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Visit us at
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This issue of the MobileHomeParkStore.com and MHBay.com
Newsletter includes:
-
The Marketing Contest!!!
-
Updates and Other Announcements
and Results of Bus Trip in Dallas
-
Mobile Home Park Due
Diligence - Article and New Diligence Manual - "30 Days of Successful Due
Diligence"
-
Mobile
Home Community Pride of Ownership, by Frank Rolfe
-
Comments
-
Questions and Answers with Dave
-
Mobile Home Park
Bootcamp with Frank & Dave
-
Tell us what you think and send us your
articles!
The Marketing Contest:
The results are in...
In last month's newsletter we had some
suggestions from several individuals out there on marketing your community to
fill vacant lots. We took a vote and the winner is...
Number 6 - Lee N - Here are Lee's
excellent suggestions:
Dave,
Personally, I think that all too often we take our current
residence (customers) for granted and don't thank them for their
business. These solid customers are the real bread & butter
(CASH) of all businesses.
There are many, many ways of doing this and the methods will
depend on the size of the park(s).
For example:
- Yard of the month award. Nothing
expensive just a little award for them to show the
neighbors
- Park newsletter sent out monthly or
at least quarterly w/ free "in-park" classified ads
- Thank you notes for "little" things
that are not often seen (Clean yard award, etc)
- Cash awards or gift cards as
commission for helping rent out a space or sell a home
- Small fruit baskets or fresh baked
apple pie when a new residence (customer) moves in
- Baby gift for a new born (no matter
if the parents are legal or not)
- An 8 or 10 dollar frozen turkey or
ham for Christmas for all tenants
- A $20 dollar Walmart gift card for
renewing a one year lease.
- Every spring give away bulbs, small
plants and maintenance free shrubbery to plant on their lot
- A park sponsored Bowling Team
A free B-B-Q & watermelon for the 4th of
July for park residents only
None of these things will cost more than few dollars and will
help create a sense of community to the park. When you can get
get neighbors watching out for neighbors, and their children,
then the entire park will begin to jell into it's own little
community where people really want to live.
Dave, I have other ideas but those are enough for the moment.
Lee N
I want to thank all who
participated in the contest and voting.
And for Lee, I will be contacting
you soon with your prize. I will be sending you a copy of our new Due
Diligence Manual as well as $100.00 gift certificate to a restaurant in your
area.
Updates & Other Announcements:
You
should have received your first issue of our new weekly magazine...
MHWeekly. The new site is up and we are are looking for
more contributors for articles, press releases, and our new
section... 20 Questions with a Mobile Home Park Owner. Check
it out at www.mhweekly.com.
This is going to be one of those months where I don't know which way
is up or down. It looks as if we will be rolling out the new
website design in the next 3-4 weeks and in doing so we have to move
over about 15,000 pages between all of our websites. It will
be a challenge but the new site will have most of the things that
people have been requesting for many years. Once the new site
is up we will have more time to grow rather than maintain.
Combine the new website platform with the 8 mobile home parks we are
seriously considering buying in the next 60 days and you can imagine
that chaos will abound!
Wish us luck!
Finally, I
returned home last week from our inaugural bus trip which was
attended by about 50 mobile home park investors. It was an
action packed day and we looked at about 20 mobile home parks. We had a
great time, two really good meals, met many new people, and felt
like it was a success! The bus driver commented that she would
have some unbelievable stories to tell her grandkids. I am not
sure if they are good or bad.
Frank and I have commented many times on how important an entrance
is and in particular, the entrance sign. Here is a picture of
one of Frank's old entrance signs. It is made out of routed
pvc and most larger sign shops can order or produce these signs.
Dave/Frank:
Thanks so much for your informative seminar on Saturday. I feel
fortunate to have gotten all this knowledge for the inexpensive price
you were charging for the first one! I see where your next seminar is
going to be much more expensive. Being a guinea pig is not always a bad
thing!
Seriously, you guys did a great job, and I left with the confidence to
take the next steps to put me in business. The best thing about your
seminar is the total lack of pushy sales talk or techniques, which truly
put it on the level of a professional workshop. When I got home
yesterday, I drove through that park I mentioned to you during dinner
(the one that's run down in an upscale town, yet I believe to be
way overpriced), and everywhere I looked I saw new things to consider
because of what I learned in Saturday's seminar.
