All Forum Posts by: Account Closed

Paul, I completely agree with you about being conservative to the point that the homes are effectively $0 in the evaluation.  Totally get it and more times than not, that's typically how I underwrite most turn-arounds.  I just feel that the point needs mentioned because too many people take what is taught at MHU literally.  I've already seen three parks on the market this year where the owners actually did the homes for $1 program and the results ranged from bad to downright ugly.  One of the parks now has 12 vacant/not paying tenant owned homes all in various stages of either eviction or abandoned property.  Your typical period without rent in a deal like this is around 6-8 months depending on the state and condition of what you get back.  Multiply that by 12 and this owner is in some dire straights.  The most recent one I looked at is essentially a flip.  Guy bought a smaller park for almost nothing.  Instead of spending the money, renovating the homes, selling the homes to qualified people, and turning the park around properly; he just gave all the homes away and is billing this park as an all lot renter, turn-key investment.  If he happens to sell this thing, the next owner is likely going to go through a very painful learning experience.

Not to go off track here, but it brings up a point.  If you are buying a park where the park owner has sold homes in the last two years (easily identified on the rent rolls), ask for copies of each bill of sale as part of your diligence request.

If you are going to be in the business of buying parks to reposition (turn-around), you'll be hard pressed to find a park that has little to no park owned homes that you can buy at a discount.  Getting park owned homes is just simply a fact of life.  In any event, you'll need to value these for what you can sell them for cash - what it will take to get them ready to sell.  In my experience that number usually falls between $2,000-$8,000.  I would strongly recommend against selling a home for $1 simply because the new owner of that home won't have any skin in the game and that's not a good thing.  Pushing for fair market value in both your sales and rents usually results in better quality tenants.  Someone who pays $5,000 for a home is also much more likely to stay for the long haul over the person who pays $1 for a home.

For notes, just discount the balance on the note 50%-60%.  If the value you get after discounting is more than the value of the home, then use the wholesale value of the home.

As for purchasing a park with homes, you will purchase the land/improvements with a purchase & sale agreement typically and the homes will be done through a bill of sale.  It is industry standard among sophisticated owners to hold the land separate from the homes.

However great I think the Clayton program is, let's not forget that it's still in it's infancy and there are some risks/concerns associated with it.  Some of those are:

Guarantees required by the park owner, questions about how this affects the disposition, quality of park and volume needed in order to qualify, how having a park full of financed homes may affect your ability to push rents in the future, Clayton's customer service has not been great thus far, etc.

The market for used homes is far from dead even in the SE.  I've seen plenty of 90's model homes advertised on Facebook and Craigslist for under $10,000.  Some under $5,000 if you'll come out and move them off of someone's land within a specified amount of time.  At these prices in our parks, we can sell for cash and remove ourselves completely from the home.  We will be using Clayton soon, but it's not the only tool for filling lots.  In an 8 lot park, Clayton won't be returning your phone call.  

I found this after searching for 5 mins on a few Facebook community yard sale pages: 1995 4BR already set-up for transport, $9,000.  In our park in Burlington NC we have a similar model on a rent-to-own for $800/month.  We have also sold homes for cash near this amount out of that park.

Just to clear up what land/home is, it's when you take a piece of land and stick a mobile home on it.  Once the home is tied into the real estate, it qualifies for more quality financing options.  Assuming these can sell for $50k-$60k with payments in the $550-$750 range, you can see how this might be a problem if you were attempting to rent or rent-to-own homes inside a park at the same rent level.

Just to add one more knock to the list, Wichita Falls is a bit of a soft market and land/home is somewhat popular there.  Land/home is in direct competition with your affordable housing option as a potential park owner and is a more appealing option to anyone out there looking to live in a mobile home.  You're best play on something like this would likely be to treat this as a land/home thing (that's pretty much what it's set up for) since there is financing for customers to buy brand new homes on individual lots.  If it were me, I'd pass.  The capital outlay and carrying costs for land/home aren't that appealing and short term capital gains are awful.

The self-employment tax has more to do with how you run the property. If you are working in the park, then you should be hit with this. I've probably looked at well over a 1,000 parks since getting into this business three years ago. I would say that of the parks owned in entities, 90+% of them are LLC's. Of those 1,000 or so parks, I've only seen one where the owner took a salary and was subject to self-employment tax. For this park, he got up every morning, drove to the park office and sat there 9-5. He was his own employee. As long as you don't do that (I hope you aren't planning to) you should be fine.

Clint's website got removed... you can look him up on-line and you can listen to him on a few podcasts that are out there.  He's very knowledgable on the subjects you are asking about.

Not a lawyer, Not a CPA.  

Typically, you will want to hold the real estate separate from the park owned homes.  So, two LLCs are ideal, but not necessary.  It's just an extra separation and if this park only has a few POHs, I'm not sure I would even go through the hassle to separate them.  It may also be a good idea to employ your manager through a separate S-Corp, but again, I tdon't but others advise that it's a good idea.

You can layer it with another LLC and it might not be a bad idea for you and your partner to form an entity to hold an interest in this property and any others you may involve yourself with. That way, you and your partner can hammer out a really good operating agreement on your holding company and keep it simple on each entity holding property.

Lastly, I would have the LLC holding the property in the state the property is located in. You'll likely have to register the entity in that state anyways so just set it up there to save the extra paperwork. For your holding LLC, you can set this up wherever you want. I've heard WY is good but I'm not sure why. Clint Coons should be able to help you answer that question.

Look directly to the seller to provide financing on a park like this.  Ultimately, it is the seller's fault that the park is not in line with what is generally financeable.  Basically, the banks hate 10 lot parks but will sometimes do them.  Banks hate 10 lot parks that have 10 POHs even worse and you might look forever and not find one to do it.  Best strategy is to pile up all of the rejections and take them to the seller.  Hammer home that the banks universally are rejecting this property (not you) on the basis of whatever their major complaint is about it.  

* If the seller has debt on it, then it's also an easy way to find a bank crazy enough to lend on it.

We looked at an off-market 532 space portfolio in the Pittsburgh market a few months ago.  All of the wells in that portfolio required daily testing and it was much more expensive than I had projected.  That and some failing septics caused us to walk it.