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This issue of the MobileHomeParkStore.com and MHBay.com
Newsletter includes:
-
Potential New Service
- Looking for Feedback
-
Taking Advantage of
the Greatest Buying Opportunity of Mobile Home Parks in Decades
-
Why Pretty Mobile Home Parks Often have Ugly Returns
-
Why the Mobile Home Business Works and
the Manufactured Home Business doesn't
-
Comments
-
Questions and Answers with Dave
-
Tell us what you think and send us your
articles!
Potential New Service from
MobileHomeParkStore.com
In the back of my mind I have
been contemplating a new service for out-of-state mobile home park
owners that may have a full-time job and don't have the time and
desire to visit their parks and do routine checks on management.
Also, the service would include such things as oversight of projects
and mobile home park turnarounds.
This service would be
performed by a select team of aggressive and experienced mobile home
park investors under the guidance of Dave Reynolds.
Here are a few potential
scenarios:
Park Owner needs someone to
find good used mobile homes to purchase, setup in the park, and
refurbish.
Park Owner wants a routine
check on the management - are things getting done - how does the
park look - enforcing collections - etc
Park Owner needs bids for
paving, tree work, removal of homes, or other similar projects
This would not be a property
management service but more of a project management and reporting
service.
We are looking for
feedback...
Is this something that would
be valuable to the out-of-state park owners?
Have you been considering
buying a park but have a full-time job and want to have this extra
level of detachment?
Send Dave an email at
dave@mhps.com with any comments
or thoughts.
How to take Advantage of
the Greatest Buying Opportunity in Mobile Home Parks in Decades
Warren Buffet once said of
Berkshire Hathaway “we only get greedy when others get fearful”.
That statement has never been more accurate in describing the
opportunities in the mobile home park business. We are approaching a
time in the industry when the owners of parks for sale are fearful,
and their fear is amplified by a struggling, nearly dead mobile home
retail industry and a sudden reversal of fortune in lending. It
appears to be the perfect storm for many owners. And that cyclical
train wreck is going to lead to some really great buys – if park
buyers are properly prepared to take advantage of this
once-in-a-lifetime buying opportunity.
The Causes
The mobile home industry had its “subprime meltdown” all the way
back in 2000. Just like today, lenders had been way too aggressive
in their lending standards – if they used any at all. Repossessions
went through the roof, and with every mobile home dragged to auction
came a new low in collateral value.
$35,000 homes were being sold
for $5,000 at auction.
In turn, this re-valuation of
collateral led to continually more homeowners walking off and
leaving their hugely overvalued mobile home. As the lenders put an
end to making loans on mobile homes, dealers found they could not
find any credit-worthy buyers to buy their inventory. If you had
bought one share of each of the publicly-traded manufacturers in
1999, you would seen the value of this portfolio fall by 90% in
2008. With dealers not selling any homes, the ability to fill mobile
home lots has become difficult. In addition, many park owners are
faced with the daily risk of losing more customer homes to
foreclosure.
The other fundamental of the
park business that has hit a brick wall is lending. A few years ago,
many banks were aggressively approving loans for parks to be
purchased. Unfortunately, several of these are no longer an active
player as they once were. Indeed, many of the hard-core lenders from
the last few years have virtually shut their doors to new loans.
Much of this was the result of
the extreme losses in lending that are occurring right now, although
interestingly, most of the mobile home park loans are doing fine.
Repossessions of mobile home parks are not very common. But the
lending industry has limited mobile home parks along with all forms
of real estate borrowing. As a result, if someone wants to buy a
park, they must have great credit and plenty of cash for a down
payment or the loan will never materialize. In addition, many park
lenders are being harder on occupancy, criteria, and location.
The Opportunities
With no dealers selling homes, and little lending for park
purchases, many park sellers are becoming truly desperate. Day after
day passes without any offers and, when they get one, the deal falls
through predictably during the financing contingency. Many sellers
do not know how to get their parks sold. And the panic feeds on
itself and on other similar parks. A lot of value is based on
perception – and many sellers perceive their parks to be nearly
valueless. Most notable are the parks that have less occupancy than
is required for a bank loan (say 60%), yet show reasonable positive
cash flow. Despite a lot of good, solid raw material, the seller may
perceive that the park will never find a buyer despite the low
asking price. And so the price just keeps dropping.