I'll be faxing in my choice of the free gift in a day or so. Thanks for
that offer as well.
Alice
Good Afternoon Dave & Frank,
I would like to thank you for an
interesting and informative MHP tour last Saturday, which I enjoyed. It
was great to finally meet both you in person.
Thanks,
Barry V
Hi
Terri,
You asked for feedback last week so here you go.
The event is Dallas was excellent and I really feel like it was worth
the cost. My flight with AA was cancelled and I drove all day to get to
the event and I still feel like this trip was worth the effort. We
pounded the pavement pretty hard on Saturday and I learned a lot from
listening to Frank and Dave and both of them know what they are doing.
They are real and just great guys.
I
also enjoyed meeting the people who attended the event and I made some
great connections with others in this business. I learned from the
people who were on the bus and made some new friends along the way.
Honestly, I would do it again because of the people I met. I also
enjoyed visiting all of the MHP’s in Dallas…that was very good and I
learned a lot. Frank and Dave wore everyone out and I must admit, I was
exhausted by the time we arrived back to the hotel. Frank and Dave gave
all of us our money’s worth!
I
would like to have spent more time with Frank and Dave but I am not all
that good at butting in and with 50 people, that was a little tough. It
was a great event and Frank and Dave did a great job!
Dana
You guys did a great job on the bus tour! It was nice meeting you
and Frank.
Cheers,
Stephen
Mobile Home Park Due
Diligence
By Dave Reynolds
When I first started in the
mobile home park business I really had no idea of what it meant to
do due diligence on a mobile home park. The very first park that I
purchased my due diligence consisted of about 30 minutes of driving
through the town and park and another 30 minutes looking at the
proforma income and expense statement provided by the seller.
I did not see any problems with the deal and it wasn't long before I
put down about $60,000 and assumed some mortgages of over $200,000.
I had heard about home
inspections (like you get when you buy a single family home) but I
had never heard about inspections on mobile home parks. Such
things as checking out the water and sewer lines and the gas and
electric systems were foreign to me. It never crossed my mind.
Luckily on this first mobile home park, all the utilities were in
fair condition so I didn't get burned. As far as verifying the
financials, I just took everything that the seller said as true and
went full speed ahead. It was not long until I found
discrepancies in the seller's numbers. Again, with this park,
I was able to work through the numbers and make the park work.
In retrospect, I could have
verified and renegotiated and saved ten or twenty thousand dollars.
It could have been worse.
As I have continued to do
deals, I used this same approach to doing diligence on the parks I
was buying and it was not long before my luck started to run out.
Here are just a few examples of things I missed which ended up
costing me hundred's of thousands of dollars:
-
Market - I purchased a
couple of parks that were in really bad markets that were
declining. Even though the parks penciled out at the
current occupancy, I found out that when people left it was hard
to find new residents to rent the lots. Estimated Losses -
$100,000
-
Private Sewer System - I
purchased a park with a private sewer system that had not been
properly installed and was not meeting the permit for effluent -
After spending about 2 years trying to fix the current system
without success, I ended up putting in a new plant - Estimated
Cost - $225,000
-
Private Water Well - I
purchased a park with a private water well that had inadequate
pressure and poor water quality - Instead of replacing the
system I sold the park to another investor at a discount so he
could put in the new well - Estimate Loss - $50,000
-
Drainage Problems - I
purchased a park that had a terrible drainage system and every
time it rained about 1/3 of the park had several inches of
standing water - it made the residents very unhappy and I spent
about $25,000 trying to fix the worst of the problem - Cost
$25,000
-
Flood Plain - I purchased
a park in the 100 year flood plain. The sellers took steps
to hide this fact and I took their word for it. This park
was one that I sold shortly after closing to another investor
and soon thereafter it flooded and has since flooded 3 more
times. Since my buyer's were able to prove fraud on the
seller's part I did not lose any money on the deal and they
recouped most of their investment. However, a park that
should have been worth a couple hundred thousand dollars more
today has not appreciated like it should and this does not even
take into account all the headaches it has caused.
