This issue of the MobileHomeParkStore.com and MHBay.com
Newsletter includes:
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Important updates, news, and new features
of MobileHomeParkStore.com and MHBay.com
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Watch for the release of our new E-book
coming in a few days: The in's and out's of over 70 mobile home park
deals that Frank Rolfe and Dave Reynolds have done in the last 10 years.
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Mobile Home Park College - The learning
experience continues!
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Questions and Answers with Dave
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Mobile Home Park Lease with Options to
Purchase: Benefits to the Buyers and Sellers
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Articles and Interview with and by Steve
Murden of Star Capital
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Everything you ever wanted to know or not
know about Mobile Home Park Insurance with Kurt Kelley of Mobile Insurance
Agency
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Tell us what you think and send us your
articles!
In the past 30 days, there
have been over:
109 new mobile home parks listed for
sale on MobileHomeParkStore.com and at least 27 confirmed sales.
In addition, we have restructured our
Seeking Investors and Partners Section to take off quickly. If you are
looking for a partner or investor to help you with a potential purchase or
several, it is now FREE to list in this section:
Check out Seeking
Investors or Partners for Mobile Home Parks
Introducing our all new Q&A session every Wednesday at 5:00 Pacific, 6:00 Mtn,
7:00 Central, and 8:00 Eastern. Do you have any mobile home park related
questions? If so, join us every Wednesday evening.
Find out
more
Here is what Wayne had to say:
Testimonial Called into Terri Reynolds By: Wayne
Linscheid of Linscheid & Associates on May 24, 2007
I have tried other forms of media
advertising to sell my listing in Kansas City, MO without much success. Once I
advertised the listing on your website I received a great response and was not
only able to sell the listing, but it SOLD FOR MORE THAN ASKING PRICE!
MHPCollege.com
The first session on Buying a
Mobile Home Park will be completed this week. All sessions have been
recorded and you can listen to them over and over.
Dave - I have read through the
materials and listened to the recorded sessions. The information
that you and Frank have provided is so complete and helpful. I am
sure it will prove to be invaluable as I embark on investing in a mobile
home park. Thanks again for sharing your experiences.
Regards,
Beth
Are you looking to Buy a Mobile
Home Park?
Are you looking to
Sell a Mobile Home Park?
Are you needing
help to Turnaround your existing Park?
If the answer to any of
these questions is "YES" or "Maybe" then we are here to help!
Find out more
about our new Mobile Home Park College
Selling your Mobile Home Park:
We are still offering the 15 day trial run to
SELL your Mobile Home park. No further obligation or strings attached!
Find out more here about this special offer!
Are you a manufactured home owner or community owner with homes or
lots for sale or rent?
If so, then you can list your new and
used mobile homes for sale or rent and lots for sale or rent for
FREE at
MHBay.com
Our traffic continues to increase so if you are looking to connect
to potential residents and sell or rent more homes, then place your FREE
listings on
MHBay.com.
Q&A with Dave
Questions:
Dave, both you and Frank advocate selling
the MH to the tenants.
I have two questions,
1. How do you pitch the sale of the MH to
the tenants to insure maximum participation
by the tenants in the park?
2. What have you found to be the best way to
construct the sale (deal) of the MH for best
results? That is what percentage deposit do
you ask for, what is the length of the loan,
what interest rate, what would be the max
price of a home, etc?
Barry
Answers:
Barry, thanks for the good questions:
1. Pitching the sale or trying to convert the
mobile home renters to owners with maximum participation has not been too hard
for me in the past. First of all, I have found that you can't just use the
"dream of home ownership" pitch to the mobile home renters. What I have
found to work best is that the pitch of "once the home is paid for you will only
be paying lot rent" and "your payments will stay the same and you will own the
home in ??? years" works better. Most renters like the idea of paying less
at some point in the future. They don't typically think about the extra
repair expenses they will be paying during that time either. It is a
win-win for both the buyer and seller as long as the home is being sold at a
reasonable price.
2. I have found that in order to get renters or even new prospects to buy
a home and actually follow through with the deal the payments including lot rent
need to be in the $450 range for a singlewide and $550 range for a doublewide.
