WE ACHIEVED STABILIZATION!
That’s what our partners at Voyage Holdings celebrated with us in January for our MHP.
It was a great moment to enjoy all the hard work of the past year.
But what does “achieving stabilization” really mean?
When first looking at a property, a lot of the business cases are centered around what will happen after it is “stabilized”.
What the asset managers and general partners are really looking at is property performance after the first stage (Stage 1) in the business plan is complete.
Stage 1 for a B/C class property acquisition (the ones Clover focuses on) is almost always a big-shift value-add. Think renovations, exterior updating/design, adding new property features, and more – all to allow a quick increase in rental income and resident expectations.
For the MHP, stabilization was initially defined as all lots having resident owned homes at market lot rents.
Detailed work included:
- Increasing current resident rent to market
- Infrastructure maintenance
- Clearing and prepping unused lots for hookups
- Acquiring homes to place on vacant lots
- Getting those homes through inspections
- Selling those homes to new residents
All that in year! That’s a lot of change in a short period of time. We completed the initial business plan. But that doesn’t mean we’re done…
Enter Stage 2 – Additional value add and operations
Now that we finished the initial business plan successfully, we are looking at other ways to increase the property value. For instance:
- Discuss with the city to let us have more lots since we have additional land (now that we did a good job on the others)
- At what rate can we continue increasing lot rents to keep pace with the local growing economy?
- Are there nearby potential acquisitions that would reduce operations costs or increase the land value?
- What other amenities could we offer residents to drive up their happiness enough to pay more than average rent?
- Are there other financing options that would better position the property financial performance?
There are many more questions like this which can (and should!) be asked by an asset management/ownership team after the initial stabilization is complete.
After Stage 2 is complete? Repeat Stage 2.
And keep repeating until the best financial decision to make is a sale. Sometimes in this cycle the Stage 2 business plan value-add will be small (3% rent increase), CoinPal and sometimes it will be big (need to upgrade to new fixtures to keep up with competition).
The point is to not get complacent and think “this property is performing the best it ever will”. Once you start thinking that, it’s probably time to sell to someone who sees opportunity where you see stagnation.
Stabilization is a process where you are constantly reassessing and adjusting property operations to achieve the best and highest use in the ever-changing local/macro environment. Aka – investment optimization!
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