I have made many more
mistakes in buying parks and missing things that would have been
revealed with proper due diligence, but these are the ones that
stick in my mind.
Back when I started in the
business of buying mobile home parks there was no reference
materials out there that would make me aware of the potential
problems that can occur. However, today there is such a
manual.
Frank and I just finished
creating this manual and have made it affordable for anyone out
there that is looking to buy a mobile home park. It is a
step-by-step guide to doing the diligence organized in a manner to
spot the problems as soon as possible to save money on all of those
third party reports.
It has taken us over 10
years, a couple of hundred parks, and close to a million dollars in
mistakes to put this together.
Find out more about our new Due Diligence Manual.
HOW TO BUILD PRIDE OF
OWNERSHIP IN YOUR COMMUNITY
By Frank Rolfe
I will never forget my first drive through of one of my communities with a
conduit lender. The property was about a one-star in quality, but was a
cash-flow wonder. I wasn’t sure what the bank’s reaction would be to my down and
dirty “family” community status. As we drove out of the property, I nervously
asked the lender “so what do you think?” His response: “well, they seem to have
a pride of ownership”. With the loan in hand, that term has grown to sum up what
I feel is the most important in any community. Even a lower demographic property
like mine can be redeemed and affirmed through “pride of ownership”.
So what is “pride of ownership”? To me,
the answer is when all of my tenants make the best of what they’ve got. They may
not be rich, or have nice homes or cars, and their yard furniture may not be out
of the Frontgate catalogue, but they make the best of it. They have clean,
orderly yards, keep their homes painted and touched up, have all their skirting
up and in line, and keep their yards mowed. These are all items that are earned
with sweat equity – not dollars. Anyone can aspire to these things regardless of
income. It’s really a mindset.
So how do you get “pride of ownership”
from your tenants? Unfortunately, it’s not the easy way of just asking them
nicely and they’ll do it. It takes a definite strategy to jump start and
maintain a “pride of ownership” program.
The first step is to clean up your
act. You cannot expect the tenants to put in any effort when the community
common areas are a shambles. Before you even ask the tenants to pitch in, you
must:
-
Make sure all common areas are adequately mowed
-
Make sure all streets and curbs are professionally edged
and cleared of any vegetation (using Round Up, etc.)
-
Fix any fencing that is falling over or rusted and
unsightly
-
Trim and remove all dead branches and trees
-
Install a new, professional quality entrance sign and
other signage throughout
-
Patch and repair all potholes in your roads and parking
pads
Once you have set the tone, send a
letter to your tenants, telling them that, effective immediately, you are going
to try to turn the community into a nice place to live. Explain what is expected
of them, but keep it pretty basic – no big trash in yards, no non-running
vehicles, 100% skirting installed, houses attractively painted, etc.
The next step is to have an
all-community “trash day”. Rent a commercial roll-off dumpster, and send a note
to everyone that you are going to have available a huge dumpster so that they
can finally get rid of that old rusted swingset, etc. And explain to them that,
by Sunday, if their yard is not clean, you are going to through some of the
stuff out yourself. Impress on them that this is a one-time only thing, and that
it is in their best interest to take advantage of your hospitality. Hopefully, a
ton of the trash in the yards will be gone by Monday.
Starting Monday, you need to make list
of every house and yard that offends you, and send a letter to each of these
tenants stating what you want fixed. Give them only a week to comply, because
they never will anyway. You are simply setting them up to get ready for some
executive action.
Now comes the time that separates the
successful operators from the failures. You can either spend the rest of your
life threatening the tenants to do what you want, which never works anyway, or
try a new approach. The new approach is to send them a letter stating that you
are going to do the work yourself, and bill it back to them, to be spread out
and paid over the next twelve months on their rent. For example, if total
repairs on a certain lot are $1,200, then you will add $100 per month to their
rent for the next year. Don’t expect to get this in writing, and don’t expect to
be able to collect it in court. If you try and get it all neatly signed up, it
will take months to accomplish just that step, if you can get it done at all.
Think of it this way – if you made the necessary repairs normally, it would cost
you 100% of the cost. Maybe you can get 50% of it back from the tenants. That’s
a lot better than the other option.
The expense you will incur is in one of
three categories.
