Learning What You Don't Know

8 Replies

I received the other day an email from a high school friend of my son, who is lurking on Bigger Pockets and was thinking about buying a manufactured housing community. Because he was someone that was a former classmate of my son, I asked him to call me after normal business hours so we could discuss his interests and plans.

Here were some things that came out of that discussion:

  • He has the intelligence  and the money to buy a land lease community, and it could be a very good investment for him.
  • He knows next to nothing about owning and managing a land lease community, but as a former Lonnie Dealer, knew a little bit about manufactured housing.

Because I believe, “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.” - Mark Twain and because I believe also that knowledge is critical to success I spent some time suggesting avenues to learn more before just jumping in and buying a community. Here is some of the advice I gave him:

  • Call George Allen of GFA Management and talk to him and possibly sign up for The Allen Letter. If, at some point he was more positive of his plans, he should consider attending the George Allen International Roundtable that is held every year somewhere in the country on September 9th-11th. (This year in San Diego)
  • Call Frank Rolfe and Dave Reynolds and get their materials and consider attending one of their boot camps. Also start reading at their forum as well as reading here on Bigger Pockets.
  • Sign up on Linkedin and join the manufactured housing forum groups there as well.
  • Contact Joanne M. Stevens who is a MH community broker specializing in smaller communities and also go to her website and read back issues of her community owner newsletter that is available for free. She is the Chair of the Iowa Manufactured Housing Association and active nationally and is a very straight shooter who likes to help people.
  • Sign up for The Chattel Finance Newsletter which is a monthly publication distributed for free to retailers, community owners, and others in the manufactured housing business that have a need for information on financing manufactured homes. This is a publication subsidized by Rishel Consulting Group.
  • If he buys a community, immediately join the state trade association in the state the community is in because that association will not only protect his investment, but also be a valuable resource for information and opportunities to network with other community owners.

I suggested he do all of this before he starts looking for a community. That, I think, surprised him. 

I went on to point out that one of the most common mistakes that people with money make is to fail to understand that owning and running a manufactured housing land lease community is not like "clipping coupons". While owning a properly run manufactured housing land lease community can be and normally is a cash cow when compared to other forms of commercial real estate, properly running it requires knowledge, hard work, and some intelligence. 

People need to know enough to understand not only how to run the numbers, but to understand they need to match their personality and their expertise and knowledge to the type of community they should be looking to buy. I'm not a "blue collar guy" so I am not ever going to buy a community on a well and septic, but I have friends making plenty of money buying and running communities like this. I don't want to be involved in day to day operations boots on the ground, so I need a larger community that can support staff, but again, I have plenty of friends who are milking the smaller community niche. I do not want ownership in 1-2 star communities, but I have a consultant on our staff that thrives on this and owns communities with residents he "aspires to upgrade to rednecks". (Some of you who post here know him well.)

On the other hand, I love communities with less than 70% occupancy because I know I will hit a Grand Slam using my marketing and sales methods and my captive finance operation as do some other young lions in our industry that are clients of RCG. Other community buyers often run as fast as they can from these types of communities.

The overall point is:

  • You need a lot of knowledge to do this right;
  • You need to get that knowledge before you buy something;
  • Owning and operating communities isn't easy, but it can be done, and when done correctly, is the best form of commercial real estate out there.

What do you think? 

Who decides a post gets an award around here??  Ken's post deserves an award for certain.  :)

"you think you know something, but it's not so"

Ken you mean something that these:

- Buy a park full of park owned homes, no problem, just have the tenants sign option agreements, take another month's rent for the option fee, write a clause that in 24 months the home will be their's

- No problem buying a park on a well.

- A park full of 1960's 40' homes and 10' spacing off the road, no problem.

Maybe this thread might morph into a list of false "truisms" about MHPs.  :)

Great Post!!!!! Thanks a lot Ken!!!!!!

