down the road that still charges $125 in rent.
Sure, we get threats to leave and complaints, especially from those who fear rent increases or hate change, but moving a mobile home is expensive. Many tenants simply can’t afford to do it. They know their rents were low to begin with, so they generally stick around and adapt to the “new world order.”
In fact, we’ve only had one tenant pull a trailer out of a park after we bought it, and that was because they bought land. I can’t say if it was related to our changes or just coincidental timing, but the fact remains: TOH tenants are generally more stable than park-owned home renters when change comes.
The Squirters
I call them Squirters because they’re the ones who run at the first sign of pressure. They leave on the day of closing, or a random U-Haul shows up, and within hours they’ve disappeared without so much as a phone call. They squirt right out of that park when new ownership steps in.
Why does this happen? It boils down to the previous owners and their screening—or lack thereof. Some owners take pride in saying, “I don’t need a lease,” or “It’s all verbal now.” These are huge red flags. Without a formal lease or proper screening, tenants don’t feel any obligation to stick around. Month-to-month tenants, especially, aren’t tied to the community and are more likely to stay after the first of the month, avoid paying rent, and leave in the middle of the night.
New rules and ownership only amplify this exodus. Tenants who were let in with no background checks or proper leases don’t appreciate the structure you’re bringing in. Whether it’s rent collection enforcement, new leases, or community rules, they leave as soon as these changes are implemented.
For example, we had a tenant leave because, in her words, “I won’t live nowhere with rules.” She told another tenant, who informed us she had moved out before we could even talk to her. And the final phase of the Squirters? Rent enforcement. Many of these tenants are used to lax collection policies, and when we start applying late notices, fines, or eviction proceedings, they make a quick exit.
But here’s the thing: this isn’t bad. In fact, we expect and even hope for this turnover. It’s nature’s way of cleaning house, and within the first six months, we usually see the bad, non-paying tenants gone. The only downside is if you don’t plan for it. If you assume these tenants will convert into reliable rent-payers post-acquisition, you’ll be financially behind and risk damaging your budget and cash flow.
How to Account for the Squirters
It’s simple: assume you’ll lose 1/3 of your tenants during due diligence and your pro forma analysis. Account for turnover and repair costs like you would for any rental turnover. Adjust your income to exclude rent from those units for about three months, while still maintaining your overall vacancy assumptions.
One strategy we’ve used is to sell these units. We calculate their market value, subtract repair costs, and offer them for sale or rent-to-own instead of renting them out again. This lowers our capital requirements, though it also reduces monthly cash flow since lot rent is typically lower than home rent.
The Complainers
The Complainers are the ones who stick around but cause more headaches than the Squirters. You didn’t select them, but you’re stuck with them, depending on their lease terms. These tenants will test your patience during the changeover, especially when new rules, policies, or improvements start to take shape.
To paint the picture: we bought a park where the roads had been falling apart for a decade. Pot holes, crumbling curbs, poor drainage—an eyesore, but something the previous owner had ignored. As soon as we took over, the complaints started rolling in. And when we didn’t fix it immediately, one tenant called the city, triggering a visit and a notice. We spent time explaining our timeline for improvements to the code officer, even though we were planning to fix the issue.
Another example: the previous owner of one park had done patchwork repairs to the water system. As soon as we started upgrading the pipes, installing meters, and adding shut-off valves, the complaints started. Tenants were unhappy with the temporary water shut-offs, and one even called the city on us for working without a permit (which wasn’t required for repairs). The time wasted with city officials and the disruption to our team was frustrating, but it’s par for the course with the Complainers.
A significant portion of complaints comes from tenants’ fear of rent increases and changes to their daily lives. Often, their frustrations have been building up for years due to neglect by the previous owner. When you take over, they see you as the opportunity to air their grievances and expect immediate results.
How to Account for the Complainers
The best way to deal with this group is communication. From day one, send clear letters about your plans, timelines, and expectations. Meet tenants on-site, explain the improvements you’re making, and keep lines of communication open. Assure them you’re there to improve the community, not redevelop it.
While some of these Complainers may ultimately leave, most will stay once they see that you’re responsive to their concerns. Respond to requests, document everything, and manage their expectations about the timeline for repairs or changes. Patience and follow-through will reduce the level of complaints over time.
The Ideal Residents
The final third of your tenant base consists of the Ideal Residents. They may not love change, but they understand that the improvements you’re making are in their best interest. These tenants just want to pay their rent, live their lives, and be left alone. They’ll follow the rules, respect your management, and appreciate the stability you bring to the community.
This group will quietly observe your actions, noticing how you follow through on promises. They’re the ones who’ll thank you for improving the park, and they’re often the eyes and ears of the community. These are the tenants who’ll let you know if someone’s planning to leave in the middle of the night.
