All Forum Posts by: Daniel Smithson

@Al Kirk - I'm a firm believer that everything in life is negotiable. Talk to your lender upfront and see if they will lend on just the land, transferring titles to the homes to you at closing rather than putting them in the loan pool. That may affect the size of the loan they're willing to underwrite, but if the homes are in decent shape you could explore financing them separately to get the capital you need to close. If they are unwilling to split them out, as Frank said, establish a release price for each home as part of your closing documents and agreement with the lender.

We had our original park owned homes tied up in the park loan on our first park. We told the lender that we were intending to sell them off. We did not establish firm release prices and now the bank is dragging their feet in releasing the titles. It just adds a layer of complexity that's best not to deal with. Especially when they think that a rotted out 1960's home is an "asset." That's nothing but a liability blocking a new home from being there! Hopefully we'll fix that in our upcoming refi.

Best of luck!

Hi Lori! Congrats on the sales!

Assuming you are not a licensed mortgage originator, please be careful about the documents you're drafting as sales agreements. You do not want to violate the Dodd-Frank or SAFE Acts that require this designation. These were put in place after 2008 and certainly complicated the landscape for selling homes, arguably making it worse for the end buyer but that's a whole different conversation.

Most park owners who are still carrying notes on homes they've sold are doing so with either a rent-credit program or a lease w/option program. Both offer a path to ownership for the buyer with monthly installments but the installments are considered rent. The buyer takes on no equity in the home until the purchase is completed.

We started with the rent credit system but found it cumbersome to manage. I like that it encouraged on time payments to receive credit, but it turned into a tracking nightmare quickly. I imagine there is software that would make this easier, but it wasn't in our current accounting program. We've since switched over to lease options with a depreciation schedule so that the buyer is still getting closer to home ownership.

The other option park owners use is selling homes through an LMO such as a local bank or 21st Mortgage. These entities will carry a note for your buyer (assuming okay credit, etc) and cash you out in the sale, moving the credit risk to themselves (or mostly so with 21st, you still have some obligations if the buyer defaults).

If you decide to carry notes, either system, I suggest getting your agreement reviewed by a local attorney or state MHA. That could save you big bucks later and makes sure you're protected.

Best of luck!

Start with John Fedro's website: https://www.mobilehomeinvestin...

Talk to park owners about what they are looking for to infill their parks - they'll be your most consistent buyers and/or can offer you a place to sell your homes. The best deals are the "must be moved" ads because nobody wants to deal with that mess. Get in good with a MH mover or two. Then it's just finding those deals.

Look up an older book by Lonnie Scruggs as well, Deals on Wheels. Some of the financing advice is outdated but the tactics are roughly the same.

That's an interesting question - I'm sure it can be done, but that would put you more into the manufacturing space. I'd check with HUD directly to see what their requirements are. I know the big guys have HUD inspectors assigned to their factories who are right on the assembly line checking for compliance and issuing HUD plates.

There is certainly a huge need for more manufacturing capacity right now though - it could be lucrative! 

You won't be able to build a HUD compliant mobile home on site. The manufacturers have assembly line inspections that approved home designs for specific regions. You can build a traditional home, but that will require local code compliance and the requisite inspections. You can build a "tiny home" or "park model RV" but they won't be HUD compliant/licensed.

Generally, it's best to purchase new. On the 21st CASH program, you can place homes with nearly nothing out of pocket if you resell them and about $6-$8k out of pocket if you rent or sell them on lease options. Buying and rehabbing used homes can be a gamble - I've placed some that cost as little as $10 - 14k for buying, relocating, rehabbing, renting, etc. I've also had some run north of $30k for the same... You can refinance these with 21st as well to pull your capital back out, but it's a much slower process.

We're getting out of the used home game and going with new homes for the lower up-front capital cost and attractiveness to better residents.

7.5% can be good, but it depends on the asset and the lending you can get. A 7.5% CAP with debt at 6.5% wouldn't be a good deal for most! You can likely do better, but to your point, it's just math. The asset can cover itself or it can't. That's where I try to start with heavy value add properties. Sometimes it price, sometimes it terms that get you to the starting gate.

The nice thing about MHPs and infill is that you increase your base on the park, ramp up leverage per new home, and bring in homes that either sell for cash or cover their own expense without having to come too far out of pocket. On a reasonable timeline with some scale, you could add units from cash flow and snowball up your park value and cash flow.