The key buying opportunities in parks today are:
-
Parks that have
just enough vacancy to be unable to get financing, yet can reach this
occupancy level (normally about 80%) with the addition of only a few homes.
-
Parks that have
sufficient occupancy, but have lousy financials due to mismanagement, and
costs that can be reduced.
-
Parks that can
attain an enormous rent boost upon closing without any changes in occupancy
to attain attractive numbers.
-
Parks that come
with additional real estate assets which can be subdivided and sold off, to
reduce the basis in the park.
These opportunities
allow a buyer to increase the park income almost immediately, and with little
risk. And they circumvent the weakness in the market (dealer
sales/occupancy/financing issues) and allow the buyer to obtain a winning deal
from the start.
Buyer Preparation
To be able to take advantage
of these opportunities, the buyer has to sharpen the weapons in his
arsenal. The first of these weapons is his knowledge of the
industry. The mobile home park business is extremely complicated.
There are over 30 different items that much be checked and confirmed
during due diligence, and some of these can cause you to lose your
entire investment. In addition, having the knowledge to build a
sample budget in line with industry standard cost ratios is
essential to success. And once a good deal has been bought, the
buyer must know the strategies to successfully manage the property
and maximize its profitability. To prepare these skills, there are
complete courses on mobile home park diligence and management
available, which are essential for the novice and even experienced
investor who is crossing over from another asset type.
The buyer must also have the
capital necessary to make the down payment on a deal, and afford the
additional capital expenditures necessary to put the park in good
working order. The time to line up this capital is before you begin
your search for parks, not after you have found one. Normally, parks
are sold with a 30 day due diligence and a 30 day financing period –
so there is really no time to raise capital after the property has
been tied up. Capital can be obtained from your own liquidity, or
family members or financial partners. Knowing the maximum amount of
capital available to you will help shape the size of deals you will
pursue.
Having a lender who knows and
trusts you is another essential ingredient. Often, particularly on
deals which have a blemish which you will resolve upon purchase,
having the trust of your banker is essential to getting the loan.
Another way to achieve a head start in banking is to consult with a
loan broker who has access to all of the current lenders on mobile
home parks. It is always a good idea to have current financial
statements on hand, and a resume on real estate experience.
Conclusion
Not since the Savings & Loan crisis of the 1980’s have so many great
deals on mobile home parks been available. Since these cycles only
come every couple of decades, this is one opportunity that may not
come again in your lifetime. So it is important to “carpe diem” –
“seize the day”.
If you take the necessary steps to succeed, you may find yourself
owning a profitable mobile home park in the near future.
Why Pretty Mobile Home Parks
often have Ugly Returns
Some mobile home park buyers have this erroneous idea that the goal
is to buy a great looking asset. They even rate the parks they look
at based on physical appearance. The star system is a good example.
Most people think a five-star park is always superior to a one star
park. However, the only real star system they should consider is
which park is a superstar on cash flow. Because at the end of the
day, all that really matters when you own a mobile home park is
making money. Parks that make money are great, no matter how ugly
they are, and parks that lose money are dogs, despite how cute their
entry may be. And, as a general rule, the prettier the park, the
uglier the cash flow.
So
why do pretty parks often not make money?
-
They cost too
much to buy. Pretty parks sell at the lowest cap rates.
Normally one digit, and a low one digit at that. 5% , 6% and 7%
cap rates are great for sellers, but can be complete failures
for buyers. It is quite difficult to make any money buying parks
at 6% returns.
-
They are
normally at full market rent, so you have no room to push rents.
Pretty parks normally have lot rents that are at the top of the
market. So the best a buyer can hope for is to gradually nudge
the rents up a tiny bit each year or so.
-
They are
normally fully occupied, so you have no occupancy upside.
Tenants are drawn to the park’s aesthetics, and the vacancy
factor is normally 5% or less. So there is no way to
significantly increase operating income through filling lots.
