All Forum Posts by: Adam Johnson

You bet, no problem.

I will offer a slightly different angle regarding the cost of hiring someone to do an energy audit. Let's use 2 examples.

Example 1 - you spend $ 1,000 to hire an auditor. They will likely give you a list of suggestions, along with a rough idea of which improvements will have the largest impact on savings. For conversation sake, let's say that adding blinds in the west windows will cost you $ 4,000, but save you an estimated $ 2,000 per year in air conditioning cost. Another suggestion might be to replace the rooftop units at an estimated cost of $ 25,000, which might save you $ 5,000 per year. Because your auditor suggested the blinds, which you may not have thought of on your own, you decide to do them first because the ROI is much higher. After Year 2, you can potentially reinvest the savings into further improvements.

Example 2 - you decide you can't afford an audit. You call in an electrician to look for suggestions. He sells you what he has for sale, electrical upgrades. So he sells you on a $ 30,000 lighting upgrade that will save you $ 1,000 per year in lighting cost. The ROI is horrible, but you might not know that.

Moral of the story, start with getting a cost estimate on the audit. It is very likely worth the investment because it will allow you to make INFORMED decisions. Best of luck to you!

With this size park, the first question I would be asking myself is "How do I manage it?".  You will be a remote owner that will require someone else to manage it.  On paper, that's easy. In reality, finding an economically viable way to manage a park this size will be a challenge.  You may find lots of people "interested", but will likely find the cost of hiring them will blow the numbers out.  OR, you may find nobody interested, or regularly turn over managers.  Neither option is good for you as an owner.

I own a park and am interested in acquiring more at some point, but even parks that are within 5 miles of me that only have 8 units need to look tremendous to get a second glance from me.  In my opinion, the economy of scale isn't there, or at the very least, is very challenging.

That thought aside, a back of napkin figure suggests the same NOI using 60% of gross rent, but that back of napkin calculation is BEFORE debt service generally speaking, so you may be looking at creative marketing by the seller. I don't know enough about the deal or have any idea where it is, but this doesn't really impress me.

I will chime in on the common sentiment here - I think it is better to find what you are good at and run with it.  When I started investing, I was highly focussed on fix and flip single family homes.  Turns out, I was pretty terrible at it.  During the same start-up period, I also happened to buy a couple multi-family fix and hold properties in the same are.  At the beginning, I swore up and down I didn't want to be a landlord.  It turns out I was pretty good at that and more successful.  Over the first few years, I developed the "profile" of my style - I buy distressed multi-unit properties, fix the problems, and hold them long term.  I started out 12 years ago (wish I had started sooner) and that has worked for me.  I used to buy only 2-4 family.  That evolved into a preference for 4+ units, then evolved further into a mobile home park and more recently mixed use properties.

My thought on your situation is that you are overwhelmed trying to emulate your mentor, who has also very likely evolved through his own experiences.  You will do far better to focus in the beginning, and analyze the results.  If you are consistently doing well with a particular type of investment (or location, or whatever is common among successful deals), keep doing those types of deals.  If you flop on a deal, look at why and try not to repeat it.  Not repeating it could come in the form of learning from a mistake, or by staying away from a particular kind of deal that doesn't work well for you.

Over time, you will add to your education and experience and will probably branch out into more diverse investments.  In the beginning, however, it is critical to be focused on your education and deal-making.  Some of my "best" deals ended up in a garbage can because I didn't know what I was doing and was either forced out of the deal or couldn't put the money together.  The latter was the result of much more experienced investors looking at the deal, looking at me, and simply saying no way.  Looking back, it is likely that more than one of those deals could have wiped me out.

Through the experience I have gained, I have found myself to be a patient hunter.  I run other businesses too, so I can't always devote as much time as I'd like to my investment growth.   However, I will sit and wait in the weeds for quite a while to wait for the trophy to walk into my scope rather than simply taking shots at everything that moves.  That's my style.  Other investor friends seem like they are taking down a new deal all the time, that's their style.  Develop your own and you will do well.

I will 2nd Joel's advice to seek an attorney on this.  Another factor to consider is the loss of green space and it's impact on the ability to further develop the property.  Some/many municipalities have a required minimum amount of green space compared to developed space (by building, pavement, or both depending on how laws were written).

I am making up numbers here, so don't use these numbers for anything.  Let's say your property is 100,000 sq. ft. total land space.  Of that, let's say the building is 20,000 (20%) and the paved area is 40,000 sq. ft. (40%) The remaining 40,000 sq. ft. (40%) is currently green space.  Let's also assume that the ordinance in your location requires 25% of your lot remain as vacant green space.  Currently, you have the option of developing another 15,000 sq. ft. (15%) of your land in additional parking and/or building.  

Based on the numbers above, let's just say that they are planning to take 20,000 sq. ft. (20%) of your property by eminent domain.  After that happens, you are left owning 80,000 sq. ft..  The math changes after that.  Your building is still 20,000 sq. ft., but that is now 25% of your property.  Your parking lot is still 40,000 sq. ft., but that is now 50% of your property.  Your property becomes "fully developed", simply by them taking your land because of the land use ordinance.  If they took 20,001 sq. ft. or more in this example, you now own a non-conforming lot, which can add even more potential challenges down the road.

Spending some money on an attorney now could save you a lot of problems later.

Check State laws as well. In NY, for example, manufactured housing community owners need to give 90 days notice in advance of changing the lease, even if month to month. That applies if the tenants own their home. The lease survives the sale as Ned stated. If you haven't owned a park before, read up on State laws and HUD rules as part of your due diligence. They are similar to apartments in some respects, but can be very different in other respects.

Also, for cash flow planning purposes, a 30 year note isn't likely unless it is seller financing and they are willing to go that long.

You don't mention management expense. Who manages it now? Who will manage it if you buy it? That number of units isn't full time management in most cases, but will require some "handling" of situations. Even if you plan to manage yourself, plug in an allowance for what it would cost to hire a replacement in case you can't or don't want to anymore. This will effect the NOI which, in turn, will effect your potential offer price. Frank's back of napkin analysis would generally include that expense. HOWEVER, nothing beats a specific analysis. Know about utility costs as well. I know of a park not far from mine that got KILLED with water assessment charges per lot when public water was run by their park. It blew their property taxes up and was a fairly unique expense for that location in particular.

http://www.nyshcr.org/Publications/housinginformat...

That's a good place to start.  I own a park in NY (welcome to business in NY, where if it isn't taxed yet, it will be soon!).  Different animal than apartments for sure, which I also own.  DO NOT delay on eviction proceedings for any reason, it takes long enough already.  Tenants are technically "late" until the 11th day of the month, even if you say rent is due on the first.  I send 30 day notices out as soon as possible after the 10th day.

Right after I took over our park, I was present when a tenant was served with a 30 day notice.  She turned to me and told me "...it will take you 6 f.....ing months to get me out of here..."  She was served in early May, we finally got rid of her around Thanksgiving.

Some of my best deals were ones that I never closed on.  As long as you learned something and lost little to nothing, then you gained in the long run.  Best of luck!