First purchase- put myself in a bind with finances.

First purchase- put myself in a bind with finances.

Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes

I've been lurking for about a year, reading blogs, forums, listening to podcasts anytime I'm on the road. I've learned a TON! Thanks BiggerPockets!

So as we all know, the best lessons come from experience, and the intent is to mitigate our losses while learning these lessons, correct? Kind of a one step back, two step forward type of deal. Sometimes more like 6 steps back and 6 1/2 forward but hey, we're learning. I'm reaching out to you for guidance in minimizing my losses and taking those two steps forward.

Here's the situation-

June 29th 2018- Purchased a local mobile home park that included a 4-plex, duplex, SFR and 18 lots, under half full, 52% vacancy rate. This property spent it's last 10+ years under neglected ownership, poor management, bad tenants. I think only 3 of the tenants paid ANY rent for all of 2017. Most of you have seen these situations a hundred times.

I bought the park for $225,000 with an additional $80,000 line of credit for rehab capital.

We spent the rest of the summer moving in mobile homes, rehabbing the 4-plex, repairing water/sewer, etc.

Here's where the lessons really begin...

January 1st 2019- All $80,000 of rehab capital is long gone. 33% vacancy. Gross rents $6,400. 

This isn't easy to admit but we're running month to month trying to keep up on bills now. It seems that each month we pay out more than we take in for rehabbing, repairs and unexpected costs. It's not so bad that I feel like we're going to lose it, we're definitely gaining ground, but bad enough that I need to make a change.

Please help me get out of this! Any suggestions for building up reserves? How much should I have set aside for a project like this? Do I need to be more patient and rehab less? All thoughts and questions appreciated :)

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Contractor · Pensacola, FL · Member since 2018 · 303 posts · 240 votes
7y

 The units that you have right now that are rented will they pay the monthly bills? If they will pay the bills then I would leave that money alone to keep the park going. I would start seeking additional funds elsewhere to raise capital to do rehabs. If the park is self-supporting without you doing rehabs then I would slow down On any expenses going out.I would make a list of the rehabs that need the least amount of money spent on them to make them to where they cash flow and come up with a figure sort of like well $5000 will get unit 21 to where we can rent it out. And I would start coming up with a plan with goals and be very specific with the timeline also

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  • Contractor · Pensacola, FL · Member since 2018 · 303 posts · 240 votes
    7y

     The units that you have right now that are rented will they pay the monthly bills? If they will pay the bills then I would leave that money alone to keep the park going. I would start seeking additional funds elsewhere to raise capital to do rehabs. If the park is self-supporting without you doing rehabs then I would slow down On any expenses going out.I would make a list of the rehabs that need the least amount of money spent on them to make them to where they cash flow and come up with a figure sort of like well $5000 will get unit 21 to where we can rent it out. And I would start coming up with a plan with goals and be very specific with the timeline also

  • Aubrey, TX · Member since 2018 · 37 posts · 18 votes
    7y

    @Page Rosenlund The first thing I want to acknowledge is the fact that you are submitting yourself to others in order to learn and gain experience. You are making yourself vulnerable expressing to us that you "need help" and I admire you for that. This is the best way to learn in order to reach out to people who have been there before. 

    I agree with @Robert Biggerstaff I would take a look at the repairs and begin doing the minimum expenses in order to get these other units rented out ASAP. Once they are up to standard to move in it is time to expose these and market them tremendously through Craigslist, Zillow, Trulia. The great part about these are they are all free. Make sure to take the BEST pictures you can to get people out to view them. Hope this helps!

  • Rental Property Investor · Brookhaven, MS · Member since 2017 · 186 posts · 108 votes
    7y

    What happened to the other tenants? Were they evictions that you had to do, didn't like change in ownership? I agree with the others get those things rented ASAP is priority number 1. Did you get owner financing? If so, then maybe you can approach the seller and ask for a few months of no payments or interest only in light of the current situation.

  • Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
    7y

    @Page Rosenlund Damn man... I don't want to add to your misery but obviously you went into this deal way under capitalized. 80k is nothing for a huge value add play like this. I agree with the guys saying you need to look for outside capital. Try some local credit unions and banks to get a line of credit opened up or a working capital loan, you are making progress on the project. One of the biggest if not the biggest danger in this game is running out of money as you are finding out.

  • Rental Property Investor · Huntsville, AL · Member since 2013 · 419 posts · 323 votes
    7y

    Have you listened to the podcasts on mobile home parks (Jefferson Lilly)?  Don't have tenants, have owners/rent to owners.  Shift maintenance costs of the mobile homes to them, and reduce vacancy rate since owners are stickier and when they do want to move will likely sell back to you at a bargain and you can  put another owner in it. 

  • Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    I’d be dropping rents and maybe rent to own strategies to start getting income . Don’t wait around ,get hustling

  • Investor · Punta Gorda, FL · Member since 2015 · 35 posts · 30 votes
    7y

    As I understand it, you are rehabbing and renting the mobile homes.

    Can you do a few lot rentals to mobile home owners while building up the reserves?

    Once reserved are built up, then move back into rehab/rent of your units?

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y

    Thanks @Robert Biggerstaff- The units that are rented now definitely pay the bills. Good advice on setting specific goals.

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y

    A little clarity- the park was under half full but since then I've brought the occupancy up to 68% or 17 of the 25 are rented. So to answer @Jason Ray Richardson, I actually haven't lost any of the tenants. Also the financing was from a bank and we've already got 18 months of interest only payments, so that option is kind of out, although I could see if they would extend my original line of credit.

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y

    :) @Matt P. I appreciate your honesty and I might agree with you. I mean I do agree with you but I also think it's necessary that I have this little setback to learn the processes....does that make any sense? But you do have me thinking, on a project of this size where there's almost no end of ways to improve and value-add, how would you know what amount of capital you need?

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y
    Originally posted by @Dennis M.:

    I’d be dropping rents and maybe rent to own strategies to start getting income . Don’t wait around ,get hustling

    I could but that's not my problem. My issue now is I have a SFR, 1 unit in the 4-plex, 3 mobile homes and 2 lots all vacant because they need some amount of work to be rented, but....we're out of funding. Man, it's frustrating. Also, what I didn't mention is I'm doing most of the work myself. So I do what I can that doesn't cost much but I can see I need to make a change.

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y

    Regarding the podcasts on mobile home parks @Mike S., I've listened to all of them, some of them many times:) There's a lot of good info in there, I should probably go through them again. Ultimately I would like to shift them to owner occupied but for now I need the cash flow.

  • Accountant · Temple, TX · Member since 2018 · 28 posts · 20 votes
    7y

    Congratulations on making a move on your dream!  You picked a big goal, but it sounds like you are experiencing some success, just not enough cash flow.  Is the existing rent enough to meet your monthly debt payments?  If so, then you are almost at the top of the roller coaster!  It seems like you are doing work in several places simultaneously, which will eat up your capital quickly. With the funds you have remaining, which one lot or rental can you get ready next?  Just focus on that one until it’s rented. Then use those funds to move on to the next. Before going to the bank for more money, make sure you have both photos and financials of before and after. It sounds like you are really turning this park around, and you need proof to take with you to the bank. Good luck!  I’ll be interested to hear your progress!

  • Rental Property Investor · Brookhaven, MS · Member since 2017 · 186 posts · 108 votes
    7y
    Originally posted by @Page Rosenlund:

    A little clarity- the park was under half full but since then I've brought the occupancy up to 68% or 17 of the 25 are rented. So to answer @Jason Ray Richardson, I actually haven't lost any of the tenants. Also the financing was from a bank and we've already got 18 months of interest only payments, so that option is kind of out, although I could see if they would extend my original line of credit.