-
They cost too
much to maintain. The landscaping alone on one of these
parks is higher than a one star park may spend on total
management. It requires a constant outlay of cash to keep a park
to the highest standard. When you feel you must re-pave instead
of patch roads, and plant seasonal color at your entry, you are
going down the path to lower margins.
-
They have
plenty of amenities, and they all cost money to run. Pools,
clubhouses, jogging tracks, playgrounds – they all sound great,
but cost a lot to maintain and insure. While they are staples of
five-star parks, they are causes of poor cash flow.
Are
all pretty parks bad? No, not if you bought them cheaply twenty
years ago. The only guy getting rich off these parks today are
the current sellers. As for the buyers, that’s a lot of work for a
CD style yield. Personally, I’d rather buy a down and dirty, ugly
park that makes real money. But I wouldn’t want to live in one!
Why
the Mobile Home Business works and the Manufactured Home Business doesn't.
By Frank Rolfe
When I got in
the mobile home park business, many of the sellers I bought from called the
mobile homes “coaches” and “trailers”. Roger Miller even wrote a hit song with
the lyrics “trailers for sale or rent”. But manufacturers and dealers thought
the business needed an upgrade, so they changed the name to “mobile home”. Of
course, the name was misleading, because mobile homes are far from mobile. Some
can’t survive any movement at all, and moving one can cost $3,000 or more. And I
guess they stuck the word “home” on there to make it sound
reassuring or folksy
(as opposed to saying “mobile unit”), or to give you greater direction on what
you were supposed to do with the thing. But I embraced the new moniker, and so
did everybody else.
The mobile home is a fine symbol of
affordable housing. It represents the collective efforts of manufacturers and
the government to build the cheapest detached housing unit in the world.
Although it is not always appealing to the eye, and has been a notorious
incubator for some of the wildest living conditions in mankind, it is cheap.
Sometimes, real cheap. I have seen used mobile homes sell for $1,000 – that’s 94
cents per square foot. That’s about 100 times cheaper than a comparable
stick-built house.
Mobile homes were inhabited by people who
didn’t earn much – but they were at least inhabited. Nobody expected much
besides four walls and a roof, and they were seldom disappointed. If you didn’t
have much money, you always felt safe that there would be a mobile home in a
park to fit any budget.
But then in the 1990s they decided to
re-invent the industry again, this time under the moniker “manufactured home”.
Out with the concept of “mobile” and in with the concept of building a thing in
a factory. First off, I’m not so sure that you want to beat the customer over
the head with the idea that their housing unit was built in a factory. That’s
not exactly a crowd-pleaser or reason to boast at a cocktail party “my house was
built just like my car”. Most things built in a factory are impersonal, cheaply
made and often prone to breaking. Wait a minute – maybe that is a pretty
accurate impression.
With the new “classy” name came new pricing
for the homes – about two to three times what mobile homes cost. But they still
sold O.K. due to impossibly low standards by lenders such as Greentree.
Suddenly, mobile homes that cost $10,000 now cost $40,000 as manufactured homes.
And therein lies the problem.
Manufactured housing has lost its roots as
affordable housing. Now it wants to pretend that it is something more than it is
– and make the consumer join in the fun. I think the American public has voted
with its pocketbook. Sales of manufactured homes have fallen about 75% since
2000. The sad truth is that nobody wants an expensive manufactured home. They
want cheap mobile homes.
There is talk that the industry wants to
change the name again. Perhaps “executive mansions on the go” is on the table. I
would urge the industry, instead, to go back to the “mobile home business”.
Everyone knew what it meant – affordable housing – and they could afford it.
Homes sold briskly and parks were full. That demand has not gone anywhere, but
nobody can afford, or wants to buy, affordable housing for $40,000. Instead of
straining to find out how to build and sell the most expensive manufactured
home, let’s refocus the industry on how to build the least expensive. I
know it’s not as profitable, but you can make it up in volume.
“Coaches”, “trailers” and “mobile homes”
are where the demand is. “Manufactured homes”? Nobody’s interested. And forget
any new names – you’ve already embarrassed yourselves enough.
Comments
from our Customers!
6-26-08
Diane,
The site performed well, I think it at least was on par if not a higher lead
generator than loopnet.
