All Forum Posts by: Frank Rolfe

Sorry, just saw Terry's post. That's also a perfectly good thing to do. The only problem is -- based on the police and their interpretation -- is that they will say it's a civil matter and refuse to get into it. The big problem is that it is the mother of the tenants and, some might define, a plausible extension of the original tenant's household. But if you can get the police to throw them out (not literally but figuratively) that will definitely faster and cheaper.

Talk to your state mobile home park association, as well as the local justice court. More than likely you will have to do an "and all occupants" eviction, in which you file on the last known customers "and all occupants". This is the normal procedure to get something like this resolved. It will take the same amount of time as a regular eviction. You will be filing "for possession only", which means you are not seeking a money judgement (makes it easier to process).

But don't take my word for it -- as your state MHA and the court what they suggest!

Yes, we have been doing "cash-out" refi's for over 25 years. Here are some things you need to know:

1) you can only get a cash-out refi with a CMBS "conduit" loan or a Fannie Mae/Freddie Mac "agency" loan. Regular banks will not do it 99% of the time as they want you to have some skin in the game.

2) the typical construction on these is seller debt with a 5 to 10 year term, during which you aggressively raise rents to market levels, push water/sewer usage cost back on the customers, fill vacant lots, and cut costs. You will have to increase the value of the property by at least 50% to pull it off [for example, you buy a park for $1 million, push the value to $1.5 million and refi at 70% LTV = around $1 million]. The point is that you need to buy mobile home parks with large upside to hit that threshold within only 5 years or so.

3) CMBS "conduit" debt has periods where it evaporates (like right now) so you have to time it right. If the property is going into "agency" debt then you are safer as that does not shut down. However, the quality and size of agency debt properties is significantly higher (typically $2 million loan size or greater).

It's a great business model, as your return on a mobile home park is infinite if you refi out all the equity. We are big fans of this concept.

Yes, we've done that. What do you want to know?

5 units is really small to be on a well water system. It costs the same to fix the water well whether it's 5 units or 50 units. But the problem is that you don't have many units to divide by and absorb that cost. It it costs $10,000 to fix the well, that's $2,000 per unit on a 5 space park yet only $200 per unit on a 50 -- it's a huge part of the overall value of the park. While we own parks with water wells, they are all 100+ units in size. Sounds like a lot of risk for a small park. That being said, if you are buying it for a really low price, or if the location is outstanding, there may be something about the park that offsets the water well risk. But if it's just an average park in both location and economics, then I'm not sure you want to go forward with that.  

I'm sure you know the drill, but the standard way to value this is (4 lots x $250) + 600 x 12 x .5 = 9,600 which at a cap rate of 10% is $96,000 plus the value of the three mobile homes (maybe $5,000 each based on age and condition) = $111,000. And that does not even include the risk of the park being on septic. 

I think you have to re-negotiate this down to $100,000 or so for it to make sense, and even then you are going to have to really get a handle on the septic and other cap-x items as you have no fluff even at that price.

To give you a comp, I bought a 15 space park at the same lot rent -- plus a 3/2 stick-built house -- for $65,000. And it was on city water/sewer. And in a metro of 5 million people.

On little parks like this, you have to have PLENTY of room in those numbers for bad news to unfold without going upside down in the deal.

JUST TRYING TO KEEP YOU OUT OF TROUBLE.

What is the monthly lot rent?

You cannot use ANY of the park-owned home income other than the LOT RENT. You have to separate "real" property and "personal" property. "Real" can be capped, "personal" cannot. Mobile homes are strictly "personal" property. The only "personal" property value is essentially the blue book value of that asset (and it's not much).

On the expense side, on a $100,000 mobile home park revenue you would the following largest line items (water/sewer, trash, property tax, manager, mowing, insurance, repair and maintenance). Assuming a park that has $85,000 of net income is worth at least $1,000,000, then the property tax alone would be $10,000 per year in Missouri (1%) or $25,000 in Texas (2.5%). So that wipes out your whole expense ratio on 15% before you move on to another category. 

There are two basic problems with the numbers you provided: 1) you can only use the lot rent income in your calculations and 2) the expense ration on a park of this size is closer to 50% and would NEVER be 15% (not even close).

The formula of value for this park would be (9 x lot rent) + (single family home rent) x 12 x .5 = NOI.

You would then cap the real property income at around 10% (it's your choice but small deals require higher cap rates) and then add the value of the POH if sold for cash (maybe $5,000 each on the 1980s and around $10,000 each on the 1990 and newer homes).

You're on the right track but some of your assumptions are too optimistic. Typically, you need a difference of $100 per month to motivate a customer to buy over rent, not $25. And the average mobile home that you can monetize with debt is around $10,000, not $20,000 as your example might suggest. But let's apply this to your example of a 15 unit park you buy for $300,000 with all park-owned homes. 

Assuming the homes are 1990s or newer, you can finance those through 21st Mortgage potentially for $10,000 each (the minimum loan is $10,000 and the payment you are suggesting in the example would pretty much require that limit), so you could sell those 15 units and the customers could use 21st Mortgage for a lending source and you would receive a check for $150,000 in total. That means you only have $150,000 into the land, which effectively doubles your cap rate on the lots and you have eradicated the pain and suffering of rental mobile homes.

All park owners use this plan to some degree, but it's all based on the number of POHs in the property at closing. Some deals have none and some have one on every lot. Beware of any home older than 1990 if this is your plan because 21st will not finance any deal less than $10,000 and most 1980s and older homes will not blue book to the values you need.