All Forum Posts by: Jim Johnson

There are many more factors- like expenses, location, number of lots, space rent, density, utility providers, park owned homes, homes on payments etc...

Without know the rest of the numbers- or at least have a general idea, there is not enough info to base even a guess...

So the question on NOI, debt service and CAP rates...

When you figure your CAP rate- you only use NOI, which is is income less expenses without debt service. This is a true statement. To see how interest rates figure in, lets look at broad examples first. In general housing, I think we all could agree if interest rates today were- say 10%, the homes we all live in would be worth less. That said- the monthly payment is not necessarily effected. If your spending $2,000 on a home payment at 5%- your loan amount would be about $745,000. That same $2,000 at 10% is a loan amount of about $455,000.

Now apply that same general concept to a mobile home park. At the end of the day, you have NOI of say, $3,000 per month. Of which you can spend $2,000 on the debt service. So while interest rates are not figured into the front end of the CAP, the are a line item you must keep in mind when valuing the park. When you look at the debt service, and then figure your cash on cash return, that number must be positive or you would never invest in the property. No matter how you slice it, interest rates high or low, your NOI remains the same. You amount you can apply to the loan remains the same. So the same $2,000 monthly payment (principal and interest) can support a loan of $745,000 at 5%, and $455,000 at 10%. As the park owner- your return is exactly the same... (not really, the lower purchase price will reduce your property taxes also, but that is a more complicated part of valuation). In general terms, the money is the same. Now if you did the low interest rate deal, and you had to sell, and interest rates went up- your in big, big, big trouble. A one percent raise in interest rates makes the same money, in this example on the 5% side of the loan, go up by about $450 / month. Your NOI is the same- but your cash on cash return just tanked. And your value did as well. Your property on the same payment ratio- is now worth $670,000. That probably ate 40% of your down payment...

So interest rates and CAP are linked by your Cash on Cash calculations.

I hope that clears this up a little...

Yes it keeps the price low- but also keeps the sellers cashflow the same. I know there are other tax issues- but that is a much longer discussion.

I will agree- to disagree with anyone that uses a LOI over a contract. I am of the camp if you are serious as a buyer- you use a contract. there might be times you would use a LOI, in very complicated deals where there are lots of moving parts.

In the long run I can not say I am right and others are wrong, I just feel strongly in my process and others feel strongly on theirs. I respect your view, just not the way I run my flag up the pole...

I would never, ever use a letter of intent. If there are 3 deals on the table, and one is a LOI, the sellers or sellers agent will use your non binding letter to massage the real offers. I buy and sell parks, and I get letters of intent on the sell side. I might read them in passing, but I always tell the buyer to put it in a contract and from there we will talk.

I always ask why the seller is selling, and I explain I can write offers many ways depending on the sellers needs. Sometimes (in mobile home parks) they are addicted to the income and they JUMP at seller financing. I tell the truth to the agent, and I expect truth back. If they tell me to pound sand, I write the offer with the seller financing, and we go from there.

I try to get rough income and expense numbers. I do not need the books, but I like something rough that I can use later if we need to adjust the price. Remember parks value on CAP rates, and real income and expense numbers are very important in the final valuation. If you really understand howto present adjusted income and expenses down the road- in the inspection / objection time, you can receive nice adjustments. Frankly in the contract phase you do not know enough to do this well, and you do not want to do it twice. Next- and follow this carefully because it is really, really important. If your having any financing by a bank or owner- you want the highest interest rate you can get. Give the owner 10%- 11 is even better. So here is where lots of people are reading that a second time and wondering how much I drink... but here is the secrete. Interest rates are the basis you adjust CAP rates from. So- a park must cashflow, and debt service is built into the cash flow numbers. So in addition to making darn sure you have added actual and customary expenses to the expense sheet, you will add in debt service. If your interest rate is 7%- you will probably need a CAP rate of about 8.5 or 9 to have the park make some money after expenses and debt service... are you following this? If the interest rate is- 5... then your looking 6.5 or 7 CAP. Now- if the interest rate is 10- your at 11.5 or 12 CAP. Never talk about CAP rates until your in the final adjustment phase- inspection / objection time. If there is an agent involved all the better. Most agent have no clue how to value these animals- and every time they sit in the corner with wide eyes letting you do the talking, just hoping they do not look too foolish and they still get paid.

If this kind of negotiating is not in your wheel house, hire someone that knows it. If done right, the right person presenting the contract terms will save you 10s or 100s of thousands.

FYI- the seller makes the same monthly income with the higher or lower interest rates- but if you sell of refi- you will have margin on the principal side and on the interest side. Refi to a lower rate and your cashflow goes through the roof, sell with interest rates lower and you make CAP money up.

I do not refi, I hold my ground and give the old seller the interest. It is what I said I would do, and my ace in the hole down the road- is my refi at the end of the term or the selling CAP bump. Also- when you pay off the loan- just make double principal payment each month and the effective interest rate cuts in half- you will have plenty of cash flow on the higher CAP deal to do this.

good luck- and hire out what you do not know. If you have never done due diligence hire someone that really gets it... buying the wrong park at the least will cost you cash flow, and might bankrupt you. Mistakes on the buy side are not forgiving.

