All Forum Posts by: Jim Johnson

Your answer lies in your investing style and risk profile. I am a long term buy and hold guy, so I do not do anything away from stable economic areas. I happen to see oil, gas, coal and the like as not stable. I have many friends that have done well in these sectors, and every now and then they get their butts handed too them. The upside tends to cover the downside and they overall do well. I do worry about new regulations that will slow down, or end some energy sectors. Coal looked stable 15 years ago, and in the last 6 years there have been many changes. From strip mines in Wyoming, to power stations all over the country, to mining operations in the eastern states, there has been no 'boom' in coal. More like the dust is settling and jobs are moving away. I know parks in Wyoming coal country that are half full, and they will probably never recover. 

I think the park sounds great so far. I would really need to understand the water / sewer issues. There are many more regulations in the EPA pipe right now, and knowing your system will help you know the costs. As for the town size, I have a 37 pad park in a town of 700... the closest town to it is 20,000. It is one of the best performing assets I have. The big questions is, how stable is the town? I looked at a park for someone toady that has hired me to do such work, and the town had 20,000 people in it in the 40, and is down to 10,000 now. That is a bad trend no matter what size the town. So look at the history, and the trends. Where are the jobs, growing industry or contracting? 

your on the right path... 

I would not allocate or use a RUBS system. The issue is there are very strict rules if you have leaks etc. You must identify and fix within hours of the leak. Good meters cost $150 - $200 to install. Know how you are billed, so you know what kind of meters to get. Cubic feet, gallons etc. Indiana allows sub metering, I know, I have a park in Indiana as well. 

Meters with a remote read are good, but the readers do not always work perfect. We read the remotes and the underside meters every 3-4 months and check them against each other. Some tenants will... reduce... their water bills by tampering with the wires. Shocking- I know. You will have to follow some steps concerning how you bill, what needs to be on the bill, how soon prior to requiring the bill be paid you deliver the bills, late charges, disconnect fees and times you can shut off service, when and shy you shut off service, not over billing etc... You need to make sure the meters do not freeze- heat tape, boxes over meters, insulation etc. Check into lockout devises. 

I am sure there is more- I am just rambling at this point... 

So I am a numbers guy as well. Here is what I do. 

I ask if we can sit down and if the owner can give me some of the income and expense's so I can better understand the park. We both get pads of paper and we start with space rent... we work through all of the income and expenses. Then we talk about interest rates... then we talk about CAP rates. With a pad of paper, a simple calculator and a few hours of chatting the two of you have found a fair price.

You only need to agree on income, expenses, interest rates and that you must make some money for investing in the asset. 

You can buy it and, if allowed, rent it. Or buy it and sell it. The challenge is you can not reside in it- though there is a bit of slack in that as well. While I am not a scholar in this segment of the market, to hold the 'senior' designation there is a % of the residents that need to be over 55... and it is not 100%...   

I used to present at the bootcamps so I have some history there. I would say it depends on why you are there. If you know what asset class your looking at you can steer which bootcamp you go to. Of note- once you go to one your welcome to re-attend. I happen to like 2 star parks, older homes. So Denver, Dallas, San Antonio, Columbus... were all great for that asset class. Others as well, but those stick out.  

If your into the 4 and 5 star parks- Dallas, Vegas, LA.

If park visits do not matter- then they all function about the same... 

So all mobile homes- well- in the last 25 years come with engineering instructions for setting up the home. If the instructions are not available, there are state standards that will spell out where supports need to be, what they are based in, drainage etc. That said- if the home was set prior to the latest revisions, you will have to go back into the state archives to see if it was set up correctly. All homes should have a 'CO'- certificate of occupancy of some sort. Every state seems to call it something different but your state will have a final inspection, and in many cases the state should place a seal on the home stating it was inspected. That seal should have a number you can trace as well. Many citys / states will keep the install records, so you should be able to go to the records department of the city, county or state and see who set it up and to what plan (manufacture, new engineering or state mandated) they followed. 

So to answer this question, owning a home and being an occupant are not the same thing. So you can own a home in a 55+ park. 

Great post Collin,

I will only add in something concerning CAP rates and value.

The income used is called net, though most people would just take the gross and subtract out everything paid out to get to the net number- in fact you do not count principal or expenses (and if your looking at someones books- you do not count capital improvements). There is a golden clue here- many, many sellers move expenses into capital improvements a year or two prior to selling. Some sellers might even have 2 sets of books- one for the tax man, and one for the new buyer. Always look at the income / expense lists and the balance sheets. To be fair, some of this is done at a pure accounting level for 'tax' reasons and not every owner even knows it is going on. 

This is why you always see CAP rates higher than prevailing interest rates. If the interest rates were higher than the CAP rates (assuming 20 - 25% down) the investment would not cash flow enough to cover the debt service. This is where some owner carry loans at very low interest rates, thus very low cap rates might cash flow while the loan is in place, but you can never refi them because the prevailing interest rates are much higher. Always value the property on a prevailing rate, not one offered. A savvy investor might look to historical trends to guess the direction of the market. Say from where we are now- rates will go up if the economy gets stronger or if inflation starts in. With each rise in interest rates the cap rates go up, and your property value goes- down. Be advised- buying when interest rates are very low might not be your best move. Run the numbers. Remember if rates go down you might refi- if rates go up- hunker down and get ready to ride out the storm.

 The answer to this is yes- mobile home park owners can choose not to rent to an investor. The reason is not so much about competition as it is control. When your dealing with a home that is subleased in your park, there is an extra layer of complexity in the management. As the park owner, you want to qualify all of the residents. Well not every investor wants to follow that process. So you can end up with tenants that are not vetted, and have not been approved, and probably have not signed your lease or rules and regulations. Enforcement of the lease, rules and regs is more complicated. If the issue is with the home, you might be enforcing something on the investor, who probably has not signed a space lease agreement with you. Investors might choose to pay the space rent, which is all your collecting as a park owner. Well, if they do not pay your evicting someone who has maybe made their payments, but the investor did not. Remember if there are issues with a tenant, the recourse is to correct a problem and charge the tenant (home), a 'quit' notice concerning a violation, or terminate the lease. While the investor is mainly concerned with getting paid, the park owner is also concerned with additional issues mandated by the state mobile home act of the state, county rules, city rules etc... There are also concerns with a single person owning too many homes in your park. If you got sideways with them, they can pull all of their homes from your park. 

While I am a investor friendly park owner, I do require some documents between myself and the investor to prevent issues. I also require a special lease that adjoins the investor and the tenant.