All Forum Posts by: George N.

The problem with calling the 2% rule stupid is that it assumes that most investors are too incompetent to use it correctly. If someone is too ignorant to use a rule of thumb correctly they are probably too ignorant to properly calculate any other kind of return effectively. There is a "Straw Man" argument element to Ben's post too. I don't see many arguing that the 2% or 1% rules are set in stone and the only factor to be considered. Quite the opposite in fact.

I totally agree with Brandon, It's one factor amongst many though one you use early in the process. And people use all other kinds of tactics but it usually amounts to about the same thing.

There are other factors you probably use even earlier on to eliminate a properties before you bother to dig. Type (SFH, MF, Commercial), market, neighborhood, total purchase price etc. can all kill a deal for one particular individual seconds after analyzing it even though those same factors might entice another. Everyone seems to forget another rule with a lot of weight... different properties are worth different amounts to different individuals in different situations. There isn't always a universal "good" or "bad." A 1031 buyer may be able to pay more and have a higher effective rate of return on the same property than someone else. A guy who owns a foundation company looking at a property with foundation issues is going to value it differently than a long distance investor etc. Generally, <1% rules are appreciation plays and 2%+ rules are cash flow plays. If you know your market and goals you analyze along that scale accordingly and determine if a particular investment is, say, a solid 1.5% deal VS a poor one. A 2% rule with upside/appreciation potential might be phenomenal while a 1% rule without might be a dud and vice versa.

I know in my market, unless there is some unique consideration, I will not buy anything that is not within striking distance of 1% but even that depends. During the crash I picked up some quads just under the 1% rule and have made a killing on them. I just listed one and received a full price offer 150K more than I paid. With the market likely at the high end of the cycle a similar deal with even a stronger price to rent ratio (good luck finding it though) is unlikely to do as well. The timing of a 1% or 2% deal is key as well. Since I believe that for the short/mid-term appreciation is likely to be minimal I picked up a mobile home park which is a cash flow play and offers my overall strategy some diversification. If the market tanks again I'd be back looking at properties with better appreciation potential etc. etc.

If I see a 2% property I know something is likely a wrong but it's rare enough that it's probably worth a look to peel it back and see if that/those issues can be mitigated enough to offer a higher return than normal.

So ultimately, yes, NOI/cap rate combined with market analysis is what you need to get to. But everyone is quickly sizing up deals. Basically, I just don't see a reason to kill an entire useful rule of thumb just because it requires a caveat and some basic knowledge.

I wouldn't be too intimidated by most park managers. Unless you're dealing with an owner/ operator most managers live in the park. They're generally low wage employees, not overly sophisticated, and their allegiance to the owner is probably hit and miss. Of course, there are exceptions to every rule.  

Call your Mobile Home Association, they should be able to point you in the right direction. As many have mentioned, it's important to do everything 100% by the book because in many localities the penalties can be very stiff. In others it may not, however, be such a big deal.

It's somewhat of a longshot but see if the city will bill back the water if you pay for the meters. This would be more expensive up-front but long term you're totally out of the water game, the meter readings, the billing, collecting, tenants sabotaging the meters etc. Sometimes, in rare cases, the city will even take over the lines which is a huge coup and would raise the value of the park significantly.

Very true. I'm always careful to avoid sounding like I'm bragging but I've found mentioning my investing (which I enjoy talking about with people anyway) is a great networking tool in and of itself.

Unless that lot rent is substantially under market (you say it can be raised but how much?) this deal is a dud. Applying a cap rate to rental home income is a disaster in the making.

What's the market like? Population? Average rents and housing costs? Employment?

Older septic system is a big negative demanding a lot of attention and a higher cap. That could end up being a but capital expenditure. Is it on well as well?

A park this small is not going to attract a lot of investors.

It's near a river. Is it in a flood plain? Will hurt financing and exit.  

Still a lot of variables out there but it seems that price is probably twice what it should be.

