All Forum Posts by: Frank Rolfe

21st will work with first-time park buyers if they 1) have at least 10 vacant lots 2) you have the necessary credit to be approved into their system. Only they can answer that, so when you have a park under contract you should call them and get more information.

You can find all of my writings and recordings at MobileHomeUniversity -- hundreds of hours worth.

I'm glad you like the podcasts -- I put a lot of work into those.

You could do a Master Lease with Option deal, but that won't work when the turn-around is based on filling lots as you can't get accepted into the CASH program from 21st unless you are the park owner. All you can do under a Master Lease is to raise rent, billback utilities and cut costs -- which I don't think is going to be enough to get the job done.

If the seller already has debt -- and agrees with this strategy -- you could see if you could assume their existing mortgage and have the seller carry the rest at zero down.

Or you can wait for the owner to default and then buy the park from the bank.

13 occupied lots x $200 x 12 x .5 = $15,600 which will obviously not even remotely cover the mortgage. However, if you were to fill it to 46 x $200 x 12 x .6 = $66,240 and could sell it at an 8.5% cap rate at that point = $779,294. So you can't say that the deal does not have potential, but you have to address the realities:

1) The seller will HAVE to carry the financing -- no bank will touch this.

2) The seller will have to structure the note to match the park's cash flow, which means low rate interest only in the early years, and probably zero down since you need the capital to make repairs.

3) To make sense of this deal, you'll need to do market comps and the lot rent in the market needs to be around $300 to give it the extra value boost you need to make it compelling.

In these type of "heavy lift" turn-around deals the seller is going to have to be an active participant in the way it is structured. If they think this is going to be an all-cash, bank financed deal, they're crazy.

Mobile home parks provide the only affordable form of detached dwelling in the U.S. If that's a "scummy" concept, then I'm not sure what would not be classified as such.

But words mean nothing. I would go out and drive through a decent mobile home park -- one that is owned by an operator that cares. Not that nasty one that everyone drives by on the way to the car wash. But go to Google and enter "mobile home park in ['name of town]" and then go drive through several nearby. It might change you entire outlook on the industry. You see, the U.S. media has portrayed mobile home parks as terrible dumps for decades. 

We own mobile home parks that serve as some of the nicest things in some of the markets we're in (Bloomington, Illinois for one). 

Just don't let the "trailer trash" stereotype guide you -- it's totally B.S.

This deal has a huge number of structural problems and the risk/reward ratio is not even remotely healthy.

I think the only way you can do this deal is to do a Master Lease with Option on it. That way you can see if the park can even be solved and made profitable before you close on it. And even then the price is wildly too high based on the numbers you're showing. And the loan term is going to have to be at least five years AFTER you close on it.

I'm not sure, however, that it even works on a Master Lease with Option structure, as you can't replace water lines and shell out huge capital. My bet is that the water lines can be fixed conventionally after using American Leak Detection's survey of the leaks -- we rarely replace entire water lines.

As for the numbers, you have to buy this based on not greater than 1/2 of the value of the park when finished, less all cap-x to inject into it. Let's use a $100,000 NOI to be give you some more realism. At $50,000 of NOI at an 8.5% cap rate, that's a value of around $625,000 less the cap-x, so his price is massively off-base. This deal is worth around $500,000 tops in its current state. We bought a deal just like this a while back for $1,300,000 but it had around three times more lots hence my current value estimate.

Purchasing Platform was designed 100% for the use of mobile home park owners, not manufacturers. I would imagine that the Claytons and CAVCOs of the world are buying their parts in massive bulk directly from the manufacturers (remember that just one mobile home plant typically produces 8 homes per day). I have toured most of the plants and one remarkable thing you see is that they actually build most of the items from scratch that you would imagine they would farm out. For example, they build the steel frames from scratch from raw material and the cabinets from scratch using the parts sawed off of the floors. Remember that the typical Clayton plant, for example, only has one barrel of leftover debris per home. When you are that thrifty, every piece gets used somehow and the need for most of what park owners would buy would evaporate. They literally just buy mostly raw steel, mails, lumber, giant rolls of carpet and vinyl, and knobs.

Purchasing Platform is the COSTCO of mobile home parts. All of the big and small operators are using them exclusively because they are not only a one-stop resource for everything you need but because they track it all for you and allow you to know at a glance how much you've spent on each house in parts.

The "detached apartment" model remains a mystery to most, as the majority of the mobile home parks in the U.S. do not agree with that model -- but you are correct that in some parts of the U.S. the low lot rent (typically around $100 per month or less) makes the straight land rent business not compelling. 

If you're going to go the "detached apartment" model, then be aware that: 1) you will have a very hard time selling the park at the end of the movie (so you may be stuck with it forever) 2) you will have a hard time getting a loan on it as 99.9% of banks would put value on the homes 3) your expense ratio will be much higher as mobile homes need a ton of repair and maintenance to keep humans in them under habitability laws 4) your management stress will be exponentially higher.

That being said, I think of the guy with a park in Alabama that has 100 lots with 100 POHs (100% park-owned homes). He knew what he was doing (had learned about the business before hand) but went forward because homes rent in his market for $700 per month but lots only $100. So he has 100 x $700 x 12 = $840,000 of revenue and an expense ratio of about 60% (he is a contractor and does all the work himself). The park has a net income of around $336,000 per year by making it a "detached apartment" model, as opposed to around $70,000 if it was lot rent only. Makes total sense. But he knew what he was getting into and would be the first to tell you he can never finance it or sell it in all likelihood.

If the lot rents in that market were $400 per month, the numbers would change enormously. Then he could give every home away for free, just collect lot rent and still have a net income of around $300,000 with a fraction of the work and risk.

The whole goal of an income property is to maximize the income. As long as you understand the risks, the "detached apartment" model may be the best way to get the job done when lot rents are super low.

That's great. That makes my day!

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