-
The cost of repainting or touching up their home.
-
The cost of fixing or replacing their skirting
-
The cost of removing even more debris from their yard
Since you will probably have several of
each, you can get an attractive “volume” deal from a contractor. I have found
that you don’t want to put in a lot of effort in getting input from the tenants,
such as coordinating around their schedule. It is one of those times when “shoot
first, ask questions later” seems to be the best course of action. Have the
contractor speedily get everything done while the tenants are at work. And if
anyone complains, tell them that they have no right to say a word since they
never bothered to lift a finger on their own.
Once you have artificially jump-started
the pride of ownership in your property, keep the momentum going by sending a
thank-you letter to the tenants, and celebrate their additional work by having a
“yard of the month” program where the tenant wins a free gift. Stay vigilant so
that the property never falls back into disrepair.
You can have tenants who have a
pride of ownership. You just have to give them the first nudge. And then keep on
nudging them.
4-10-08
Terri,
Would you kindly mark my ad as SOLD! then remove it at your convenience after
4/15/08.
I settled on 4/2/2008!! Thanks again for your service…an amazing marketing tool!
Best regards,
Dan
4-2-08 (2 Hours After sending to our early access investor
list).
Hi Terri,
Thank you again as always! I have already had some of your investors calling.
Thanks,
Greg
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
Q&A with Dave
Question:
Dave,
What do you look
for when you are visiting a mobile home park to buy?
Thanks, James
S.
Answer:
James,
This is a great question and one
that is best answered in the form of a checklist.
Here is my basic checklist of things to look for:
-
Entrance - is it inviting?
-
Location - is it in a good neighborhood
-
Roads - how much work do they need
-
Size of the lots - how close are the homes to
each other and the property lines
-
Trees - they look nice but are expensive to trim
and remove
-
Vacant sites - are they ready for a home
-
Age, year, and condition of the homes
-
Adequate parking
- Is
the electric underground or overhead - age of
boxes - are homes underneath the power lines -
is it individually metered
- Is
there natural gas or propane - is it
individually metered -
-
Water and Sewer - are there any puddles in weird
places - is it submetered - do the vacant lots
have sewer caps
-
Recent excavating of underground utilities
-
Security lights - are there any - do they have
bulbs in them
- Do
any homes appear vacant
-
Dumpsters or individual trash pickup
-
Community or individual mailboxes
- Is
there a home or ancillary structure that can be
split off
- Are
there any apparent drainage problems
-
Does the park have nearby rivers or lakes that
may flood
- Any
gas stations or dry cleaners nearby
-
Does the park exhibit pride of ownership
- Any
code violations or other problems
This
list should get you started and I would always
suggest that it is better to walk around the park
rather than just drive through. Walk behind
the homes if possible because this is where most of
the problems are.
Hope this helps.
Dave
Question:
Dave,
I am a
partner in a mobile home park. When we
purchased the park two years ago, the former
owner retained nine homes in the park as
rentals. For the past two years he has
rented the homes out and paid us the lot
rent on the homes. About he year ago, he
out the nine homes up for sale as an
investment package and has been trying to
get us to purchase them.
Recently,
he has listed the vacant ones for sale
individually and is starting to get offers.
As of this morning, he has received an offer
to move one of the nice homes out and called
to give me a courtesy, last chance to buy
the package. I can get the package for
$50,000 from him. Most of the homes are in
pretty nice, one is a double wide, and a few
were manufactured in the 1990's.
I think I
can make money from selling these homes and
will certainly get rental income. What are
your thoughts? We need to buy this package
to protect the homes from being moved out.
The homes, with three vacancies, are
currently netting around $1500 per month
after expenses. Any advice for a young,
somewhat new park owner would be greatly
appreciated.
Thanks,
Craig
Answer:
Craig,
I would definitely make a deal with the former owner
to buy the homes. Hopefully he will sell them to
you and finance the balance. Either way, you don't
want to lose the homes from the park. Each occupied
lot that becomes vacant reduces your equity by
$10,000 or more in the park.
I would not worry too much about making a bunch of
money on selling the homes (just get your money back
plus a grand or two per home). The real value in
the park is in the lot rental income.
