All Forum Posts by: Ken Rishel

George Allen is the author of a number of books on manufactured housing communities and has two different monthly newsletters available as well as a Sunday blog. His Annual Roundtable is coming up early next month in Indianapolis which is a terrific event for both newbies and experienced community owners alike. Check out his website for the blog and details on registering for the Roundtable.

 I assume the seller's montage would be paid off in full by your bank?

 We avoided this issue by having another company act as the Florida licensed dealer who actually owned and sold the homes. There are also terrific tax strategies doing this as well. 

The dealer organization sold the home and the community charged them an impact fee for sitting the home which paid for all the site work and then some, and the dealer organization then accepted a discounted payoff from the captive finance company. Presto! No capital gains on the sale of the home after the costs of marketing and selling the home were added to the cost of the home. The community recovered all the costs of the site and the prep work with every sale and the captive finance company put the difference from the loan face and what they paid into a reserve account against any losses from non performance.

 Banks have issues related to the Red Flag Rules, the Patriot Act, OFAC, and AML that cause them to question businesses about anything they view as potentially suspicious, just as you have the same responsibilities as a community owner/retailer.

To clarify my previous post: We used Delaware because their privacy laws are better than Nevada's, and far better than any other state. I added an extra measure of protection by having the Delaware Corporation being owned by yet another company in another country (Monaco) which made getting information by people that are considering hurting you even harder.

The only company that held any real unencumbered assets with my name on it was a company based in Monaco that owned a company based out of Delaware that owned all or part of separate LLCs for:

Each community with investment partners;

Each retail dealership that sold the homes in each state;

Each captive finance company (One for each state of licensure.).

The idea of a separate management company is not one I ever considered but should have.

Unlike some operators, I never saw the value of having my name associated with the ownership of the communities and many disadvantages. I also am very aware that the smaller the asset base of the operation the less regulatory attention, and the smaller the fines and penalties. Just as important, smaller entities are less attractive targets for lawsuits.

 This is a year after your post.

Marc - I get your feelings about the pricing in NADA. I have to state again, most people have no real, and very necessary, training on how to use their guide. To some extent this is something that NADA does not push nearly hard enough and to some extent far too many people try to shortcut and do not read all of the instructions in the yellow books and almost never get the optional, and separate, training.

I have been using these books for years as a lender with great success, and I, and others, have trained people working for me how to use them correctly. We find them to be very close as long as we have enough data to work from. The most significant errors come from misjudging the community in which a home is sited. Another error comes when a home is going to be moved and costs of tear down, moving, and resetting the home are underestimated as a deduction and adjusting for the ultimate location.

Many times we as lenders moved homes from one location to another because all the costs of teardown and moving and resetting were more than offset by the uptick in home value when placed in a more desirable community. Other times we would bend over backwards to keep the home in the same location because of the money we would have lost in moving the home.

As you stated, wholesale is not the same as retail. In years past, I bought many homes and resold them for a nice profit. Seldom did I pay more than 50% of the NADA "lot" value with a deduction for tear down and any expected repairs as a result of moving the home. As a lender, we never lent more that 80% of the properly calculated retail value on homes that were older than 10 years old.

Maybe the best statement is that, properly utilized, NADA is the most accurate source of expected retail value.

 Anyone wanting to do a development needs access to considerable capital - normally from private investors and a strong marketing program and sales force. Time is the enemy for those not prepared to successfully push forward.

We needed, when I was developing communities, to sell 175-200 new homes minimum every year in each development until they were full. This takes a lot of cash and top notch sales personnel, not to mention the equipment and personnel to build out at that rate. For all practice purposes that is four new lots and four new sales each week.

 FYI: Times are changing and I doubt that any local government that knows what is going on will continue to ban any new land lease communities based on NIBY in the future. They could find themselves on the losing side of a very expensive lawsuit in federal court.

 Not really. Land costs vary wildly even within a single state. Add to that that labor costs also wildly vary, and that regulations regarding construction also add to cost and what you can do even 40 miles apart are sometimes very different. To get true numbers one also needs to add in the costs of obtaining proper zoning which is even more variable and depends greatly on the political skill of the developer.

It is also going to depend on what kind of community (or planned residential development - my preferred term) the developer is planning because that will affect density.

Like I said, this is complicated, which is why many in our industry rightly avoid development. It is also why I recommended hiring an expert if one is serious about moving ahead on a new development.

That said, at the low end for a brand new development, $35,000 per pad would be on the low end, and I would not even consider to venture a guess at what it would take in California coastal areas. Redoing an existing community would be somewhat cheaper depending on the current infrastructure. 

All of that said, George Allen may have some starting numbers nationally and I expect that Don Wesphal would also have some numbers as a starting point. It is also possible that Data Comp/MH Village may also have some data as they have been accumulating some very esoteric information the last few years.

 Luke - In the 1970s and 1980s I built nine parks in three states from the ground up. It requires considerable knowledge and considerable planning. Today, I build no parks as our national consultancy (Rishel Consulting Group) keeps me very busy, and I am old enough and affluent enough I am trying to slow down.

Very few new parks have been built in the last 20 years, but that does not mean it cannot be done, or that it should not be done. There is actually a huge need for new parks. The cautionary note is that not everyone has what it takes in knowledge or energy to do it.

If I were considering building rather than buying a park, my first telephone call would be to Don Wesphal from Associates Landscape Architects and Site Planners out of Rochester Hills, MI. He is professionally trained and has 48 years of experience in the development of new land lease communities and is considered the leading expert in the manufactured housing industry on community development and expansion.