I had been powering through bp podcasts and feeling my oats, so yesterday I went to an auction of a small trailer park just to see what it would go for. (I had previously seen it with the broker but they were asking too much.) I ended up signing a contract on it. I am feeling a little nervous and so I wanted to see if I am missing some angles.
Quickly about me- primary occupation attorney, started investing in 2006 I have 13 units of my own (9 SFR, 2 duplexes) and manage/own 4 SFR with a partner, we have also done two flips this year.
The deal- The auction did not go high enough to meet the reserve but I was high bidder and worked out an owner financed deal- $70,000 purchase, 20% down, balance financed by owner at 6% over 15 years. The trailer park is located outside a small town in Central Oklahoma. 21 spaces, 9 park owned single wides, 1 park owned double wide, 1 2500 sq ft owner's home all on 11 acres which includes a lagoon. There are no other trailers in the park (i.e. space renters). Currently 7 of the single wides and the double wide are rented out. Everything is run down and in poor shape. The owner is 80+ years old and has not been able to keep up with the place. I have looked at the two trailers which are not rented and the main home and they are going to need about $5,000 total to get rental ready. I have not seen the occupied ones. The owner does not have good records so I am taking it based on what I see. This is purely a cash flow play, I don't expect much appreciation.
The payment is less than $500 per month, taxes and insurance are about $150 (not insuring the single wide trailers- they are not worth it). Taxes are cheap because it is probably still zoned agricultural. Should not change too much with this purchase price.
Double Wide - $450
7 single wides - $300 each
Total - $2550 gross
Additional income after repairs- Main house $500, 2 singles $600
I assume it is going to take a year or so to stabilize the park after it was so run down. I am also going to be a little tight on cash because of the down payment and fix up costs. This is going to almost double my management time/costs. I am trying to move into real estate investing full-time so that is o.k. for a time. Any advice on making the transition from two full time jobs would be great!
Anything I am missing?
Sounds like you bought right, as long as you are up for the work to get it stabilized.
City water? Sewer?
Well water and my own lagoon on the land but it is separated by a county maintained road (the property is divided in half).
Originally posted by @Paul Choate:
Well water and my own lagoon on the land but it is separated by a county maintained road (the property is divided in half).
Puts you at more risk with county health departmen. I'd check and see if there are any violations/issues with both the well and the sewage. Possible to get on city utilities?
The water is near by. I will check with the county on any violations. Thanks for the idea.
BTW, I would have bought it too, if it were me.
Sounds like a great deal I have owned 2 parks with private water and sewer.. At least here in Oregon this is very serious stuff.. And you would want to make sure you walk right into the county health department and have a chat with the head honcho.. Make sure your water system is approved . ( ours we have to monitor monthly) and that your on site septic system is good to go... Make sure you have a reputable septic company go out and give it a thorough examination prior to closing. Have a well company do a flow test and test the water for any nasty's. If that all checks out fine then I think you got your self a winner as long as tenant base is manageable. One of my parks it was a breeze another park I had was lower end and it was management intensive from a lot of angles.
Lastly what I would do is not own any of the MH.. Sell them on contract and then charge a space rent.. you can back into your total rent. Much better to have someone owner occ the MH's so you don't have to maintain them and you should get a touch better type of tenant. rehab on old MH is a ***** parts are not off the shelf etc etc. As the tenants pay off the MH you can then slowly raise rent as well B/C they now own them and there is no place to take them you have a captive audience. However even if lets say you wanted for one of the homes and space 300 month total.. If you charge that for space rent and sell the home for 2k and 50 bucks a month until paid.. you will still save money big time on maintenance over the course of the years.. The joy of owning a park is your only maintaining the park not the homes as well. Hope these comments are well received and good luck on it.
another point Paul is if you do sell the homes.. and even if they are free and clear and the tenant leaves. they will either sell or give away the MH or give it back to you for nothing because it does not pay to move the home.. My park in Vancouver WA. had 44 spaces and 11 MH's came with the deal.. over a course of time the tenants ( usually elderly) passed away the Heirs would try to sell some did most did not and they just did not want to pay space rent anymore and gave us the homes that we then resold on contract.
