Common Capital Repair Expenses For Older MHP

5 Replies

As a long time lurker, but first time poster, I have to tell you all that I am really impressed with the quality of the posts and all the awesome cooperation shown in this forum.

In an older post Jim Johnson said "In older parks, like the ones built in the 50s, 60s and 70s you can expect many more issues because of the materials used to build the parks. Sewer, water, electric and gas lines were held to a entirely different standard then. So do your due diligence well, understand the common problems and have a short list of contractors and fixes for the most common problems. Older parks are a far more complicated dance..." (http://www.biggerpockets.com/forums/30/topics/41955-water-and-sewer-under-pads-)

So that raises some questions:

1. What would be some of the common problems and capital expenses that would need to be budgeted for with an older park, assuming that it is on city water/sewer?

2. What would be a good short list of fixes for the most common problems?

3. How often could we expect to see these expenses over the long term?

4. What are some of the most common areas where sellers try to hide deferred maintenance?

5. What signs can we look for that would indicate that a park has a lot of deferred maintenance?

Hey- I know who said that stuff! Good guy, and handsome... jk

first let me clarify... city water and sewer is saying your water lines and your sewer lins are being fed raw water from the city, and your waste heads out of your park into the city's sewer system. That said- you own the lines in the park.

1. What would be some of the common problems and capital expenses that would need to be budgeted for with an older park, assuming that it is on city water/sewer?

So here you need to know what your materials are. Older parks use galvanized water lines. It is not a matter of if they will fail- it is when will they fail. They get weak and twist off at the shutoffs, normally under a home, on Christmas eve. Sewer lines are tile which have bad, bad root problems, or Orangeburg. That is like roofing felt that was rolled into pipes. The Orangeburg becomes oblong - like a cross section of a football as it ages. It is very tricky to replace a section, and pulling new lines in can be costly. Streets need to be repaired as trash trucks are much larger now than when the roads were built.  

2. What would be a good short list of fixes for the most common problems?

The answer to this depends on what your infrastructure is. You need to look at what you have, and figure out what might go wrong. Then you best know where to get materials, and some stuff you better have on site just in case. Water meters, water risers, soil cutters, clay tile, sewer clean outs... all the tools you need to fix these issues- like pipe threaders, shovels etc... 

3. How often could we expect to see these expenses over the long term?

This depends on other factors. Soil conditions, weather conditions, trees, are the utilities marked, vacant lots, materials etc... Sometimes you have to clean a sewer line twice in a few weeks, and we just replace the line and bam- no more issues. Many times your better off replacing over repairing- that statement right there is a gold nugget. Write it on a sticky note and filter everything through it. It might cost a bit more up front- maybe... and save thousands down the road. 

4. What are some of the most common areas where sellers try to hide deferred maintenance?

They do not hide it- they just do not do it. Are they repair or replace people. Do lots not have homes because something is shot? Look down in the sewer lines to see if water is flowing, fill the lines to see if it flows. Turn on all the water lines to make sure you ahve clean water flowing. Look at trees, roads, patching, fresh dug soil, electric line sizing. If you can walk a park in the fall, or winter look for green grass where everything should be dead. Back to trees- these can cost tens of thousands to trim or remove- so know your trees and what it takes to care for them, above ground and under ground. 

5. What signs can we look for that would indicate that a park has a lot of deferred maintenance?

read #4 again- check everything that turns, runs water, drains waste, grows etc... you get a feel pretty quick if things are overgrown. 

The best thing you can do if you do not really know what your looking for is hire someone to meet you on site and do your due diligence walk with you. I could post everything I can think of to look for, but I can not tell you how to look for it- or if you combine a few things together how things might be really, really bad. It is like telling a mechanic your car is not running and asking them what might be wrong. The real trick is when you see a sweet deal, and you can see through the dollar signs to the disaster that sits just on the other side. There is a country song... you gotta know when to hole um... know when to fold um... know when to walk away and know when to run... 

great questions- 

Jim Johnson, MHP Holdings, LLC | http://www.mobilehomeparkbuyers.com

Good post. I have actually seen orangeburg wrap itself around a tree root (actually the root just squeezed itself into the orangeburg as it grew). Not sure what they were thinking when they invented it.

One you hinted at is the size of your electric lines. An old 60 amp line cannot support a modern 200 amp home. Not really a problem if you are full of older homes, but if you need to start moving newer ones in, it can become a large expense. 

You also never realize what a killer the trash trucks are until you've owned a property for a couple years and start seeing the damage they do. Way beyond the normal wear and tear of your tenants vehicles.

