All Forum Posts by: Jim Johnson

Darren,

I do not really know any good publications on mobile home investing at this time. The aprt of the appeal, the financing is very hard with the safe act in place. Many parks only allow the owners to own the homes and do not want rentals. That makes things tough for the home owners. 

I have Parks in Texas, Nebraska, Colorado and Indiana. I have onsite managers at all of the parks that I have trained and manage. At one point I was presenting / teaching a segment at the bootcamp put on by the mobile home park store. Now I consult with potential buyers and operators of parks, as well as run my own parks. 

As for selling mobile homes in Texas- you can sell or broker 2 homes in a 12 month period in Texas without being licensed. I know the word 'entity' is used in the post. I am just guessing if the same person owns the entity's the spirit of  the law is being broken, and maybe the actual law. But everyone makes their own risk choices. I am pretty risk adverse and choose to comply and not seek loopholes. 

@Darren 

So I would hold off just a bit prior to buying a book and copying any finance forms. 

Background- When lonnie deals were done prior to the new lending laws- I had hundreds of them. Back in the day- I just financed homes and did not own any parks. Fast Forward- I have 5 parks and in my parks we use a lease - option to get people into the homes and at eh end of the lease- they can buy them. You need to do a little research in the state your doing this in, as you will probably need to be licensed. I take note your from Texas, and while I am from Colorado I have two parks in Texas and they have some licence requirements, document requirements etc... you have to visit Austin, take some classes, pay the state and the insurance company and only then can you sell a home. They will nick ya if you even advertise a home for sale without being licensed. 

Anyway- no matter what state your in, if you are financing the home, and using it as security you need to jump through the SAFE act stuff- which will probably knock out about all of your tenants from being able to finance the home. 

Do not just get an old lonnie scruggs book, copy the financing papers and do deals. If your selling for cash- you probably must be licensed and you will probably need to follow some state rules and regs regarding the sales.

If you blow it up, each home has a door on each end. I bet this is a man camp near an oil well area or the like. So it probably operates on a temp zoning permit... that is my guess

1. What things would typically need to be repaired in years 1, 2, 5, 10?

You should plan on having issues every year with the water and sewer lines- maybe. If you have trees, the sewer lines will have problems every year. Just plan on it. How often or bad things are really depends on the previous 30 years. Some parks need almost nothing, some need to be worked on all the time. 

2. How much would you normally put aside to:

a. Meet the above capital repairs/expenses for years 1, 2, 5, 10?

I keep 20,000 liquid for a park like this- if you had sub metered electric, bump that too 100,000 for a 40 pad park. Your total expenses should be about 30% of your gross. The key is you can not spend all the money that comes into the park, you need to keep a savings account with enough money to cover issues. Figure 20k+. Repairs in parks do not nickle and dime you.. they are big numbers. The sewer guy for your home costs a couple hundred, for your park it might be a couple thousand. The plumber in your home might get $100... in your park, $1000. Figure most things are 5 - 10 times what you might typically see. BUT- if you run our park right it will make plenty of money to cover these expenses. If you do not have that fund- your cash flow will bounce like a white capping lake. We assess how much to take out each quarter, forecasting for weather and items noted on site visits.  

b. As a turnaround fund to change the fundamentals of the property with a goal of significantly improve the NOI.

This so depends on the park there is no place to begin. Some parks need to be fed for years, others for only a few months, some not at all. Forecasting is not all that hard if you know the property and know your crews. I can predict turn around projects pretty darn close these days. This year we calculated rehabbing about 45 homes- and I will probably be off on the target dates at the end of the 12 months by 2 homes. That is in 4 states and 4 parks that have that kind of work going on. I have 3 really, really good crews. 

I have spent $10,000 to increase NOI by 60,000 yearly... and I have spent 80,000 to upgrade infrastructure and make a 2.5 point CAP rate adjustment. The 80k probably got me $200,000. But that park had other upside as well. There is no number to plug in here- every deal stands on its own, and how well things get done sit square on the shoulders of who ever is quarterbacking the project. Here is my advise- if you do not really, really understand the stuff your trying to fix- be it water, sewer, roads, electric, rehabs, gas... you better find a partner that does. Not a manager, a vested partner who has a return tied to how well the job gets done. Someone with skin in the game, or who get paid on the skin the save and squeeze. Think about this- the BIG, BIG, BIG money guys do not make the coin on paychecks, they make it in stock, or equity positions in the deals. Find a rockstar that will quarterback for a % of the ownership, because bottom line- you do not want any part of what that person is really worth hourly.

Hey- I know who said that stuff! Good guy, and handsome... jk

first let me clarify... city water and sewer is saying your water lines and your sewer lins are being fed raw water from the city, and your waste heads out of your park into the city's sewer system. That said- you own the lines in the park.

1. What would be some of the common problems and capital expenses that would need to be budgeted for with an older park, assuming that it is on city water/sewer?