City water/sewer is definitely preferred as this can be billed back to residents on a usage basis. Septic isn't terrible but get all of the tanks inspected and just plan to have a rotation schedule to pump them. Average a few contractor recommendations to get a good interval based on tank size and number of units on each tank. Roll that into lot rent or charge it back as an assessment. Its a little more to manage but greatly reduces your competition who write these systems off.

We're problem solvers. The more problems you have the tools to fix, the better your potential for success.

Ryan is a great guy - he was pulled into the planning group with me this year and he brought in several awesome speakers! He and Ian are both presenting and moderating as well. They are the model for what we should all be doing to up our game.

It looks like we're going to sell out, making this the biggest SECO National conference yet. The education is great but the power in conferences like this is the networking. I think we've got a good system to make that as good as it can be given the circumstances. Maybe VR is next?

Hey @Mackenzie Craik - you're in a pickle! Same pickle I'm in with our park, but we have our titles locked up with our bank.  When we were negotiating with the bank, we were very upfront about wanting to sell off the homes and setting release prices for each home. They blew it off like it wouldn't be a big deal, but it's kinda turned into one. Not because they're unwilling to release them, but they're just slow to work with while we're trying to divest the houses as quickly as possible. 

Assuming you were upfront with the seller about wanting to sell the houses, try to write an amendment into your deal to set release prices on each home. All you'll have to do then is find the buyer, collect the money, and pay off the home's release price (hopefully with a little extra!) to free up the title. Make sure the seller has them all if he's going to hold them as collateral - chasing down titles can be an impossible task sometimes.

Also make sure the titles transfer automatically if you pay off the park and that the balance on the park loan drops by the release price on the home when paid. It's better when they're written separately, but a good title lawyer should be able to write up the amendment to protect you and the seller if it needs to stay as one agreement.

Good luck!

I agree with @Chris Ebert on this one - try to get some actual numbers. You can ballpark these if he doesn't have records (many don't), but be super conservative and make sure to account for anything and everything you can think of in your own proforma.

If the park did pull in $100k, assuming a 40% expense ratio (this can go much higher on smaller properties unless you plan to self-manage), you're looking at a 7.5% CAP rate which isn't bad for a park in really good shape if you can get good lending terms and rate spread.

If it's maxed out currently at $67k per year, 40% expense ratio, you're dropping to a 5% CAP. Obviously, we don't know your deal criteria and that may be a great deal in your book, but the price seems high to me as it sits today unless you can get the terms you need to make it work.

How much upside do you have in the rents? Any of the big MSAs in TN will have lot rents much higher than that. I can only speak to Chattanooga, but we're currently in the $250 - $375 range depending on how far you are from downtown. That alone may change all of the dynamics of the deal.

From my experience, if your current resident does not want to own the home, they are not going to take ownership of it in the long run and you'll get the home back, often in worse shape.

If you gift it to them, the advantage for them taking on the liability would be only paying lot rent. You'd be hard-pressed to gift them the home (ie give them the liability) and keep their lot rent the same as their current rent. There's no benefit to the resident. They'll still agree to this until something breaks and then they'll disappear, leaving you to sort out your new title/deed issue which can take months.

Your best course is going to be talking to each resident, explaining that you are selling the home. They can stay and have first dibs on it at a "massive discount" with no down payment if they want to buy it as-is. If they're interested, have them sign a lease-option agreement that clearly puts the liability of the maintenance back onto them. Make these short terms, 12 - 24 months if possible, and possibly even raise the rent slightly. We've had some success with $50 - $100/mo so the resident feels they have some buy-in on the home, but this depends on the home, the resident, and how far below market they are currently. Either way, make sure they can quickly get to ownership. It takes some salesmanship.

If they balk and do not want to take ownership, non-renew their lease whenever the term is up. Then sell the house for what it's worth, cash or lease-option. It does cause some stress at first and will take time, but if you're serious about getting the homes off your books, it's the best route to go. 

Lease-option contracts (or ILC (I'm not aware of the legalities of OR)) will also protect you as the title doesn't change hands until the resident has proven that they're either going to buy the home or at least stick around. You want to weed out the transient contingent. 

On your current deal - I'd recommend not having the seller make that transition for you. They're going to take the easy way out and not vet the residents for their ownership potential. You could potentially pick up a bunch of transient tenants who will run off with the titles, leaving you to try and track them all down.

There's no way to be in this business without being in the home (sales) business at some point. Just get in, and get out! Good luck!