Also, the term of the loan needs to be from 3-7 years and at the most 10 years
for doublewides. On the typical 25 year loan, they don't ever believe it
will be paid for and know they will either sell it before it is paid for or else
let it go back to the owner. If I am selling the park to an existing
resident, I usually don't ask for an additional deposit. If I am selling
the home to a new buyer, then I try to get $1,000 to $2,000 as the down payment.
My interest rate is around 10% and the price is typically a few thousand more
than I purchased the home for. The key is the monthly payment and short
term of the loans.
Question:
Dave,
I bought your book
and have recently entered into a contract to purchase a MHP in
North Carolina.
I used a 10% cap rate to arrive at the purchase price. The
appraiser states that for MHP’s with park owned homes, they will
use a higher cap rate of about 12 – 14% which he states
represents a blended rate of 10% for the pad income and a higher
cap rate for the park owned homes. (It is a small park
with a total of 18 pads. 11 have park owned homes.)
Is this consistent
with your experience? Is the appraiser using up-to-date
cap rates? Any recommendations?
Answer:
Ray,
If you read the section in my book about valuing the mobile home park and
park owned homes, you will see how I do it.
Basically, I value the mobile home park pad income less expenses at a cap
rate.
Then to that amount I add the value of the homes
This gives me the price of the park.
10% cap is common when valuing lot income. However, you should not cap
out the mobile homes. You should just add the value of the homes to
the price. The reason is if you have a 1970 mobile home worth $3,000
and it is rented out for $300 more than lot rent then it is bringing in
$3,600 per year. If 50% of this is expenses then it is netting $1,800
per year. If you cap this at 10% you would be paying $18,000 for a
$3,000 home.
I have seen appraisers do it like yours is doing. However, they
usually use about a 9% cap on the lot income and a 13% cap on the home
income not a combined rate. If your appraiser is capping the income on
the homes, then the appraisal will probably come out higher than the value
of the park.
I hope this helps.
Thanks,
Dave
Something to Ponder and Watch out For:
Hi Terri:
I am happy to share our story. We did set a limit to what we got burned but
no burn at all would have been better.
We contacted the sellers and met with the husband in Feb. At that time, they
wanted $250,000 - $300,000 down and said they would finance the balance. We
knew we would have to borrow most of the $250,000 and told them so. They
referred us to their banker and we were applying for the loan. During that
time, no deal had been firmly made.
Supposedly, there was another buyer who had cash and
they offered a check for less than the asking price. The owners had told us
the price was firm and they called us. We went to see the campground, and
fell in love. We stayed that afternoon and their attorney came to get the
details of the deal so he could draft the buy/sell agreement.
We paid a $2500 Binder but did not sign an agreement
at that time that they would return our money if they did not follow through
– MISTAKE 1. Among other things was the assignment of the lease where the
sign was on the highway, the method of payment, & the approximate date of
the closing of April 30. We met with the banker, were approved, and the bank
was supposed to prepare the note and appraisal. His attorney was preparing
the paperwork, our attorney was reviewing the drafts. Meantime, we had
formed an LLC and opened a bank account in its name. We had a number of
expenditures (lease credit card machine, begin immunization shots so we
could serve food, business formation, etc.) Two drafts of the Buy/Sell
agreement had been dickered over and agreed upon although not yet signed.
On April 25 or thereabouts, my husband quit his job,
gave up his weekend business and moved up there. I was waiting to go until I
had a job offer in the area.
The sellers host a large event (5000 people) on
the first weekend in June, and needed to be able to sell beer at the event.
Any transfer of the business would have voided their beer license, so the
agreement was made to transfer ownership after the event on June 4th.
On April 30, as with many closings, the paperwork wasn’t ready. Their
attorney had not prepared the documents for their portion of the financing
(promissory note, deeds, deeds of trust, survey of property)– although our
attorney offered to prepare the initial drafts. The bank was also behind on
its documents. On April 30, my husband and the seller went into the bank and
when he found out that the bank would not complete their portion of the loan
based on just the signed Buy/Sell agreement, he stormed out.
