All Forum Posts by: Roger D Jones

I love the trampoline conversations... always the highlight of my year.

Don't do it...  Here is an interesting podcast on why not.
https://www.mobilehomeuniversity.com/mhp-mastery/the-new-par...

Quote from @Sherry McQuage:

Quote from @Roger D Jones:

Quote from @Logan M.:

Three little known truths about Mobile Home Parks:

1. The cash flow is great, but rent collection is always a challenge. I have at least one tenant per park that I am always fighting with about paying rent.

2. You can make more money by holding onto homes in parks but it creates way more work and I don't believe it is worth it in the long run.

3. In Some of my communities I make more money on seller financing the homes I own than the lot rents.

I will add more of these truths but I find most investors without parks don't know some of this information.

 With regard to point 2 it is very dependant on rental demand.  We drive double the cash flow out of our rentals vs our TOH rentals.  We keep them in good shape though and have a maintenance manager hired as an employee to stay ahead on upkeep and maintenance.  Website to submit maintenance requests keeps thing timely.  Even with the labor expense we are way out front.

 What does TOH mean?  I'm just now starting to learn about Mobile Home parks...I might be buying one in the next year.

 TOH means Tenant Owned Homes; POH means Park Owned Homes.  Easy Cheesie!

Quote from @Sherry McQuage:

How do you find out what fair market rent (of the lot) is for mobile home parks?  

 Just call around to different parks.  Most established park owners know what the pad rents are locally so with a couple calls you will have a good idea.  You can also look on RE listings for mobile homes for sale in parks as the lot rent is usually noted in the listing.  

Agree, I did go over the calculation with the seller to explain what return I would be getting before offering him. He said he would take at least $275K to make this deal work. 

Ok... now you got 'the number'.  Probably puts you at a 7 CAP at current performance and closer to a 10 on performa with a rent increase, bill back on garbage and 10% delinquency.  There is still some significant upside here but at 275-  downsides start to loom a bit larger.  This is where you have to get very unemotional and steely eyed.  Get his rent rolls, taxes, water, road maintenance, garbage bills and the cost of pumping four septic tanks per year... then just start doing the math backwards.  Lastly the two of you have to negotiate the owner financing.  

I am going to politely offer an observation and it is certainly only that... just an opinion.  At $150 per month pad rental the owner wasn't really interested in making money from his tenants.  He either is afraid of them or likes them too much- whatever it may be.  Now he wants to sell and make all his money off of you while leaving the gritty work of raising rents and billing back utilities to you.  And with owner financing he is also trying to make more money off of you.  Nothing wrong with that... but you have to make money too!  This deal has to work both ways.  Certainly not being at market with his rents creates an opportunity for you but he doesn't get to price you out of that future oppportunity.  If 275 is not going to work then you just give him a different number and tell him that is the best you will do.  You have to make money too and you don't have a lot of wriggle room at 275.

Lastly and most park sellers don't like it but they need to open up every septic tank in the park for inspection and if necessary pumping.  Not sure what it costs to replace and tank and drainfield in Alabama but you do not want any surprises after you purchase the park.  The sellers always squawk about it but for me that is a non-negotiable.

I think your deal has some definite upside but most of that comes when you can get the rents to 250 and if you can stay positive cash flow until then.  

My uncle did one from the ground up.  It was fascinating because he developed it where I thought was the middle of  God Awful Nowhere here in Washington State.  What I didn't know at the time though was that prior to developing he did a ton of research on travel patterns in the state.  He looked at where do people drive on vacation and how do they get there.  Then he overlaid current RV parks over the patterns on his map.  Picked up five acres of desolate farmland along a major interstate in Central Washington and boom!  Added a dozen or so spaces for truckers even.  Hugely successful.  

Quote from @Christie Gahan:

There are programs for low income households to help pay for utilities.  If you invested the money, for seperate meters etc ... would tenants be able to access subsidized utilities?  