The value of a park is based on a number you have left out- the space rent.

In rough numbers- very, very rough- a park with $250.00 per month pad rent, that does not pay utilities for the tenants, is ROUGHLY worth about 18,000 per site on a 10 CAP... I know- lots of factors out there- but this number should put you in the ballpark...

In Texas- if you are buying the homes as part of your business you do not need a dealers licence, only if they are being sold to a consumer. So in the contract phase- your golden.

well- here is what we do. first- we have a list of many, probably not all of the mobile home parks in the us. That list came through a bootcamp. The list was good- we made it much better. Many states will have lists of the mobile home parks in the state, and the lists many times have owners info. We also went to every town with a certain population size- that size for you might be the smallest city size your wanting to invest in. We found 2 agents in each town, one commercial and one residential. Of each we asked for any listed mobile home parks that met our criteria. Many, many parks are listed locally, in the residential section of the MLS. If your really looking into one area- Google earth is your friend. Push Pin the parks, and look up street addresses. Lots of times you can read the phone #s off the signs using street maps. A really slick operator might train someone off odesk to do this leg work and produce spreadsheets with data... I have 10s of thousands into developing my lists in just this way.

ohhhh... they are not for sale- sorry

For what it is worth, I own a park in the Lafayette Indiana area, and we sell our homes on lease / options. We also have a few 'lonnie dealers' that have pulled homes in, or taken one of our homes and rehabed them and sold them on payments. I have offered to 'lonnie dealers' several services, like our manager will show and sell their homes, we charge no space rent while the homes are being rehabed and sold, or during turnover times as long as the work to the homes is done within reason. We also will pay for the move and set up if a 'lonnie dealer' has a home in another area they want to pull to my park. There is a time commitment tied to some of this stuff... I think we have 3 lonnie dealers that have been active- two had their stuff paid off- so we have 1 guy with active notes in the park now. Because I started in this business on the lonnie dealer side- I really understand the value the lonnie dealers bring to the table. We do not bait and switch buyers. I am happy to keep lots occupied. Anyway- that is how we do it...
In closing- we are not the prettiest park in Lafayette- but because we only charge $250/month for space rent, and we do the lease / options I have a waiting list. If we have a home ready to sell- it is gone in 2-5 days every time. Inventory is our problem, not tenant applications.

Great topic... We manage this process a few ways.
On our stick built rentals, houses and apartments- I set a showing window- say Saturday between 1 and 3 pm, I give the address and post for people to show up. I do not post my phone #- I do say in the ad if people want to see the property at a different time they can email me for options.

sample of an actual craigslist ad-

$1950 / 5br - 2465ft² - OPEN Tuesday 5:50-6:30 ; 5 bed + study, garage, signal creek (Thornton)
Huge 2465 sq/ft home located in Signal Creek. Big kitchen, family room with gas fireplace, dining room, living room, 5 bathrooms and a study. There are several large storage rooms and a private back yard with decks and patios. New carpet, tiled bathrooms and fresh neutral paint throughout. Pets are ok. Located in sight of Tarver Elementary School. Signal Creek has a community swimming pool, playgrounds, great access to walking paths and shopping. Rental amount is $1,950.00

Open House Tuesday 5:30 - 6:30 pm or by appointment Sunday or Monday
*** address goes here****
remember to print this post so you have the address and time handy!

if this time does not work, email me and we will try to find a time that does.

end of post-
Using this format I can have 10 people see the property in a hour or two showing window.

So we also use craigslist for our mobile homes for sale, but we only dead end them to email and from there we reply about what they are looking for, and setting up times. Again- we bulk them up- so we might set them up for one day- like a Tuesday, and one weekend day- like a Saturday- with an hour or two for a showing window.

sample-
$8750 / 2br - Affordable home ownership- lease / option- small payments- mobile home

Affordable home ownership- lease / option- small payments- mobile homes

If your looking to buy your own home- and want easy lease / option financing at a very affordable mobile home park look no further.
We have several homes ready with onsite lease / option financing and EZ qualifying.
Proof of income is required, past credit problems are ok.
No interest, small option payment and small monthly payments. Then a small purchase payment in the end.
In a few years you will own your home and only be paying for the space rent.
Our park rent is only $250 / month plus trash, water and sewer.

Some of our current inventory:

A 2 bedroom, 1 bathroom home located on lot 53 is only $200.00 per month plus space rent.

If you want to move your home, we are offering to pay for the move, set up and tear down costs.
If your thinking of selling your home- we are buying! Call us for a cash offer.
If interested, please e-mail
end of post-
Anyway- this is how we manage the ads- no calls- emails or bulk showing times only...

Great topic... so we have found the more skin in the game- the stronger the tenant. If we have a home we are selling for 8,000 we are looking for 750 - 1000 down. Because we own the park as well, we are getting the space rent and a deposit on the park. So people need about 1,250 - 1,500 to get in the door. We look at job history, if they bounce- they will probably bounce... we look at last addresses... evictions, criminal... If someone is on the fence- we are better saying no than yes history shows...