Also, not to nitpick but most veterans I know have been quite successful after leaving the military, I don't know that I would label them as an entire class of low income tenant though numerically speaking I know there are many who fit the bill. But any who have made it to actual retirement have a decent little pension and experience commensurate with a rank required for retirement. Of course, there are lots of single/short termers who blow out and get on some kind of disability etc. Just a little close to home there, ha. 

Curt, I own a park and low end apartments so I've walked them. There are even major mid-western metros with very low SFH prices in the 40-60K range (Indianapolis, Milwaukee etc.) and I know you can pick them up all over the South, even GA (outside of ATL). I would put much of the south even below the Midwestern metros. And in the south, especially deep south, you will find that lot rents can be insanely low. I'm not saying it doesn't work but I'm saying there are large swaths where it doesn't.

We're going to have to agree to disagree but I will say that Frank Rolfe also points out that two killers for Mobile Home Parks are readily available land mobile homes and low SFH prices. One reason why he doesn't invest in, say, southern Illinois.

I mentioned it above, sure, most of our tenants are not financeable. Though a not insignificant amount in my park are. There's a difference between a tenant base that turns to a MHP in an area where SFH prices start in 150s and one where they can't even swing 50K. But more than that the price of SFH in a market also paints a picture about the overall housing climate and economy there. Where my park is nothing exists in the SFH world under six figures. In fact, you will often find mobiles on land on the MLS well over 6 figures. As a result apartment rents are pushed up by lower-mid income people priced out of SFH. As a result of that lower income people are priced out of apartments creating an even higher demand for mobiles. This is a constant upward pressure on lot rent. Bottom line is the higher the SFH price the better it is for a park there. And personally I prefer to buy in vibrant markets where there is high housing demand and limited options for affordable housing.

Agreed. It would actually work better as a four day course or break up the owner/operator and purchasing parts. I had spent countless hours going through the materials before I attended so when I went it was digestible. But if someone who knows little to nothing it's a Boot Camp indeed.

Highly, strongly recommend. Not only for prospective buyers but people who already own parks even. I don't like gurus either but this is a specialty niche and Frank is amazing. Somehow he always finds the time to talk to me, answer my e-mails etc. He's a workaholic who has a passion for the industry. Honestly, I had a blast at the camp simply networking and talking shop which was worth the price of admission alone. Franks presentation and stories are hilarious. It was just fun as hell. Once you go once you can attend later for a nominal fee. I intend to go again.

There is no upsell, they give you everything. Frank is a no BS no nonsense straight talking guy to a fault. You can probably manage to buy using his 10/20 book and his due diligence manual which should only set you back 100 bucks. Whatever you do, at least do that. But after that you'll probably want to go anyway. I used their contract, have used their leases as a template (reviewed by attorney) and went from knowing jack to being able to buy/own and operate a park intelligently. I bought the park using the materials and attended the camp later myself.

If you buy the course will pay for itself many times over. I've listened to hundreds of hours of Frank's archived call in show going back years (he still does it every week) that they include and you learn something every show. The resources and amount if info you get are awesome. I hate to sound like a salesman for him but honestly they offer a ton of info for free (Frank is active on their forum and answers any one's questions openly) there are no gimmicks, and everything is up front so no, I don't consider Frank a guru in a negative sense.    

I'm going to have to disagree with @Curt Smith in that I would not say that mobile homes "never" compete with SFHs. There are swaths of the country where they do. And I think the OP has a reasonable point in that chunks of the Southeast (save the "New South") suffer from low housing prices not to mention murky economic prospects.

In areas with very low single family home prices mobile homes face steep competition. When you can pick up a little 3/2 bungalow for 40-60 grand your mortgage will be lower than a rent-to-own mobile and that's a big negative for a park. Of course, in an area with very low SFH prices rent prices will also tend be lower which hurts as well even amongst those who lack credit to buy a SFH. The average person will take a SFH over a MH any day so when the prices are comparable a MH is going to lose big. Personally, I wouldn't buy a mobile home park (or a mobile home) in an area where SFH prices in decent working class areas weren't at least within striking distance of close to six figures.

The best place for a park to be is in a high cost of living area with high SFH prices, high rents, and limited affordable housing options.