All Forum Posts by: Jim Johnson

Airlines rent at hotels and at an advantage over you and I. Once you get a room- or block of rooms for over a month, you do not pay the hotel taxes, so the rate goes WAY down. They also allow for security between rooms, and no cleanup. I would also look into the agreements the unions have for accommodations for the flight crews... my guess is they spell out the housing requirements for the members...

just my thoughts...

when I visit my parks- even when we have a home done- new and ready to go- I stay in a hotel...

1) I tend to stay far away from markets with 'high' values. Because- if I can increase the bottom line of a park by say, $75 per pad buy doing something- and that is based on a $150 per month lot rent- I have increased the NOI by 50%. In a park with higher values- say Denver where pad rents are $600 per month- I have added just over 10%. I will take the larger % gain, in a stable market, over the smaller gain in the 'high dollar' market. Also- in areas with lower pad rents homes are more stable in your park. The value of the homes is higher- so they tend to not move as easily to other parks.

2) So this is a balance- too many parks and you could have too many pads. Back to Denver- lots of vacant spaces in the Denver parks due to very high pad rents, and too many spaces. Homes move around like chess pieces. I would prefer to be on the lower end of this. I can price knowing the 2 bed / 2 bath apartment rents in the area.

3) Roads- the killer here is trash removal. If you have paved roads, use dumpsters at the front of the park. I have both and the asphalt requires you to put away capital improvement funds, the gravel is yearly maintenance. The banks and insurance companies like the asphalt. For me it is all the same really- though I would lean to asphalt.

4) Where to invest- I will say- stay away from trendy or 'boom' areas. I look for stable stuff. So I like, university's, county seats, level 1 trauma hospitals, prisons, stable employment bases that are diverse... I look for the school district NOT to be the largest employer. Then branch out- look at the county and the state. Also- closest airport to you will fly into, how many carriers fly into the airport... etc.

5) aesthetics- well- I think a park should be tidy, with strong rules around keeping yards nice and junk out of sight. So a clean curb appeal is important. But the real driver is adding to the income and trimming expenses. Also- the location- see #4

6) buildings- building suck. Clubhouses in my markets suck money and are a waste. Some areas REQUIRE them... I like one shipping container to house all of our equipment we need to operate the park. We add lights down the center, and outlets on the walls. The cost like $1000 if you shop around and they are tough to break into if you secure them with good locks. Weatherproof and solid... there is my pitch for that...

7) RV spaces are a total different business. Total different manager. Total different expenses... I do not mix rv into mhp... So I vote RV off the island...

opinions very...

I have a park in the middle of Indiana, Lafayette area. So without knowing the requirements for your city I am not sure I can be of much help. I will tell you there are lots of homes in the secondary market in the Indiana, Illinois, Michigan area that can be bought, pulled in and set up for well less than your paying. The last home we bought, moved in and set up cost about 6,500. Mid 80s, 3 bed 2 bath. We sell on a lease option, and we do not try to make money on the homes, we just try to fill our parks. This week we paid to pull a home into our park, and also for a lonnie dealer to move two of his home into our park. We pay all the moving and set up fees, and they sign a 3 year promissory note, where after 3 years of space rent we forgive the cost to move and set up the home- so we create a lien on the home. UCC in Indiana.

A move and set up costs us about 2,500 and that includes new skirting.

Sounds like a project-

You might find a partner that helps you with filling the park if your not really skilled at it. It takes A LOT of work to infill parks... but in some cases it is part of the game...

If you are comparing the stability of the investment- vs a shopping center or some other kind of income property, the GRM is a number that many people can get their arms around in the risk assessment part of assessing the deal. Remember many park will operate with a GRM that many investors though were reserved for people that have owned their properties for decades and had paid down all sorts of debt.

Anyway- it does have value from this standpoint.

I find deals where the homes are in, but the park needs something on the income or expense side to achieve upside. I have done infill projects in the past and they are total brain damage. Doing things like sub metering utilities, increasing space rents or fixing operational issues. Because you will ask... each park I do must double in value, or increase by at least $400,000 for me to even look at it, and I like to get the 'bump' in under 100 days... so you can cash flow out of the box, put very little into the park, like sub metering water is about $150 / pad...

So for me... this would be a - RUN not walk away from deal... but everyone likes their own challenges and operates in their own strengths...

For what it is worth- I have only found 2 deals that look really good this week. Though, neither meets my minimums, each would add about 50% to the purchase price with almost no additional investment.

thumbs down from me... run

Let me add-
value in vacant lots is tricky. In some markets they might add value- but in fact they add to expenses. In a more advanced model, I add expense ratio to with vacant lots, and also add in the cost of adding homes to the lots, then the sales that add back in cash flow. I can run this model out until the park is full, to show real return on equity, as cash on cash is only a snapshot at purchase. That is a pretty complex spreadsheet- but very helpful with partners, lenders etc...

Dale,
So your spot on with the numbers that Dave and Frank use. As you might know, I was a moderator at the 'old' forum they had and am a current moderator at the one they took over. I have also partnered with Dave on several parks- though now that they are really operating as a fund, I no longer am partnering with them. I also used to speak at the boot-camps they put on. Though the format has changed a bit so I no longer speak at them- my choice. The numbers they use get close, but I like the way you do it, and I do it. I actually make quick adjustments for the park being full, what each space is worth as is, and what each space is worth once the park is fully operational. So I am just plugging in new numbers to see the upside as well...