Over time, these tenants may even express interest in buying their home, signing the new lease, and paying the higher rent once they see the value you’re adding.
Ideal Residents are often the backbone of a stable park community. They pay on time, adapt to new rules, and even provide feedback that helps improve park operations. Over time, they help stabilize cash flow and can act as advocates for your improvements, spreading positive word-of-mouth to prospective tenants or even assisting with referrals for new residents.
Financial Impact of the 1/3 Rule
Expecting these three groups of tenants—Squirters, Complainers, and Ideal Residents—allows you to prepare for the challenges of taking over a park. The Squirters will leave, and that’s okay. The Complainers will test your patience, but solid communication and follow-through will calm most of them. And the Ideal Residents? They’ll quietly go along with your changes and appreciate the improvements you’re making.
By planning for the turnover, budgeting for the repair costs, and communicating effectively, you can ensure a successful transition and ultimately build a thriving, well-managed community.
For passive investors, understanding the financial implications of the 1/3 Rule is crucial. When acquiring a mobile home park with park-owned homes, it’s important to account for higher-than-usual turnover and its impact on short-term cash flow and long-term returns.
Here’s how the 1/3 Rule might affect your numbers:
- Loss of Income from Squirters: If 1/3 of your tenant base leaves within the first 3-6 months, you’ll immediately experience a loss of rent from those units. For example, in a 30-lot park where rents average $400 per month, losing 10 tenants would result in an immediate monthly revenue drop of $4,000. Over the course of three months, this could lead to a $12,000 reduction in income—assuming you’re able to fill those vacancies quickly, which isn’t always the case.
- Repair and Turnover Costs: Each vacated unit likely requires repairs or turnover costs. On average, you might spend anywhere from $5,000 to $15,000 per unit for basic repairs, cleaning, and marketing, depending on the condition of the homes. For 10 vacant units, that could mean spending $50,000 to $150,000 in the first six months just to prepare those homes for new tenants or sales. It’s important to include this in your initial capital expenditure (CapEx) budget.
- Temporary Cash Flow Shortfall: With the loss of rental income and increased turnover costs, your park’s cash flow will take a hit. Using the same example, if you expected $12,000 in rental income each month but lose $4,000 from Squirters and spend an additional $50,000 to $150,000 on repairs, your net income will be significantly lower than projected in the first few months of ownership.
- Impact on Investor Returns: Assuming a pro forma return of 10% annual cash-on-cash for investors, the short-term losses could delay reaching those projections. You may find yourself operating at a 3-5% return in the first year as you stabilize the park. However, once the turnover is complete and you’ve filled those vacancies with higher-paying, reliable tenants, your returns should normalize and potentially exceed initial projections.
By planning for this dip in income and budgeting for repair costs, you can navigate the first 6-12 months without scrambling to meet cash flow needs. For investors, it’s important to ask your operator how they’re accounting for this turnover in their financial projections. Are they budgeting conservatively? Do they have the capital reserves to handle the turnover? These questions can ensure your investment is being deployed in a way that can withstand the transitional period.
For passive investors in mobile home park syndications, understanding these challenges is crucial, as they directly affect cash-on-cash returns and the timing of distributions. An operator who hasn’t budgeted for these transitional costs can fall behind on projected returns, leading to delays in payouts. This is why asking the right questions during due diligence is essential to ensure your capital is being managed responsibly.
Conclusion: Preparing for Success with the 1/3 Rule
The “1/3 Rule” isn’t just a pessimistic outlook—it’s a framework to protect your investment from the common challenges of taking over mobile home parks with park-owned homes. By expecting 1/3 of your tenant base to leave, 1/3 to complain, and 1/3 to adapt quietly, you’re building in a margin for error that can safeguard your projections. This strategy allows you to navigate the transitional period without scrambling for cash flow, facing unexpected vacancies, or dealing with overwhelming maintenance requests.
For operators, the key is in planning conservatively, budgeting for turnover, and communicating with tenants to ease the transition. Being prepared for tenant exits and the inevitable growing pains can make the difference between a smooth turnaround and a project that falls short of its financial goals.
For passive investors, understanding this rule ensures that your operator has realistic expectations. It’s important to ask how they plan to manage turnover, handle tenant relations, and prepare financially for the challenges ahead. This level of scrutiny can ensure your capital is being deployed in a way that accounts for the unpredictable nature of park ownership.
In short, the 1/3 Rule isn’t about fear—it’s about preparation. By planning for the worst and executing on the best, you can ensure that your mobile home park investment not only survives but thrives, even through the inevitable turbulence of new ownership.
Do you want to discuss this article or just talk about Parks in general? Use this link here to schedule a 1-on-1 Zoom video chat with me and Let’s Talk!
-The MHP Operator
