Mobilr park madness!!!

17 Replies

Guys I wanted to start off by saying I might have possibly stumbled across the most amazing slept on investing strategy in real estate. Well maybe not slept on... who knows.

I actually have been eyeballing a park that went up for sale in a state I admire I won’t tell you where. Jk if you want to know just message me! Anyways it’s a smaller park only 7 units and a house. It’s actually fully occupied and I have the profit/loss statement that the agents sent me and it made decent profits in the years 2016-2017 I don’t have the recent ones I’ll have to find them. Anyways when I calculate what the current rents are

Unit 1 800/mo

Unit 2 875/mo

Unit 3 275/mo (lot rent only)

Unit 4 550/mo

Unit 5 675/mo

House 550/mo

Unit 8 800/mo

Now as the average lot rent is at 280 for mom and pop parks, I think that there is a possibility of raising that lot value up, and trying to get every unit on rent to own to allow them the opportunity to become home owners, which would benefit them and me. They already all pay their own utilities surprisingly, I would only pay upkeep and garbage they said.

The property is listed at 550k I think it would be better off in the 425-475 range if I could negotiate that.

550k @ 10.9 cap rate (please correct me if I'm wrong I'm new at the cap rate calculations)

450k @ 13.3 cap rate

I want to be able to only charge lot rent and get rid of having to repair the units myself allowing them to take care of their properties as their own, and giving them the opportunity.

Please let me know what you think and if my numbers are off. I’m posting on here to gain wisdom and learn, so please be nice and give advice. So I can learn.

7 x $275 x 12 x .5 = NOI $11,550. The value of this deal is around $115,500 plus the value of the mobile homes as personal property. You are evaluating this as though the mobile homes are real property, which they're not. This is not an apartment complex -- this is a parking lot for mobile homes.

The only way 7 lots would be worth $550,000 is if it was in Orange County, CA (I know of someone there that has 10 lots valued at $1 million, but the lot rent is $1,200 per month so it makes sense) or a similar area.

@Frank Rolfe Thank you so much!! And wow! Frank Rolfe himself!! I have been binge listening to your podcasts! Thank you for all the information you provide! I’m definitely going to re-listen and absorb it all.

@Frank Rolfe what do you suggest if you don't mind, do I offer and how should I go about it. I'm hearing that if they don't come down to a certain price, I should leave the deal alone. No deal is better than a bad deal in my eyes.

@Jack McWatters - $550k is likely too high. If you're targeting a 10 CAP (I would recommend going higher for such a small property), @Frank Rolfe laid out the value of the 7 park pads around $115k. You can add in the value of the homes as personal property (do not apply a CAP rate, only what they could sell for) and the house separately. 

You have to decide if the house is worth keeping as an investment or if it's better to separate it and sell it off. If you do sell it off, it will likely sell for less due to the proximity to the park. Not that it should, but that's just people's perceptions. 

In my market with 90's - 00's MHs on each lot, you'd be looking at a total guestimate valuation of around $300k ($115k park, $60k MHs, $120k for the house). That's my guess, in my market. You'll need to underwrite each element separately based on your strategy.

@Leslie A. I think particularly I was focusing on what numbers at that price would make sense. And I also weighed into what would work for the seller. But now knowing what frank told me I may do a little more due diligence to see what the lowest price I can get it for would be.

@Daniel Smithson daniel thank you for your input with your knowledge! That actually does make a lot of sense and I may want to sub divide the house and sell it off if it makes sense. Also I should look to aim for a lower price rather than the 550k that they are asking.

In your opinion what is the best mode of financing in a mobile park industry. I wouldn’t mind bringing a partner on even if my profits were cut a little just to get me in the doors.

@Jack McWatters - It certainly seems like they're counting the MHs as real property. It's a common mistake with sellers, especially when a realtor is trying to help them get top dollar (what they should be doing). The trick is to look at the deal through the eyes of a lender who is going to see the MH as a risk of disappearing or depreciating to 0.

As far as financing goes - I'd say it's deal-dependent. Each deal is going to qualify for different amounts of lending that would be ideal given the deal. $1.3M+ deals should try to go with agency debt (Fannie/Freddie) for the best terms. Anything smaller will likely be through regional and local banks who know the market. If a property has high vacancy, turnover, or is otherwise unstabilized, you're going to have to bring cash, get some kind of seller carry, or even a master lease with an option to purchase (make sure this is bulletproof where the seller can't back out after you've done the work to reposition). What is it that Brandon T. always says - it's like having different tools in your toolbelt and knowing when to use each.

The big play in the industry right now is arbitraging parks from one level to the next - take an unloved park from a seller-carry deal to agency debt and you've got a winner on your hands. This of course takes time, knowledge, and a lot of money. If you can't jump a park up to the next level, it can still be a good deal but it won't pay out like the deals the big players chase. That's why they chase parks with a certain number of lots (50 - 60+), to make sure they can get up to agency debt in most markets. 

My concern with your deal, from what you've said, is that it's stabilized already but it won't likely be big enough to make the leap. The best you'll be able to hope for is a local bank lender getting a fully amortized note and riding that out until it's paid off. There's not much meat left on that bone. And it's likely overpriced to the point where it won't appraise out (that protects you and the lender, but appraisers do crazy things sometimes).

