All Forum Posts by: Frank Rolfe

You should always go with 3 bedroom if you can. There are very few 3 bedroom apartments in the market, so it's an extremely desirable commodity. Our 3 bedrooms are the first to sell always, and your ad response is many times higher with 3 bedroom vs. 2 bedroom.

The formula would be 11 x $190 + 300 x 12 x .5 = NOI $14,340. So you'd only want to pay around $140,000 for the park based on existing performance. But the seller probably won't sell it that cheap.

Then you look at what the replacement cost is. 55 lots x $15,000 + land = around  $1 million.

Then you go to the end of the movie and work backwards so 55 x $190 + 300 x 12 x .7 = NOI $90,300 so it's worth about $1 million.

Since most people on deals like this want to make at least double the value of the park, then it looks to me like the most you could pay is $500,000 less all needed cap-x (assume $100,000+) so a range of $150,000 to $400,000.

Then you look at the risk to get to that reward and it would be 1) buying homes to fill the vacant lots, coupled with renting or selling them 2) any cap-x the park needs since it has been poorly maintained 3) obtaining and retaining financing due to the low occupancy and poor condition 4) negative cash flow until you get it in a condition to cover the mortgage (based on what you pay).

The wildcard on this park is the lot rent, as $190 is really low in when the U.S. average is roughly $280. Can it be raised? And how well does the test ad do and how much confidence do you have in the market?

RV parks are evaluated more like a regular business than most other real estate sectors. Take the last three years' Profit and Loss statements and average them together. Compare to the tax returns for some degree of confirmation. Apply a cap rate roughly 2 points higher than mobile home parks. In diligence, compare the prior annual revenue to the reality of electrical usage (come up with a constant of power cost per day per occupied space and then take the actual power bill and see roughly how many occupied units you have).

Much of RV park and mobile home park is 100% overlap: how to find them, negotiate them, do diligence on them, renegotiate them, finance them, turn them around and operate them. The big differences are that RV parks are typically amenity rich which requires more overhead, can be seasonal in nature (but not always), require a nearby destination to work well (as opposed to employers), and use values that are typically 2 points higher in cap rate. The same loan brokers that do MH also do RV, as do the insurance companies.

We own both, and the only benefit of an RV park is that -- if you find the right one -- you can ramp up revenue faster because it costs you nothing to fill a vacant lot. If mom and pop did poor marketing and you bring in professional-grade internet SEO and other methods you could theoretically double your revenue in one year without any additional cap-x. You could never do that with a mobile home park unless you can double the rents in one year (which would be world record). To fill a vacant mobile home park lot typically requires bringing in a home and selling it, while filling a vacant RV park lot simply means somebody pulls in their motorhome or travel trailer.

Think of RV parks more like owning a restaurant (and the hands-on management that entails) while owning a mobile home park is more like owning a parking lot that rents spaces out monthly and is much more passive in management.

Some people just prefer one business model over the other.

Before you go any farther, you might want to run a test ad that says NAME OF EXACT PART OF TOWN THE PARK IS IN. 2 & 3 bedroom mobile homes for sale or rent from $595 per month -- includes lot rent. (XXX)XXX-XXXX.

Run that ad in the largest metro paper that serves your market. Put in in the classified section under "mobile homes for rent". Also run the ad on Craigslist. Use a Grasshopper or similar number. Run the ad for ten days. 

If you get 20 to 30 calls over 10 days it might work. If you get 2 to 5 then it will never work.

I am concerned about the amount of vacancy in that market. There would have to be huge demand to want to tackle a project like that.

Another huge roadblock you will have is lending as nobody likes to make loans on parks under 70% occupied.

You need to talk to the state mobile home association for MA, as well as HUD. Changing the status from 55+ to "all-age" is VERY complicated. I think that you normally have to get a majority vote from the residents to allow for it (which they won't do) but on top of that they may sue you for "promising" them 55+ when they moved in and then changing it to all-age.

You need to do a TON of research on this topic before you proceed -- and even then I'd want confirmation from a state-licensed lawyer as to what the steps are.

You need to contact the Minnesota manufactured housing association. They have all the laws of Minnesota regarding mobile homes.

Deals like this have three options: 1) seller financing 2) Security Mortgage Group might have a specialty lender who would do a high-risk deal (but it would be with a low LTV -- and that's probably not going to work for you) and 3) a Master Lease with Option (in which you fix up the property during a lease term, but that won't work due to so many vacant POHs; all you could clean up is the accounting and maybe put a few of the vacant POHs back into service if they're in good condition).

The bottom line is that deals like this cannot follow the normal textbook of 70% to 80% LTV loan from a bank, and therefore requires creativity to make it happen. The seller has to be a part of that creative masterpiece. If they do not want to participate, then there's not much that can be done.

Mobile home park owners are like people who restore old cars -- they're weird and they like talking about what they do. People just recently started caring about this real estate sector (after 50 years straight in which nobody cared). I participate on BP because it's always fun to talk trailer parks. Mobile home park owners treat everyone the same whether they own 1 or 100 properties -- that's what makes it interesting. It's a culture that's both bohemian and egalitarian. If you're interested in mobile home parks -- even if you don't own one -- you're already a member of the club whether you like it or not.

First deal: Glenhaven, Dallas, Texas. Bought for $400,000 with $10,000 down and seller carried $390,000 for 30 years. Sold for around $1.5 million about seven years later. Lessons learned from that deal:

1) Don't buy master-metered gas (when it failed I solved it by bringing in propane tanks).

2) Manage master-metered electric very carefully (didn't even know what it was until the whole power system lit on fire one day).

3) No pay/no stay is the only way to go on collections. Nothing else works.

4) Inject a "pride of ownership" into your residents with immaculate common areas and they will take the ball and run with it.

5) Don't let city officials push you around -- find a good municipal lawyer and your problems are suddenly solved.

6) A successful mobile home park is like a high-density subdivision in which the neighbors watch out for each other and have a strong sense of community.

7) NEVER rent mobile homes -- sell them at whatever price you can get and focus STRICTLY on the land rent.

8) Smart owners copy what other successful park owners are doing verbatim and bad owners try to be pioneers.

9) Think like a lender and you will always be successful (my happiest moment was when I got a conduit loan on Glenhaven as that confirmed that all my steps had been correct).

10) Don't listen to your friends, family and peers when you buy a mobile home park as they will all say you're nuts.

16 x $150 x 12 x .6 = $17,280 divided by $325,000 = 5.3% cap rate.

To make this deal work you would need to be able to push the rents up substantially (like $100 or more over 3 years) and to fill the 5 vacant lots with cheap used homes.

If you model the maximum value this park would then have under that scenario: 21 x $250 x 12 x .6 = 37,800 divided by an 8.5% cap rate (the lowest you'll probably get ever) = $444,705.

Using a standard risk/reward metric, that means that you can't possibly pay $325,000 for something that would only be worth on its best day ever $444,705 several years into the future. And that does not even include whatever cap-x is needed to bring the old park back to life (utility lines, roads, home reno., etc.).

The price on this deal needs to be more like $220,000 to make sense. At $325,000 only the seller is making money with this deal.