Also you can have veto power over the tenant in the MH if its a rental or not allow any of the units to be rented. Your an attorney so you will know if this will fly in OK it did in Oregon and Washington were my parks are.
@Jon Klaus Thanks for the vote of confidence!
@Jay Hinrichs Thanks for the info. This is a new deal for me. My two duplexes are on the same two acres and I have not had to deal with any of this so far. I appreciate your knowledge. I really like the idea of selling off the trailers. I will check with the seller and see If I can keep them off the note for the down payment.
Do you have a company who handles your water monitoring, reports etc.? Do you have a monthly fee or is it per job?
well drillers will be able to refer you to well monitoring companies as well as the county health department... the MH in our state are transferred by title like a car. I would just ask them to transfer the titles with no liens on them. We pay a per visit fee. they do the work and turn into the state water agency.. Ours is called DEQ
@Jay Hinrichs Thanks again! Our regulations are generally relaxed compared to a lot of areas but I would like to hit the ground running.
@Paul Choate Congratulations on the contract. Seems like a great size park to cut your teeth on. What is the market rent for the lots? What are you budgeting to get the park up to par where you can get market rents? What is the current tenant quality? Any idea if they are paying? Any leases? Are they tenants you are going to want to keep around? I get your meaning behind "this is a cash flow play and you do not expect much appreciation", but if you get the park leased up and stabilized you should be able to create a significant amount of forced appreciation. Sounds like the big unknown is getting in touch with the county to see what (if any) the upfront cost and ongoing cost are going to be with water and sewer. I hope you will keep us posted on how due diligence progresses and the experience and cost as you rehab the park.
@Katie Neason Thanks for the comments. I am really excited to be moving on to bigger numbers of doors in my deals and this one seems small enough to handle.
I am not aware of another park in the town but my town which is 20 min. away its about $100-$150. I am currently planning on cash flowing the repairs from my other properties- so I expect to spend about $20,000 over the next year on the overall park and the 3 units that are not currently rented. I liked @Jay Hinrichs idea about owner financing the trailers so that would significantly reduce what I need to spend on the occupied trailers. I am hoping to get the vacant lots occupied asap. The current tenant quality is very low but according to the records I got (a list on a notebook page) The single wides average $300 and the double wide is bringing in $450. Only two were behind as of last month and he had evicted one of the vacant trailers last month so everyone should be close to current. Everyone is month to month at this point. Plus leases don't mean a lot at this level in my experience.
I am hopeful of the forced appreciation aspect but I am not putting any eggs in that basket. It is really the owner financing that is making this work for me.
I will update this tread to let everyone know how it goes.
Jay that is a great idea for the MHs.
Good luck. Please post updates with your progress over the next year, I would really like to know how the numbers work out.
So far, sounds as though you made a great deal!
First off buying something like this on a whim is never a good idea, I would post this topic in the mobile home section so you get some better responses.
When looking at parks, if I hear the "L" word, I do not give it a second thought. There may be others who would consider it but I would not.
To start, I personally would see if its something you can still lose your deposit for backing out on (after you do more research)
You my friend need to go into super information gathering mode. Go over to the MHU website and buy frank and daves study course and read everything on it and see how it applies to your situation.
Before you start writing 9 mortgages as suggested by @Jay Hinrichs , you need to learn about the current lending laws, frank dodd act, before you start breaking laws and selling on "contract". Giving away free may be your route to go to avoid the lending hurdle depending on what kind of homes you have on your hands.
There aren't a ton of buyers for parks like this, so you have to figure out what your plan is, hold forever etc. lease up, be rentals. Before I put everything I had into though, I would def reconsider being it has a lagoon. That lagoon is def something you really need to do your research on.
Well has its own set of issues. People are also more flexible with septic but back to that lagoon, I think its just going to turn a lot of potential buyers off.
Do you have any idea of why it ended up at auction? Was it previously listed for sale via conventional market?
And to mention it one more time.... you need to do your research on the lagoon!
Is the lagoon a legal one? From the frank and dave manual, frank says that a lagoon without a permit may trigger an immediate park closure.