Partners can be great, but there are a ton of caveats with that setup as well - treat it as serious as a marriage and make sure you outline what each partner's responsibility is going to be in the deal. Stealing from Gary Keller here, treat your partnership agreement like a dis-agreement and outline all of the ways it can go wrong and what happens, because it likely will. 

I'm all about starting and getting your foot in the door, but make sure you understand the strategies that will make you succeed faster rather than just gettings pads under contract. 

@Daniel Smithson wow thank you so much that’s is a ton of great information thank you so much. My idea was that I could have a property with low management cost at first that would allow a steady cash flow, that then I can funnel that cash into my next deal. But what it sounds like and I understand is you want to look for parks with something missing almost that would allow you to add enoug value. And to make sure you are able to get bank financing

@Daniel Smithson the problem I'm having right now is that it is on market, which means that the owner is going through an agent. And I'm not so sure when I suggested the seller financing option that it got through clearly through the agent. Although on a park this small it would be beneficial for him/her in many ways, similarly it would benefit me as well. So so I can't get seller financing on this property I was thinking of going to a local bank for a loan, and then refinancing it after some time. I was hoping to add value in a few ways to the land itself and to bring the rent from 275 to 400-500 which could work, because 7/8 are renting their mobile units and there is one that is not, which could be an issue. What do you suggest on that specific person? I figured I could say hey I'll come in and give you a 1000-2000 remodel in any area if you mobile and I'm going to raise the lot rent to 450 say and that is still a great deal because it's affordable and I'll be making the park nicer in general.

@Frank Rolfe these guys sent me their 2016 and 2017 p and L and they said they lost or don’t have 2018 and 2019, and they said no originally to a seller financing. I want to offer them a seller financing deal that benefits their agent and my agent, unfortunately I l have to deal with the commissions, and the owner. I personally think the owner will cave in once they get their offer, but also I’m nervous that this thing is upside down. I have a guy going out to take a look at the property. But an easy turnaround I see is that 6 out of the 7 units are rented and paying their own utilities above market lot rent one tenant owns their unit and pays 275/mo + utilities. I want to raise it to 450-500 which would benefit me in raising the lot rent, and benefit them by lowering their monthly payments, and they would own their unit. “Focus on The land!” Anyways I feel I may have a problem with that one singular tenant but I feel like it would be beneficial for them to stay because I intend to up the parks value and make it more of a homey place to live and allow them to enjoy living there. What do you think Mr Rolfe?

@Jack McWatters - totally hear you and agree with starting small on your first deal. Value add is where the money is in the market right now. There's nothing wrong with buying a stabilized property for some of the cash flow and (hopefully) appreciation, just don't expect to replace your W2 with a smaller property like this one.

Agents do complicate things sometimes, but usually the sellers have them there because they want to have a gatekeeper to the shenanigans some buyers will pull with low ball offers, etc. It's tough to get direct to the seller to explain how seller carry might benefit them in the long run, but it's worth the try. The biggest value to the seller is often either less capital gains tax on the sale (unless they're seeking a 10-31, then you're out of luck altogether) or a higher sales price with their carrying some or all of the note.

Since an agent is just looking for a paycheck and to move on, these types of deals don't usually benefit them as much and they won't pass it to the seller as readily unless you've outlined how you'll pay the agent as well. You can offer them cash or cashflow too!

I still think your biggest issue on this one is going to be financing with a bank. It's a small, complicated, and seemingly over-priced deal. Be ready to hear a lot of "no's" but keep pushing and keep a record of them. When you've exhausted them all, that's a negotiation piece to take back to the seller to show you're serious and they're going to have to make a concession. 

Last note on the lot rent - $275 to $400-500 is a big jump. Where are lot rents in your market? If you give up control of the houses and are $100+/mo higher than other parks, your residents may move or sell their homes to other parks. If you jump up your one lot renter that much too soon, they will leave. 

Remember that residents owning their own home is a cash-flow liability to them and the residents will want a commensurate trade-off in payments if they're smart. If they're not, they'll abandon the home when the hot water heater breaks and leave you to sort out the titles, rehab, etc.

If you're serious about this deal, put together a business plan with the information you have and get it in front of some lenders for their feedback.

@Daniel Smithson thank you so much!! That all makes sense and it’s a lot to take in, I’ll work on talking to lenders and creating a solid business plan that I can show tot he lenders and that was kind of my idea as well if I get lots of no’s the perhaps if he wanted to sell legit, he would carry seller financing. Unless he’s trying to do 1031

@Jack McWatters The challenge with deals like this are twofold. 

First, the seller/agent is capitalizing rental income, which as @Frank Rolfe articulated above, is not how to evaluate a park. Once you sell those park owned homes to the residents, you will be left with the valuation he lined out, which is 115k.  

Second, the property contains another structure that is not a mobile home.  If you can parcel that off and sell it, then it's easier to value the deal.  If not, you essentially have a rental home and a mobile home park on the same property, so you cannot give the home a comparative market value.  

If the home sits on the corner or edge of the property and can be parceled off (check with the zoning dept) and sold individually, then you can give it a comparable market value and simply sell it as a single family home. 

Based on what you have shared, the seller/agent are either giving value to the rental income or the value of the home, or both.  If they cannot see the reality shared here in this thread, it will be time to move on.  The market will ultimately speak, so if they don't see it your way, just wait. 

All the best, 

Jack

@Jack Martin thank you Mr Martin you have a nice name first of all! Haha! And secondly sadly I may have to move on to something new just because of the fact they won’t understand the actual value.