All Forum Posts by: Account Closed

What type of sewer system?  Septic, Lagoon, WWTP? 

If it is lagoon or WWTP, you need to be certain you can connect to municipal sewer.  Lagoon is dangerous and the park is too small to support the reserves required for WWTP.  For septic, there are other issues to consider but the proximity of city sewer is irrelevant.

Also of note, if this is in PA then the water testing requirements can get pretty expensive for your well.  Their testing is a little more frequent.  

A better approach is to build a list of target properties in an area and hand these off to local commercial RE broker.  If you are looking to do direct mail, then your list doubles for both purposes.  My reasoning for going with a local broker is that you will find that most of the bigger brokers in the MHP space are not going to give you pocket listings and most times, they won't even make an effort to return your emails or phone calls.  Establishing a local broker relationship and targeting specific properties with him/her increases your odds of success exponentially.  That is unless you already have 1,000+ lots under ownership.  If so, then forget I said anything.

Response rates for direct mail are generally 3-5% depending on what you are sending and the message it contains.  As an example, we've sent out roughly 6,000 pieces of mail.  From that, we bought one park.  Have one under contract that we will likely move forward on and about 15-20 others who are now on a constant follow up schedule until the time is right.  It's a slow game.

For calls, we had a cold caller who worked for us for about 4 months @ 15-20hrs per week.  From that effort, we bought one park. 

In person meetings are somewhat a waste of time unless your lead is warm and price has been discussed a little.  Meeting someone prior to price being discussed is generally a waste of time.  I will caveat that with, unless there is either something very compelling about their park or unless the meeting is something that won't cost you too much effort.

Chase,

Are there any pass through opportunities for those utilities?

I would also ask for an itemized list of supplies, maintenance, paint & decorating, Misc.  Assuming they use any type of professional software, this should be as simple as selecting those accounts and running a report.  If it were me, I'd want to know what the breakdown was for each of those line items to see if there is a real opportunity to cut them.

I own a property where the R&M was $110,000 when one would have expected more like $30,000-$40,000. After getting a breakdown, the culprit turned out to be 3 extra/unnecessary employees on payroll.   Took over, didn't retain their positions, and the expenses magically went down to where they should have been.

At the end of the day, I'm not even sure $822k would even be bankable.  I don't dabble in apartments but I imagine almost every bank would see an issue with how you plan for this property to cover the note in it's current operating state.

Yes, your cash flow after debt service divided by your capital outlay.  It's also important to run your numbers using traditional bank financing to achieve this 20-25%.  Even if the owner financing is better, you still need to analyze the deal using what you might get at a bank.

You likely need to look at more deals if you aren't getting anything better than 6%.  Send letters out, cold call owners, bug the crap out of brokers, etc.  They are out there but you need to create a big deal funnel to find them.

As far as a quick expense ratio goes, I typically use 50%.  A lot of your expenses with private utilities will be dependent on the state and even county the park is in.  For example:

Wells require testing.  Some areas require this testing to be done more frequently than other areas.  Wells also require some periodic maintenance, but this is usually not too expensive.  In addition to testing, your risk of owning a park on a well can vary depending on numerous factors.  A lot of parks with a well also have a back-up well that is capable of carrying the park.  If the one you are looking at does not, then there is obviously a far greater risk.  If your park is unable to connect to municipal services, there is also a greater risk.  If you have a well in conjunction with a private sewer system, then the potential for accidentally polluting your water supply is a little greater.  

Septics typically require periodic pumping.  These expenses need to be factored in to your numbers even if they are not reflected on the seller's P&L.  Certain states/counties have also made it very difficult or impossible to replace leach fields so this could be a factor depending on the location of the park.  The size of the lots is a definite factor in your ability to replace a leach field.  The most desirable septic/home ratio is 1:1.  i.e. If you lose a septic, you only want to be down one pad.  Having municipal sewer at the front of your park is not much of a bonus since a septic layout does not have a common connection point.

WWTP's require a licensed operator and permits.  These are generally fairly safe systems to own, but they do get a little expensive.  The big knock on these is if you do experience a problem, it's usually a very large capital item.  For this reason, it is wise to only consider a park with this that does a considerable amount of revenue.  More often than not, you should avoid WWTP's if the park is less than 75-100 pads.

Lagoons are an all around bad idea typically.  I'm not up to speed on the operation of these, but I do get a lot of phone calls from owners who have lagoons that are in distress.  You should really only consider this system if municipal sewer is available.

As for a CAP rate, that would be up to you. I am not a fan of private water/sewer so I generally try to run my numbers very conservatively. It's not to say that I won't buy one though. I'm under contract right now for a park on septic. For me, I like to use very conservative numbers, have owner financing, and see a cash on cash that is at least 25% in year 1.

Ok Beard.  I'm just confused why it's always someone like you who decides to get on these things and spin a simple Q & A out of control.  This was originally a question about a quick evaluation formula to quickly analyze mobile home park leads.  Was it not?  

Maybe try to avoid introducing yourself in this manner: "Don't understand 72/84 and don't think after 18yrs I want/need to."

Owning a 6-unit for 18 years doesn't make you some kind of salty 18yr vet.  So yeah, buyer beware.

It's a shame that more often than not, someone's attempt to learn something on this forum gets hijacked by a big load of BS.  

I can give you that and I understand where you are coming from. What I'm saying is that if you are in the MHP niche, more often than not, you are buying nothing more than the broken pieces of someone's horribly mismanaged property. There is a large brokerage firm and a few newsletters devoted to our industry that attempts to give some average purchase CAP rates. These typically fall between 6-9 depending on who is evaluating and which parts of the country they derived their data from. It'll also largely depend on who is doing the trading in the transaction. About 60-70% of our industry isn't consolidated yet so you can imagine how different this is from other multi-fam assets.

Most parks we look at are so broken that buying at even a 6CAP on current NOI would still represent a purchase price that is less than replacement cost. (Sometimes below the value of the raw land) In these situations where the problems are blatant and easily fixable, you need to dip a little into your upside to find some middle ground. That's been my experience. Trust me, I turned down enough deals and dropped enough in diligence last year to know that I didn't overpay for what I do own.

Some of the things I've personally come across to highlight how broken some of these properties are:

1. A 220 space park in Raleigh where the lot rent was about half the market lot rent. It was a REIT quality property.

2. A 150 space park in IN where the owner pays his two daughters a total salary of $120,000/yr to do what basically amounts to what we have one person doing in our 131 space park in NC for $25,000/yr

3. A 52 space park in VA that paid 3 employees an annual salary totaling $70,000. These employees did nothing more than mow and blow leaves around. We own this now and we fixed it by having the tenants all mow their own spaces.

4. A 240 space park in SC where the upkeep on the pool was nearly $80,000 per year.... Person who bought this one filled the pool in with concrete and cut that expense plus lowered the annual insurance. This was another REIT quality property.

The list can literally go on and on like this but hopefully you see where I'm coming from a little.

Mr. Beard, meet Bob. Bob will be counter arguing that NOI/Purchase Price is not what a CAP rate is.