So here you need to know what your materials are. Older parks use galvanized water lines. It is not a matter of if they will fail- it is when will they fail. They get weak and twist off at the shutoffs, normally under a home, on Christmas eve. Sewer lines are tile which have bad, bad root problems, or Orangeburg. That is like roofing felt that was rolled into pipes. The Orangeburg becomes oblong - like a cross section of a football as it ages. It is very tricky to replace a section, and pulling new lines in can be costly. Streets need to be repaired as trash trucks are much larger now than when the roads were built.  

2. What would be a good short list of fixes for the most common problems?

The answer to this depends on what your infrastructure is. You need to look at what you have, and figure out what might go wrong. Then you best know where to get materials, and some stuff you better have on site just in case. Water meters, water risers, soil cutters, clay tile, sewer clean outs... all the tools you need to fix these issues- like pipe threaders, shovels etc... 

3. How often could we expect to see these expenses over the long term?

This depends on other factors. Soil conditions, weather conditions, trees, are the utilities marked, vacant lots, materials etc... Sometimes you have to clean a sewer line twice in a few weeks, and we just replace the line and bam- no more issues. Many times your better off replacing over repairing- that statement right there is a gold nugget. Write it on a sticky note and filter everything through it. It might cost a bit more up front- maybe... and save thousands down the road. 

4. What are some of the most common areas where sellers try to hide deferred maintenance?

They do not hide it- they just do not do it. Are they repair or replace people. Do lots not have homes because something is shot? Look down in the sewer lines to see if water is flowing, fill the lines to see if it flows. Turn on all the water lines to make sure you ahve clean water flowing. Look at trees, roads, patching, fresh dug soil, electric line sizing. If you can walk a park in the fall, or winter look for green grass where everything should be dead. Back to trees- these can cost tens of thousands to trim or remove- so know your trees and what it takes to care for them, above ground and under ground. 

5. What signs can we look for that would indicate that a park has a lot of deferred maintenance?

read #4 again- check everything that turns, runs water, drains waste, grows etc... you get a feel pretty quick if things are overgrown. 

The best thing you can do if you do not really know what your looking for is hire someone to meet you on site and do your due diligence walk with you. I could post everything I can think of to look for, but I can not tell you how to look for it- or if you combine a few things together how things might be really, really bad. It is like telling a mechanic your car is not running and asking them what might be wrong. The real trick is when you see a sweet deal, and you can see through the dollar signs to the disaster that sits just on the other side. There is a country song... you gotta know when to hole um... know when to fold um... know when to walk away and know when to run... 

great questions- 

So I get this question privately all the time- so lets open the topic. With the bootcamp at MHU cranking out 40 new interested investors every few months are there enough deals to go around? That seems to be the prevailing question. 

In short the answer is a resounding- YES. First off, while the bootcamp gives all the info to find, put under contract and operate a park it does not give the skills to do so. Think of it this way- I can show you how to fix your car, I can give you the manuals and even a shop to put the car in, but having tools and a manual does not make you a skilled mechanic. I have the skills to fix my own car but guess what- I take it to a shop. I am not sure how many people who attend the bootcamp really go out on their own and buy a park but the number should not concern you- it is low and there are LOTS of parks out there. There are so many parks- I only turn up the heat on my search tactics when I want to buy because so many leads are generated it takes several hours a day just to sort through them. As a disclaimer- people will from time to time hire me to coach (mentor) them through one phase- or all phases of the business. Finding a park, putting it under contract, doing due diligence and operations. The last guy I coached went from zero leads to a park under contract in 60 days- 60 days later he had it bought. This year that park- he paid about 1mm for it, should increase in value by about 200,000 and give him a cash on cash return int he 35% zone not including write offs. 

So- take a class, attend a bootcamp or hire a coach or mentor. Lots of options out there- everyone learns on different levels and all the choices exist. Books are not very expensive, classes are a bit higher- the bootcamps are a good mix of material and lecture, with some limited hands on time in the field, coaches and mentors are pricey but effective and personal. A book does not do your due diligence walk through with you, nor does the bootcamp- but a coach or mentor might. 

I want to state I know Frank who teaches the MHU bootcamp and bang for the buck- nothing, nothing tops it. Many moons ago I presented at the bootcamps for the average guy finding deals, operating deals etc- and I have seen many people go through he program. It is first class for a bootcamp. Many of the people I coach and mentor come from that bootcamp and the foundation they have is very strong. 

So- yes, lots and lots of deals. Maybe not in southern California, or the gas and oil rush areas of the Northern Sates or parts of Texas- but there are plenty of deals. 

 Omar-

sending you a pm.

 Jay, I am not saying the act of doing this is a red flag- the red flag is if you sell this way and do not account for it on your books and in your tax returns. 

 Omar, I do not. We lease our homes in Indiana, and then if the tenant wants to buy the home at the end of the lease term they must do so with cash.