The sellers consulted that evening and told my husband
the next day that the deal was off. He stayed 2 more days trying to obtain
the $2500 binder back and was informed that their attorney told them that
they didn’t have to return it. Our attorney is still pursuing it. Thank God
we did have an attorney involved or it could have been horrible. We have not
given up our dream, but will take a different approach next time. And yes, I
had considered your seminar but we failed to act on that. Say OOOPS. Diane
Potential Advantages
to Lease/Options rather than the standard Purchase and Sale:
Why leases with an option to buy may be a better way to go
for sellers and buyers. Instead of an outright purchase of a Mobile Home
or RV Park, a lease with the option to buy can make more deals happen.
Here are some benefits that often occur in these type transactions:
Seller Benefits:
1. Instead of selling a property with seller financing, when a seller does
a lease option they still have the title to the property. If the buyer
does default for whatever reason, then the seller can usually evict the lessee
in a much more timely manner than going through the foreclosure process.
The lessee is not the owner.
2. Instead of receiving a down payment on the sale, the seller/lessor will
receive an option deposit. Whether this option deposit is $5,000 or
$500,000 it is typically treated just like a security deposit. It is not
reported on the sellers tax return until the option either expires or is
exercised. This can in effect postpone the capital gain taxes on the sale
for several years depending on when the option expires or is exercised.
3. The seller/lessor will still be allowed to depreciate the mobile home
park improvements until the option is exercised. This depreciation can
shield some of the income that the seller/lessor receives from the lessee during
the option period.
4. The seller/lessor is relieved of the day to day management duties and
can be freed of that responsibility. Instead of running the park
themselves, they step aside and collect a monthly rental payment from the lessee
until the option is exercised.
5. By using a lease/option an owner that may have only owned the property
for a few months may be able to convert a short term capital gain into a long
term capital gain. This would happen as long as the option is not
exercised for at least 1 year from the date the owner acquired the property.
6. By doing a lease/option instead of a purchase/sale/owner finance, the
current financing can be left in place until the option is exercised without
triggering a due on sale clause. If the property is in need of being
turned around and it would be hard to get a new loan this may be the best option
for the buyer and seller.
7. The seller/lessor can continue to make the mortgage payments and not be
in default. If the buyer does default it should not be a difficult process
to get rid of the buyer.
Buyer Benefits:
1. For a buyer with less than perfect credit, this may allow them to get
into a property while their credit is being built up and then complete the
purchase when they can qualify.
2. During the option period, the buyer can build equity so long as the
property increases in value. This is the usual case.
3. If the property declines in value, then the lessee is not required to
exercise the option. As long as the option deposit is not more than the
decline in value, it shifts some of the risk.
4. The seller/lessor is usually more readily available to help in the case
of problems with a lease option than an outright sale. They don't usually
want the property back so they will be available to answer questions and give
other advice.
5. Instead of the depreciation deductions, the lessee will be able to
deduct the monthly rent payment to the owner. While this is amount will
probably be less than the mortgage interest and depreciation, if the lease
payments are structured that a portion of them reduce the option price, this can
be a benefit as well.
6. The lessee is able to work the property as if it were their own and if
done right will be able to increase the value of the property above the option
price. Then when the option is exercised it will be much easier to obtain
financing.
7. The lessee may be able to sell the option rights to another purchaser
which is often easier than buying a property and selling a property. They
are just selling the right to buy the property at a predetermined price.
These are some of the benefits of the lease/option. I am sure that there
are a few more that I have not thought about but this should get you started.
Dave Reynolds
Steve Murden of Star Capital has been writing some good
articles and we interviewed him on a special teleseminar. Find out more
here: Mobile
Home Park Financing Articles and Seminar
Kurt Kelley of Mobile Insurance Agency was
recently interviewed by Frank and I and we have posted a copy of
this interview at the following. Check out Everything you
wanted or did not want to know on
Mobile Home and Mobile Home Park Insurance here.
Tell us what you think!
We'd love to hear what you think of this issue!
We need your articles - send your articles to
dave@mhps.com to be included in
upcoming newsletters.
Please send your comments, questions, articles, and
ideas for upcoming issues to us at:
dave@mhps.com
Your feedback matters to us!
Until Next Time!
Dave Reynolds
MobileHomeParkStore.com
18923 Highway 65
Cedaredge, CO 81413
PH: 800-950-1364
FX: 970-856-4883
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