Here are some questions to ask yourself:

  • How much real cash can I devote to purchasing and running a manufactured housing community?
    • You are normally going to need 20% of the purchase price for a downpayment using conventional financing.
      • It could be less if your seller is willing to do certain types of seller carry back financing or if you are set up as a general partnership and part of the money your partners are putting up goes to cover the down payment.
    • You are going to need to have some money set aside to handle fixes and upgrades or for operational issues also set aside.
  • How much time can I devote to running the community?
    • Is that planning time?
    • Is that marketing time?
    • Is that retail selling time?
    • Is that resident relations time?
    • Is that rent collection time?
    • Is that backhoe time?
  • Do you have any, or all, of the following experience and skills:
    • Blue collar
      • backhoe
      • licensed home installer
      • transport driver
      • electrician
      • plumber
      • concrete work
      • remodeler
    • Office
      • resident intake and screening
      • resident relations/community relations/governmental relations
      • bookkeeping
      • collections
    • White Collar
      • Compliance Management System
      • Developing and Implementing a Marketing Plan that makes sense for the style and location of the community you buy.
      • Selling homes at a profit and closing the sale.
      • Establishing some legal and compliant manner by which your prospective residents can obtain financing to purchase the homes you are selling.
        • For 4 and 5 star communities with prospective residents who average credit score is above 660 you will need to develop good relationships with outside lenders.
        • For lesser communities or for communities where the marketing is geared to draw residents with credit scores below 660, you will need to develop some form of seller finance.
      • Developing consulting or vendor resources for areas where help is needed.

The more you already know, the less outside help you are going to need. If your blue collar skills are weak consider locating and developing a relationship with someone who you can bring in as a partner. If your white collar skills are weak, but your blue collar skills are strong look for a partner who has the skills you lack. When this works, it works very well. I have done it, and I have friends that have done it. The fly in the wound is trust and ego, and that can be a very big fly. I also have a friend who inherited almost $40,000,000 and ran through it in 10 years by partnering with people he should not have trusted.

You can also hire consultants (like me) to bring you up to speed in areas you can understand but lack experience, knowledge, or expertise in. You just need to make sure that the consultancy is worthy of your trust and that they are not engaged in ultracrepidarianism and stay to their area of expertise, or that they are not more interested in you than your money. (Be careful of people who hang out shingles as consultants and just survive from fee to fee. They will be too hungry.) 

How about some other community owners chiming in with suggestions? 

Hey Ken,

I thought this was supposed to be secret information for me! 

The advice you gave me, which you've written here, is incredible. I really lucked out in happening to be friends with your son. I hope BP appreciates the depth of your knowledge.

My biggest take away from our talks has been how nuanced purchasing a MHP is compared to other, more traditional, forms of REI. There are a lot of ways to get yourself into a bad deal. I'd like to think I am intelligent, and a part of being intelligent is realizing when you do NOT have the knowledge to properly execute something.

I'd been researching REI for probably close to a year now before I thought I was ready to pull the trigger. MHPs are a completely different beast. I'll be following your advice and researching for a good while before I feel ready to purchase again. And even then, I'll be hiring someone like you to help me out.

It was great meeting you. Thanks again.

Kurosh - The information here was never intended to be secret. :) The other information I gave you that I did not post here - that is, and was, secret.

Now everyone will be wondering what I shared with you that I am not sharing here.

Originally posted by @Curt Smith :

Who decides a post gets an award around here??  Ken's post deserves an award for certain.  :)

I second Curt.  Thank you @Ken Rishel  for that great post

Is there any room here for just starting very small?  Would there be any value in this circumstance, where money is no problem, just to buy something really small to get started?   Just a few Mobile homes or even one and manage it to get a Bird's eye view while still   doing everything else you suggest??

There is a way to start small and still stay legal. Because the method I am referring to involves my company, the rules of the forum prevent me from discussing it here. There is a group on Linkedin called Lonnie Dealers Forum where it is discussed. You could also email me.

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