Sorry for changing the feel good direction of this thread but you should be feeling extremely nervous. Post over on the mobile home side and see if you can get @jim johnson to chime in, he is really knowledgable on the topic of parks.
@Jack Baczek Thanks for the info- I am definitely looking for all sides so I can consider everything that may come up. If you don't mind I would like to respond to your comment so I can explore the issues you raised.
It was not a whim. I had already looked at the park with the broker and did not purchase it because of the asking price which was more than double what I paid. I had written this one off after looking at it for over a month. I like auctions because you get to see where everyone else is at. I was actually willing to go much higher because of the owner financing. When the auction price was as low as it was, I jumped on it.
lagoons- I grew up with a lagoon on my parent's ranch and my parents still use it. My school has one currently. They are fairly common here. I will check with the county health department and see if there are any issues. This is a very rural area and there are not many other options and our rules and regulations generally reflect that.
Thanks for the links to more information. I am very excited to learn all I can.
My temporary job (until I can move to full-time investing) is a consumer bankruptcy attorney. I feel pretty comfortable with the laws you discussed. I am of the mindset that fear in others can create an opportunity for those who learn the rules. I agree that there is an entirely new regulatory landscape but it is evolving and there is room to maneuver within it. I will go to the MH forum to read up on whats out there. Thanks again for the direction.
I am not planning on being able to sell the park for quite sometime. The owner financing is on excellent terms. My goal is cash flow. I am fairly young and aggressive in my investing so that in 4 years I can be doing this full time and 5 years after that, step back into a passive role with full time managers (starting with my 10 year old son!). This park fits my plan very well.
The park went to auction because the owner could no longer manage it and he did not try to sale through a Realtor. The auctioneer tried to sale it to individuals he knew which is how I knew about it beforehand. I have bought other properties from him.
Don't worry about the contrarian point of view. My wife will tell you I live in the clouds so it is very helpful to get a dose of reality. I am looking to cover every angle... I am not very leveraged on my other properties so I can cover some mistakes for a while.
Generally, I still end up going in swinging until I fall or they fall! So far it has worked out well.
I think you can go up a little on those rents. I would not do it right-a-way, but after a few months. Look on craig's list for current rents in the area. I find rents are going up now after the whole real estate fiasco.
Also, I own properties in MH parks and the owners tell me they rather not have any MHP owned homes but the tenants own them because it is much less work. That is up to you of course, I am just sharing their opinion with you.
Are you planning on having a full time maintenance man on staff to cut lawns, start painting and improving the appearance of the park, and working on those trailers to get them rented?
I am not suggesting anyone break the dodd frank rules by any means Being a NMLS licensed Mortgage banker like I am I think I understand those rules pretty well.
And this buyer being an Attorney I had to figure I did not have to spell out how to protect himself if he choose to sell units instead of own them.. IN my experience with my parks on the west coast.. Another reason that you don't want to own the units is that lenders don't like it and won't give you any value for them. NOw in this case there is no lender. And then the maintenance issue as I said is a bugger with these old ( and just assuming single wides)
So yes if you want to sell the units you could just sell them for a few grand cash and be done or have a LO prep the paper work according to the laws of OK.
NOw on the lagoon I personally have never heard of one or know what one is.. I can only surmise its some sort of sewage system.. So I think my advice to go into the county and talk to the head sanitarian or whatever you call them there is pretty sound, after all it would be them who would shut you down if the system is condemnable.
On a side note I have looked at parks through out the mid west texas and those areas and they sure sell for next to nothing compared to our parks here.. I did sell my 44 space park in Vancouver a while back and I got just shy of 2 mil for it. Parks in our neck of the woods sell for 4 to 7 caps Or just about as much as paul is paying for the whole place we pay that amount per space :) and then there are Socal and SF Bay area parks that are off the charts in value. It is a great business that's for sure
@Paul Choate Who pays the Utilities? If they are included in the rent you should get the mobiles metered and get some added cash flow quick. Should be around $150 per mobile to meter the park. Pretty quick, easy and cost effective way to increase your income.
@Andrew Warner -They are individually metered for electric and gas. I supply the water and trash.