James Cook
Westfield Realty Group
6-20-08
What a great site you
have. You could charge just to be able to access this site and read all the free
information.
We are looking to buy parks in the Florida, and possibly, the Southwest areas
and your site is what we needed to learn what works, what does not work and most
everything else in between.
Thank you,
William
6-18-08
PLEASE REMOVE THIS AD, THE PROPERTY HAS BEEN SOLD, THANKS
FOR YOUR HELP, WILL USE YOUR SERVICE AGAIN IF NEEDED.
HENRY
6-13-08
This has turned into a bidding war already. Thanks for
everything. You guys are the single best resource for this
entire industry.
Best regards,
JP
6-13-08
Need to delete park I have listed in Fayetteville, NC.
Listing has expired.
Have had plenty of contacts, so I appreciate what you've
sent. Failure to sell has not been due to lack of
visibility.
Bill Stokes
If you need Real Estate Assistance in North Carolina Call:
Bill Stokes
Franklin Johnson Commercial Real Estate
231 Fairway Dr.
Fayetteville, NC 28305
Office: 910-864-2626
Fax: 910-221-4500
Mobile: 919-451-2249
EM: stokescbc@aol.com
6-9-08
Park was sold for full listing price. Closed today. Source
of buyer was MobileHomeParkStore.com
R. Jones
5-31-08
SOLD !!! PARK IN 4 WEEKS...PLEASE REMOVE THIS
ADD......THANKS ALOT, YOU GUYS ARE GREAT... BEST REGARDS,
CARL
5-30-08
We sold our park b/c of mobile home park store.
Thank you!
Karen P.
Missouri
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:
Hello Dave,
I have been interested in investing in mobiles for years
now, but still have not purchased anything. I've read
the Deals on Wheels material and more recently your four
book set. I would like to apply your strategies to
properties within a 50 mile radius of my home, but
here's what I'm up against. I live in
an area (location removed) where most of the
mobiles are weekly or monthly rentals. I haven't really
heard of any that operate simply off of lot rent. So
when they value the property, they base the ROI on the
monthly rent of the homes which jacks the price of the
property way up. I would like to purchase several
smaller properties (3 to 6 or so homes each), but even
the price on these is what you might buy a park with 40
to 50 lots for. I see how the homes would cost too much
to make any money off of due to constant repairs, so I
really just want to purchase the land. Do you have any
advice on how to approach sellers like this in a way
that would encourage them to sell at a price that could
be supported by lot rent alone?
One example is a very clean property with a nice pasture
view and 3 1996 single wide trailers. It has 2 to 3
acres. The asking price is $135,000. If you had them all
rented at about $500 each, they would barely make the
payments if you could even find a loan on this deal.
They even advertise it below market value. I'm thinking,
for this nice piece of land, I'd give about $80,000.
Even at that with lot rent at $250, it would probably
not yield much of a profit. What's your opinion?
Thanks for you help!
Chad
Answer:
Chad,
I agree that that market is tough and when you are
targeting these smaller parks you are up against
most owners that have the homes and land.
My suggestion is to keep looking and if you are
looking to buy a lot rent only park or convert to
this I believe you can expand the target market.
Management is not too intensive on mobile home parks
and if you just have someone that is getting a
discount and looking after emergencies you can
expand.
As far as approaching the sellers, you need to make
it clear that you will not be able to get a loan on
a park where the price is supported by income from
mobile homes. Banks and appraisers will not give you
the valuation and funding needed. Also, if they are
proud of the homes, offer to buy just the land for a
fraction of the price and let them keep the rental
income. Most of the time they won't go for this and
you are looking for the times when they either
consider it or realize they can't sell unless they
get reasonable.
Also, you can approach the sellers with the
following scenario:
The lots are worth X dollars.
The homes are worth $10,000 dollars because... I can
go down the street and buy similar homes from so and
so and the cost will be $8,000. Add the moving and
setup costs and the total cost would be $10,000.
You are wanting $20,000 per home and I can buy the
same home setup and ready to go for $10,000.
Stress the financing and this scenario and you will
be able to sift through the real sellers quickly.