Thanks,
Dave
Question:
Hi, Dave,
How do you evaluate a lot
value currently occupied by a RV?
The lot is a good size MH lot and
say that RV has been there for a
couple of years. The fact is that I
try to figure out a reasonable offer
on a park which has several RV's in
it. Even though the owner charges
much higher lot rent on them, I
still hesitate to put a full valued
price (= lot rent *70) given their
higher mobility factor. Another
question derived from this same
concern is how the occupancy should
be calculated? Which number I should
use to count for the total number of
occupied lots, the total number of
MH's only or the total number of
MH's and RV's combined? Please
depuzzle me when you can, appreciate
that!
BTW, I fully enjoy listening to your
show with Frank. And I can not wait
to receive my Bundle material in the
mail next week!
NH
Answer:
NH,
This is a good question and you almost have to take
it on a case to case basis. I have been burned
valuing RV's on mobile home lots too high in the
past. It is very easy for them to move. However,
if the occupancy looks like it should continue well
into the future and there is a good history of
occupancy by the RV's there is value there.
Part of it will also depend on whether the RV
renters are there for a job or as a permanent
residence. If they are there for a job, then they
will be moving at some time in the future.
My normal valuation will be to take a cap rate of 1
to 2 points higher on RV income than mobile home
income. I also like to use an average occupancy
rather than what is there now. So, if there are 10
RV's there now but the average for the last 12
months is only 8 RV's, then I would base my
valuation on the 8 occupied.
Hope this helps and thanks again!
Dave
Question:
Dave:
I have a
question: I noticed when you value a
park you take the yearly gross
income, add any other misc. income
( utilities, rental storage,
laundromat ) etc. then
subtract for the vacancy
allowance to come up
with the effective gross
income.
Once you have
the effective gross income you
subtract the
expenses to come up with the
net operating income.
Then when you
have the net operating income you
multiply
that number by the cap rate to
determine a value of the park.
My question is I
don't see any place where you value
the extras
in the park valuation.(Extras I
mean the value of storm shelters,
snow removal and lawn care
equipment, storage sheds used
by the park, the value of the
empty lots etc.)
Thanks
Jerry
Answer:
Jerry,
Thanks for the question. It is a good one and I may
have some people out there
that disagree with my opinion. I do not place any
value on this extra
equipment, storage sheds, storm shelters, etc to
speak of.
While some of these items may be necessary to run
the property, they are not
what I would call income producing. An extreme
example of this would be
if the park has a beautiful home right in the middle
of it and there is no
way to separate the home out and sell it
separate. If that same home
would sell for $300,000 in a subdivision in
town, this does not mean that you
can put a value of $300,000 on it in the
middle of the park. You could put the
value of it in terms of the income (rental
income) it would generate but this would
not be equal to $300,000.
With that said, lets take a park that has all the
tools (tractors, mowers,
storage sheds, snow plows)
and compare it to the same park without all
this extra equipment.
Obviously the park is worth more with the extras
than without. What I do
when I value a park is also take into account the
capital expenditures that I
will have to make
right away. If I need to buy the extras and it will
cost $10K to do so, then I
will want that discounted off the price.
I had a partner once that was really into
construction and such and he found a park
that included a backhoe. Instead of looking
at the park and what it
could produce he was more
interested in the backhoe and how much fun
he could have with it. Not
a good business model.
So with all my rambling I do not necessarily place a
value on the extras but I
would discount the value
if the extras were absolutely necessary and I had
to buy them to
operate the park.
Thanks,
Dave
Mobile Home Park Bootcamp
"Immersion in Reality"
With Dave Reynolds & Frank
Rolfe June 20th, 21st, 22th, and bonus day going over RV
Parks and Campground Ownership on the
23rd.
Denver,
Colorado
Find out more about our upcoming Mobile Home Park
Bootcamp
Tell us what you think!
We'd love to hear what you think of this issue!
We need your articles and press releases - send
your articles to
dave@mhps.com to be included in
upcoming newsletters. Where else can you put your press releases
and articles in front of thousands of people for FREE!
Please send your comments, questions, articles, and
ideas for upcoming issues to us at:
dave@mhps.com
Your feedback matters to us!
Visit us at
www.mhps.com or
www.mhbay.com
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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