@La Nae Duchesneau - I will look into the rent increases. I think he has not raised them in a long time.
I get the not owning trailers as a general rule for the maintenance headache. Here is my situation. I have a strong back and a law degree. I don't have much capital. My strategy is to work my tail off for the next few years doing what others can't/won't do because I can. I currently am running between 17 units scattered over a 20 mile radius. (My office is at the other end so it is no big deal as I do it every day.) If it is just the management headache that is what I can do now. I am hoping to back off the daily operations once I get big enough and my units are improved in quality. Right now I am basically working two jobs. This deal will double my units and my cash flow will increase by about 30%. I will work toward bringing in lot renters and I like the concept of owner financing the trailers, but in the mean time I need to maximize growth to reach my goals. In your experience, were the owners just focused on their returns as passive investors or where they actively managing their parks?
As for the maintenance side, this past year has been a dramatic increase for me as I found a partner with some capital. We have purchased 4 buy and holds and done two flips. I have one full-time subcontractor who does most of my fix up and maintenance work that I can't get to myself. I personally work about 20 -30 hours per week right now but that is going to stop as soon as I get our second flip sold. This park will allow me to keep my guy going since I can't count on the flips.
@Jay Hinrichs I don't need anything spelled out, just pointed in the right direction. I know to do my own research. I really appreciate your advice. It has given me new opportunities to explore to limit my exposure and increase the available cash. Thanks again!
I am smack in the middle of these parks and I hope to be able to use my time talents and proximity to accelerate my growth. I hope the numbers are anything close to what they are on paper:)!
Everyone, I have contacted the state DEQ which is the governing agency and read the regulations for both the well and the lagoon. They are pretty standard and I will get both systems tested before closing. Thanks for the concern and highlighting the need to do this. I probably would have overlooked it or assumed it was fine. I am moving in to a different league then where I have been.
I don't see how you can beat that given where you're at. You're looking to make the move to full time investor so the management time/effort thats going to come with this place are going to be ok. The key is that this thing should kick off some real nice cash flow.
Ultimately, thats what separates our ability to quit our day jobs and have more time to spend on investing.
Come on. You're putting down 14k for a MHP that needs 5k in rehab to get the house and two models rent ready and you'll be grossing 3,600 in rents? With PITI of 650 a month?
Is anybody else not thinking thats just an unbelievable cash cow there?
HOLY COW! And you still have 11 more lots that you could put trailers on????
If you can buy some nicer trailers at some county tax sales auctions and move them over there and sell them on contract, you can boost your cash flow and bring in a better class of occupant. The better the tenants, the better the demand will be for other people wanting to move in.
I agree that selling the homes on contract makes some sense. But I'd rather maximize my cashflow so I have more of a cushion as you're going to be a full time investor and cash flow is king.
Long term I'd probably want to get out of the maintenance end and not deal with rent. But short term, you're going to make more as rentals (with more management time/effort too) so keep them there until maybe you can bring some more trailers in on the vacant lots.
No matter what you do though. As long as that water system has no major issues, I don't see any way that buy isn't an absolute home run. Unless you're nearest town or two are dying out or something, this is a fantastic deal and even moreso given where you're at in your investing cycle. I don't think you could have asked for anything better than this.
At least those would be my thoughts if I were in your shoes trying to go full time......
Its an absolute home run!
@Mike H. I agree with you. Seems like a killer deal. Would love to find one like that! Congratulations, Paul!
@Paul Choate I should have clarified not "on a whim" but without proper due diligence. Parks are different then say an auction for a house.
A general good piece of advice is that you need to figure out your exit before you buy. This is applicable to anything. Even if you don't have issues with certain items, other buyers might. Again, this can be fine but be sure to keep it in consideration.
I hope it all goes well for you but you are now in a different business that has unique traits so you just have to learn the specifics of park/ mobile homes.
@Jay Hinrichs 4 to 7 caps?! Thats it ;) I know things sell for more on those parts.
I have seen some good attorneys and bad attorneys so its hard to be safe about what you can assume :) Nothing meant @paul choate here! Just trying to put up some info.
Good luck paul and keep us posted with what you come up with and how your venture goes.
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