     Sorry I misread what you said earlier about the occupancy rate. Like someone else has already said looks like you need to bring a partner in at least in the short term. Maybe with a debt position and not an equity one.

  • WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    can you share what the numbers look like? (rent vs expenses) What's the end goal and what it will take to get you there on the remaining units? @Mike S. had a good suggestion about turning renters into owners and getting you that much needed cash.

  • Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    On the mobile homes that need work (and maybe the SFH) would you be able to do an owner financed/rent to own situation? I'm not sure if you could make it work with part of it being financed, but it would be worth looking into.

    You might not make as much off of them as you could if they were rehabbed and rented. But if you can get someone in there now and sell it off as an as is "handy man special" with owner financing, it might make sense. 

  • Beaverton, OR · Member since 2014 · 118 posts · 119 votes
    7y

    @Page Rosenlund    How much more is it worth today than what you've put into it?  I'd sell asap. Yes, you won't get top dollar, but I sure hope you've added more value than it cost you.  Maybe you can walk away with a couple bucks in hand for your work and improvement, and then move onto the next deal. You're walking a tightrope right now.

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y

    Thanks @Carleen L.! Yes the current rent is more than enough to meet our monthly debt payments. And yes, it seems I tend to lose focus at times and work in several places simultaneously.

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y

    I've wondered about a debt vs equity partner @Jason Ray Richardson. Can you expound on your reasoning a little bit?

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y

    You bet @Victor S. These are rough numbers.

    Rent- $6,400

    Electric- $400

    Management- $640

    Propane- $200

    Water/Sewer- $1600

    Loan payments- $1200 (currently interest only until DEC 2019)

    Taxes- $200

    Insurance- $500

    Net- $1560

    I have a meeting with my accountant this morning....these numbers make me nervous!

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y

    I've thought about that quite a bit @Cassi Justiz. I did sell one home as a handy man special;) I bought that particular home from a private party before I owned the park actually. I paid $180, and that might've been too much:) Either way I turned around and sold it on terms as the "handy man special." But as it turns out, not everyone is a handy man, especially not this guy, polar opposite actually.

    On a more serious note, the SFH is kind of right in the middle of the park. I've thought about breaking it off and selling it, do you think I'd regret it later? I could probably only sell it for $30,000 as is. Once I put $6k into it I could rent it for around $600.

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y

    Oh boy @Jason Powell, I just don't think I could sell it now. It might not be the wisest financial choice to hang on to it but I just can't imagine letting someone else take it over. Maybe in a couple years but not now when it's in a seemingly vulnerable position. I fought tooth and nail to acquire this property and so far the education it's provided me with is invaluable.

  • Rental Property Investor · Brookhaven, MS · Member since 2017 · 186 posts · 108 votes
    7y
    Originally posted by @Page Rosenlund:

    I've wondered about a debt vs equity partner @Jason Ray Richardson. Can you expound on your reasoning a little bit?

     There are others that can expound on this more than I can, but as I see it...

    Debt partner is someone that just wants a particular return in a particular time frame. You might make monthly payments or a lump sum at a certain date agreed upon (sale date, refinance date, etc) they don't control the direction of the park as long as you pay

    Equity partner owns an agreed upon percentage of the park for investing a particular amount of money. Typically a longer term partner. Some are more active then others.

  • Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
    7y

    @Page Rosenlund could you sell a mobile home to get a few thousand to get your closest quad or SFR unit ready? Getting something rented will help on the monthly out flow of cash. Even if you sell it for less than it's worth to get a quick sale and some cash in your pocket. Also, focus on one unit until it's ready to rent.

  • Investor · Northern Wisconsin · Member since 2018 · 18 posts · 9 votes
    7y
    Originally posted by @Matt P.:

    @Page Rosenlund could you sell a mobile home to get a few thousand to get your closest quad or SFR unit ready? Getting something rented will help on the monthly out flow of cash. Even if you sell it for less than it's worth to get a quick sale and some cash in your pocket. Also, focus on one unit until it's ready to rent.

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