Not really deferred maintenance, but Mother Nature can also wreck havoc on a park. You can have a slew of your homes lost overnight in a powerful storm. We've bought parks that were suddenly vacated to to Mother Nature. Can change your fortunes in a hurry.

Anyway much success.

Thanks Jim and Matt for your quick responses.

Guys, I'd like to pursue this capital expense thread a bit more if I can, because I'd like to get a better feel for what reserves need to be put aside for all of those curve balls that can come your way with an older park, goven that an older park is the most likely scenario for many newbies. 

I know that some of the lenders on this site have commented on properties that have come back to them from buyers who got in over their heads. While poor management is the most obvious way to get into trouble, not having enough funds in your capital reserves for the unforseen would certainly be right up there, I would think. The worst mistake we could make would be to assume that a low down payment and some generous seller financing will get the job done.

So Jim, if we were to drill it down a bit more for you, could you give me the benefit of your vast experience in this area?

Let's say that we are talking about a park: 

-Originally built in the 60's 

-On city water with galvanized steel water lines 

-On city sewer with tile sewer lines

-Has some vacant lots but meets your criteria of not being a large infill project 

-Something that could get a good bounce from tightening expenses/raising revenue

-But has some deferred maintenence issues

Assuming all other things would be the typical scenario that you would encounter on your deals Jim and Matt:

1. What things would typically need to be repaired in years 1, 2, 5, 10?

2. How much would you normally put aside to:

a. Meet the above capital repairs/expenses for years 1, 2, 5, 10?

b. As a turnaround fund to change the fundamentals of the property with a goal of significantly improve the NOI.

Thanks again for everything guys.

1. What things would typically need to be repaired in years 1, 2, 5, 10?

You should plan on having issues every year with the water and sewer lines- maybe. If you have trees, the sewer lines will have problems every year. Just plan on it. How often or bad things are really depends on the previous 30 years. Some parks need almost nothing, some need to be worked on all the time. 

2. How much would you normally put aside to:

a. Meet the above capital repairs/expenses for years 1, 2, 5, 10?

I keep 20,000 liquid for a park like this- if you had sub metered electric, bump that too 100,000 for a 40 pad park. Your total expenses should be about 30% of your gross. The key is you can not spend all the money that comes into the park, you need to keep a savings account with enough money to cover issues. Figure 20k+. Repairs in parks do not nickle and dime you.. they are big numbers. The sewer guy for your home costs a couple hundred, for your park it might be a couple thousand. The plumber in your home might get $100... in your park, $1000. Figure most things are 5 - 10 times what you might typically see. BUT- if you run our park right it will make plenty of money to cover these expenses. If you do not have that fund- your cash flow will bounce like a white capping lake. We assess how much to take out each quarter, forecasting for weather and items noted on site visits.  

b. As a turnaround fund to change the fundamentals of the property with a goal of significantly improve the NOI.

This so depends on the park there is no place to begin. Some parks need to be fed for years, others for only a few months, some not at all. Forecasting is not all that hard if you know the property and know your crews. I can predict turn around projects pretty darn close these days. This year we calculated rehabbing about 45 homes- and I will probably be off on the target dates at the end of the 12 months by 2 homes. That is in 4 states and 4 parks that have that kind of work going on. I have 3 really, really good crews. 

I have spent $10,000 to increase NOI by 60,000 yearly... and I have spent 80,000 to upgrade infrastructure and make a 2.5 point CAP rate adjustment. The 80k probably got me $200,000. But that park had other upside as well. There is no number to plug in here- every deal stands on its own, and how well things get done sit square on the shoulders of who ever is quarterbacking the project. Here is my advise- if you do not really, really understand the stuff your trying to fix- be it water, sewer, roads, electric, rehabs, gas... you better find a partner that does. Not a manager, a vested partner who has a return tied to how well the job gets done. Someone with skin in the game, or who get paid on the skin the save and squeeze. Think about this- the BIG, BIG, BIG money guys do not make the coin on paychecks, they make it in stock, or equity positions in the deals. Find a rockstar that will quarterback for a % of the ownership, because bottom line- you do not want any part of what that person is really worth hourly.

Jim Johnson, MHP Holdings, LLC | http://www.mobilehomeparkbuyers.com

Thanks Jim, that's much appreciated insight.

You said, "I keep 20,000 liquid for a park like this- if you had sub metered electric, bump that too 100,000 for a 40 pad park."

Could you help me to understand why you would need the additional $80,000 for the sub metered electric system? What are some of the  post metering maintenance/repair issues that need to be budgeted for with a sub metered system?

Also, putting aside for a moment the often recommended material from Dave & Frank at the mobilehomeparkstore, what would you say would be some of the other best books ever written on how to manage a mobile home park?

Thanks a lot