Also make sure not to buy into parks and place a
high value on vacant lots.
On the 3 lot deal, I would estimate the value of the
lots to be about $50K and the homes at $10K each. So
$80K seems in line. $135K is too much.
Hope this helps and let me know if you have any
other questions.
Dave
Question:
Hi Dave,
We've just purchased a bunch of your e-books
- Love them by the way...
Because you've done a lot of deals in Texas - and you
mention 2 hurricanes that damaged your San Antonio parks -
can you tell us those areas so that we can avoid
looking for a park there?
Also, If there's certain counties or areas to avoid
(difficult to work with, taxes, natural
disasters, the people) or
not in Texas we would appreciate any insight you can offer.
It's our first time looking for a park to buy and Texas is
on our target list and we want to
get as much insight as we can.
Appreciate your response and time.
Thank you,
Brenda
Answer:
Brenda,
I am glad you are enjoying the books. The parks we
had problems with in TX were in
Hondo, TX - Tornado
Nederland, TX - Hurricane
San Antonio - Flood
I wouldn't avoid those areas just because of that as
there is always a chance wherever you are that a
disaster can strike. The key is watch out for the
ones in which you can avoid - for example, we
couldn't predict the tornado, but the hurricane can
happen on the coast and the flood can happen when
you buy in a flood plain.
I will buy almost any deal if the numbers work and
there are not other problems. I am not keen on the
coastlines though.
Hope this helps.
Dave
Question:
Hi Dave,
I own a 4 unit mobile home park in Texas that,
despite making every
possible mistake, makes good money. I'm working
my way through the CD's
and planning big changes! At the very
least, I can reduce my risks and
stabilize my cash flow.
Clearly both you and Frank are leveraging a lot.
Why? Does it reduce
risk to keep a park under a note, preferably
from the seller? Is it
better to pay the interest on a loan and reduce
your risk or own a park
outright? Is it just so you can do more
and bigger deals? Why
are you choosing debt
over cash? Don't pick up the phone and call me;
I don't have
enough money to buy a park outright... yet!
How are you handling the current market?
How much competition is there for these Mom and
Pop parks with lower than
market rents?
It sounds like Frank holds onto his parks for
cash flow more than you do -
true? I'm thinking of having 2 parks at
any given time - one for cash
flow and one to flip to increase capital.
Does this make sense? How do
you handle cash flow vs capital
gains?
The CD's are full of gems of information! Thank
you! I listened to the
"Due Diligence" CD last night.
Thank you,
Margie
Answer:
Margie,
The main reason that I leverage is so that I can buy
more parks. I would rather
have $100K in 5 deals than $500K in 1 deal. It
reduces risk and also
allows to have a higher cash on cash return.
For example $100 K down will usually net me $20K per
year. If I put $500K down
I would estimate I would only generate about $75K
per year.
As far as the current market, I am comfortable with
it and actually am buying several
more parks. I am doing so cautiously and I am
seeing better deals of late.
As far as Mom & Pop parks with low rent, the
competition is tight. If you find one of
these jump on it quickly. I am always looking
for these type of deals.
I think your idea of buying
2 parks and hold one and sell the other to generate
profits is a good idea. I
do this as well but usually hold 4 or 5 and am
looking to flip another 2
or 3 at any given time.
Thanks for the comments on the CD's.
Dave
Question:
Hi Dave,
Would you take a MHP which is in a 100/500 year flood zone
if the deal is great in number? I was told the park has been
flooded for several times but never got into a very serious
situation for the past decades. How much price discount in
cap rate increase you would apply in order to offset this
flood plain drawback?
Thanks a lot for your time in advance!
Best,
Nicole
Answer:
Nicole,
I have purchased several in the 100/500 year flood
zone. However, I always check on the recent flooding
and consider the area. For example, in Kansas or
Nebraska I am less concerned of floods because there
are very few big rivers.
However, in states that are notorious for big rivers
and heavy ongoing rain I usually avoid these.
It is a tough call but I would look at it. The
discount could be very little to several hundred
thousand. These are generalities but since I don't
know the city of the park I can't be more specific.
Thanks,
Dave
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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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