Here are a few of the notices we use.

F I N A L N O T I C E O F D E F A U L T

Date: Sunday, May 20, 2xxx

We have been retained on behalf of the lender to take immediate legal action against you. You have failed to make scheduled payments when due and are now in default of the security agreement you signed when you purchased the home at the above address. This is the FINAL correspondence you will receive.

THE FOLLOWING OPTIONS ARE NOW AVAILABLE TO YOU:

1. Pay in FULL the outstanding past due balance including late fees and lot rents due through the current date by 5 PM Thursday, May 24, 2xxx. At 5 PM Thursday, May 24, 2xxx a $250.00 legal fee will be added to your amount due. You will also be served with a date to appear in court. Your total amount today is detailed below.
2. Stay and face forced eviction by local law enforcement. They will remove both you and your possessions from the home. A default judgment will be obtained against you not only for the balance of the loan, but also interest, attorney fees, late fees, and court costs. Collection of the judgment will begin with the garnishment of wages.
3. You have 72 HOURS to release possession of the home to the note holder or its representatives and ALL past due lot rents must be paid. A note will be produced for you to repay the amount owed to ????? Real Estate, Inc at low monthly payments. Upon inspection of the mobile home to be in clean and good condition and verification of lot rents paid, no further legal action or judgment shall come against you. You will be released from the original loan.
If you do not respond to this notice by 5 PM on Thursday, May 24, 2xxx, legal action will immediately begin against you at 8AM Friday, May 25, 2xxx to FULL EXTENT OF THE LAW.

This is your final notice.
Due: April payment of $315.00, late fees of $290.00. Total $605.00 as of
Late fees of $10.00 per day are added for each additional day.

_________________________________________________

F I N A L N O T I C E O F D E F A U L T

Date:

As of 5 PM to day we will begin legal action against you for repossession of the home and judgement for the current loan balance, interest, late fees, court costs, and attorney fees. If you wish to avoid judgement and possible garnishment of wages, you must release possession of the home to us or one of our representatives in the next 48 hours. If done so and the home is a clean condition, you will be released from the loan.

This will be the last attempt to work out a solution to this situation. There will be no further contact with you concerning this option after 5 PM. All future communication will be accomplished through the court, sheriff’s department, and or attorney.

If you do not respond to this notice by 5 PM on August 24, 2004, legal action will immediately begin against you to FULL EXTENT OF THE LAW.

_________________________________________________

F I N A L N O T I C E O F D E F A U L T

Date:

We have been retained on behalf of the lender to take immediate legal action against you. You have failed to make scheduled payments when due and are now in default of the security agreement you signed when you purchased the home at the above address. This is the FINAL correspondence you will receive.

THE FOLLOWING OPTIONS ARE NOW AVAILABLE TO YOU:

1. Pay in FULL the outstanding past due balance including late fees and lot rents due through the current date within 48 HOURS from the date of this notice.
2. Stay and face forced eviction by local law enforcement. They will remove both you and your possessions from the home. A default judgement will be obtained against you not only for the balance of the loan, but also interest, attorney fees, late fees, and court costs. Collection of the judgement will begin with the garnishment of wages.
3. You have 48 HOURS to release possession of the home to the note holder or its representatives and ALL past due lot rents must be paid. Upon inspection of the mobile home to be in clean and good condition and verification of lot rents paid, no further legal action or judgement shall come against you. You will be released from the loan.

If you do not respond to this notice by 5 PM on ___________________, legal action against will immediately begin against you to FULL EXTENT OF THE LAW.

The key here is in filling the lots. I know there are several home manufactures with flooring plans, and if 21st will put home in there that is great. You really need to know how many your can really sell. In the long run, you will probably have to but a whole lot of money into buying and moving homes, maybe more than the park is worth.
Off the cuff, I would find a creative way to partner with the old owner- so you have no property payments. That will let you get some wind in your sail before you need to take them out of the property. I would then, put in a owner finance provision- creating some cash flow for them as they age, and make it roll into their estate after they pass.
So you will need some cash, some creativity, and some terms... my 2 cents...

So there are some quick ways I figure out a ballpark value for a MHP.
First- I have some constants- expenses

If the park owner pays W/S/T I use 45%
If the tenants pay W/S/T I use 35%

next is rental homes- I ONLY use the space rent to determine CAP value. Rental homes are a business, and you will use a different return model for them.

So with this in mind-

40 space park, $200 / month pad rent- owner pays w/s/t
40 x 200 x 12 = 96,000 (gross)
96,000 x .55 = $52,800

Now you just need to apply the CAP that fits your market- say a 12 CAP

52,800 DIVIDED BY .12 = $440,000

So if I saw this park listed for $96,000 I would know someone was looking at the gross, and applying a 10 CAP to the figure.

If it was listed for $300,000- I might be looking for what is missing, like maybe a sewer plant needs to be replaced, or the park is on a master lease that will expire, or maybe- they are only collecting 50% of the rents- maybe a manager is stealing the rest of the funds...

So how do you do it?? Chime in.
Many I know use multiplier numbers... some people use spreadsheets or programs...
what say you?