 I believe certainly so.  I have only seen subsidies for electric which is metered by the utility and paid by tenants.  I have not seen any subsidies for water usage.  

Quote from @Neel Patel:

Quote from @Roger D Jones:

OK... interesting little deal you have going on.  Couple things first... you really are not supposed to consider your mortgage payment in evaluating your cash flow.  To the seller the value of the park should not be determined by whether you as the buyer have to leverage money to invest.  Now it is absolutely critical that you consider that in evaluating the purchase as you have to stay cash flow positive.  

Your expense ratio seems very reasonable with a park that is all tenant owned homes.  The critical question here though is where is the water coming from (well or city) and where is the sewage going (septic or sewer).  If it is well water you have to make sure that well is healthy and viable for the long term.  If it is septic tanks- what is there condition?  Assume you will have four tanks per year pumped and cycle through the park every four years.  The park has a lot of upside as an investment but it doesn't have the cash flow to cover a well replacement or multiple drainfield replacements.  

Assuming it is city water and sewer and the owner is currently paying the garbage (all good things for you as the buyer) and also taking in 5% vacancy/delinquency. With all that you end up at $18720 NOI. There are a lot of TOH parks that pull in 15% CAPs so to hit that you should offer 125k. See if he bites at that.
 
Year one maybe you don't raise rents but push the water and garbage bills back on to the residents (direct bill on their invoices for services) and then raise rents thereafter.  Pushing the garbage alone you raise your NOI $3600 and the value of the park on resale $24000.  

Interesting investment... I like the little parks and would be all over it if it was in my neck of the woods.

I just had the mortgage payment for the sake of understanding what the cash flow would look like at that mortgage payment. 

The water is coming from the City and the sewage is septic since the park is in the County. I have to call the County to find out more about the Septic. Also, need to ask the owner how often he has the septic cleaned. 

I did offer the owner $175K and he denied it. I only offered it knowing that rents could be increased to around $250.

I am trying to strike a deal with doing Owner Finance since a lot of banks I called don't work with Mobile Home Parks. 

What kind of financing deal would you ask with the seller if it were you? 

Thank you for your insights!!

 Neel,

Looks like you are doing your research.  Remember you are offering on current performance so you are still at a 10 cap at a 200k offer.  Raise the rents, bill back the garbage, meter the water and you should be well north of a 15.  As for owner financing I have only had one of those but it was a similar deal as yours.  I got the owner to bite at 20% down; 5,25% on 30 years with a 10 year call and balloon.  Also got him to accept an automatic 5 year extension if all payments for 10 year note were on time.  Paid extra every month to have paid off at 15 yrs.  

Now that the owner turned down 175k maybe you can get him give you an idea on his number. You make a couple offers then the owner needs to give you a number to work back from using his numbers to see if it works for your CAP target.

Quote from @Jordan Moorhead:

@Roger D Jones I make blind offers all the time based on reasonable assumptions. If you wait for actuals you may be waiting a long time. That's why you have contingencies in your contract where you can back out if things don't work out. On the park we just bought we never got the owners tax returns and had to verify expenses.

 Fair enough Jordan but my simple point being why would we ever make an offer based on performa as a result of a buyers future effort?    If a seller is not going to make the improvements to their park to improve the resale value of the park why should I pay them for my future efforts to improve the park's value.  I restore classic cars... when I discover a barn find I am offering what that hulk of metal is worth as it sits in the barn- not what I am going to create with it.   The seller gets a fair price for what they are offering but I am not paying them for my future efforts and expertise.  BTW restoring classic cars rarely works out as a good investment but I think it works here as an anecdote :)

Quote from @Logan M.:

What is the average cap rate in your area?

Based on your NOI and an 8% cap rate you would be around $336,000.

 I don't think I would make a 'blind' offer on my future anticipated performa on the park.  It would be based on the owner's current actuals with an explanation how you got to that number.  Owner can always come back with another number.  Never pay of 'ifs or buts and candy and nuts'. IMO. :)