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How To Get Zero Down Financing On A Mobile Home Park
With single-family homes, a legitimate zero down deal is about
as likely as sleet in San Diego. However, with mobile home
parks, they are as common as rain. of the 25 mobile home parks
I've bought, about five of them - or 20% were zero down.
So how do you get a zero down mobile home park deal?
Just watch the listings
Many mobile home parks are listed for sale with seller carry at
low amounts down. A 5% or 10% down payment can easily be
converted to 0% with a little negotiating. You'll find many such
listings on the large internet park listing services, such as
Mobilehomeparkstore.com.
The most common negotiating strategy is to identify capital
improvements that would cost as much as the proposed down
payment, and then tell the seller that you need to reserve the
down payment money to make those repairs. After closing, you
either skip the repairs, or find a lower cost alternative.
Wrap the existing note
It is often possible to wrap an existing mortgage when buying a
mobile home park. What this means is that you do not have to get
a new loan, and the seller subordinates his note to the existing
first. Here's an example. A seller has a mortgage of $400,000,
and he wants to sell his mobile home park for $500,000. Rather
than put up a $100,000 down payment and obtain a new loan, you
assume the loan of $400,000, and place a second of $100,000 in
favor of the seller. You do not put anything down.
Why would a seller do this? Often, it's for speed. It takes a
long time to get a new mortgage on a mobile home park. Many
times a seller, especially someone who does not have a very
large profit coming their way, are interested in getting the
park into someone else's hands as quickly as possible, and move
on to the next deal.
Lease/purchase the park
This is another fairly common construction on purchasing a
mobile home park for zero down. Instead of an outright purchase,
you lease the park at a set monthly amount, with the option to
buy it at a pre-set price in the future. This allows you to make
the necessary changes to increase the net income prior to
closing.
This construction is especially attractive on parks that are not
making sufficient net income to support a mortgage of the amount
necessary to buy it.
Conclusion
Zero down deals are still alive and well in mobile home parks.
They don't require that you buy bad properties or deals with no
income or some other difficult blemish. They are just a standard
construction of the affordable housing industry. |
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How To Retire On Just One Mobile Home Park
Most mobile home park owners tend to amass a portfolio of several parks, simply
because, after acquiring the skill sets, it seems wasteful not to buy "just one
more". But, in reality, they only need to buy one mobile home park to be set for
life. How can this be?
There are several reasons.
Sufficient scale.
A mobile home park is a mass of different income units. Because of this volume,
small improvements in revenue or expenses on just one lot are multiplied by the
sheer volume of lots. For example, a small $20 lot rent increase in a 100 space
mobile home park yields a cash flow improvement of $2,000 per month.
In a single family home, or a duplex or four-plex, by comparison, a $20 rent
increase yields under $100 per month in cash flow.
Opportunity for massive improvements in income.
Many mobile home park sellers are moms and pops with little professional
management experience. As a result, there is room for incredible improvement in
their operating numbers. Let's just look at three areas that they normally
struggle with.
The first is the level of lot rent. Many owners that have had the park for a
long time are enormously under-market in their lot rent. If the market rent is
$300 per month, and they are charging $150 per month, then there is $150 per
month upside. Why would they be so low? What normally happens is that they
become too friendly with their tenants, and refuse to raise it out of fear of
making "enemies". Another common reason is that they simply don't follow the
market or do any research on the lot rent level of their competitors.
The second is the water and sewer expense line item. Many have a leaking system
with many abusers that spike the cost up to ridiculous proportions. These issues
can be fixed quickly, and the water and sewer cost shifted over to the
residents. Since water and sewer is normally 10% of total revenue in a mobile
home park, this benefit is enormous.
The third area is management cost. We've seen parks that have a $50,000 per year
manager on a 50 space park. How can they be so wasteful? Normally, just like the
rent level, they got too friendly with the manager and kept giving them annual
raises even when the total compensation was far above the norm. In some cases,
the manager is a family member. What's the world record? We've seen $100,000
management packages at parks before. Think you can cut that down?
No future obsolescence.
The nice thing about mobile home parks is that they are incredibly low-tech.
There is no great invention coming down the pike to derail them. If you owned a
record store in 1960, and thought you could retire on it, you'd have been
mistaken when they brought out the CD, internet and ipod. But there is nothing
that can alter the need for affordable housing. And the market just keeps
getting larger as America gets poorer.
In addition, since you only own the land in a mobile home park, you do not have
to worry about saving for building upgrades like replacing roofs or siding.
There are few big capital hits you have to save for (or borrow for).
Some practical examples.
If you bought an average 50 space park for $500,000, with $100,000 down, here's
what you could expect to do with it after closing.
You might raise the rent $40 per month, for a net gain of $24,000 in cash flow.
Then you might submeter the water and bill it back to the tenants, for a savings
of another $24,000 per year. And then you might fire the manager and hire a less
costly option, for another savings of $10,000 per year. So, in a nutshell,
you've increased the cash flow after debt payment by almost $60,000 per year.
That's how much you could put in your pocket. And none of these steps required
any time, effort or risk on your part. And they did not require any large
capital expenditures.
So you'd have $60,000 per year in cash flow from the park, while it is still
servicing its debt. And after it's paid off, you'd have over $100,000 of cash
flow. All from an investment of $100,000 in the form of the down payment.
Now do you see what we're talking about?
Conclusion.
You truly can retire on just one mobile home park. No other form of real estate
investment can make that claim (or at least support it). Mobile home parks
produce more investment wealth than any other option.
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How To Dispose of Ancillary Assets to a Mobile Home Park
Mobile home parks sometimes come with the strangest assets. I have wound up as
the owner of everything ranging from used car lots to commercial laundries, and
from apartments to single-family homes. How does this happen? Since most mobile
home parks are fairly old, the original owner sometimes had additional
businesses for rental properties that he owned in his heyday. And when you buy
the park, you get the whole works.
What is the asset worth?
The first question to ask is "what is this asset worth, if separated from the
park?" This is often a tricky question, because the proximity to the park can be
extremely damaging to values, particularly with single-family homes. Nobody
really wants to live next door to a mobile home park. I generally use a rule of
50% of market value for a property not adjacent to a mobile home park.
Commercial properties, however, do not seem to suffer from the same stigma. I
have normally received a price commensurate with properties that have no
geographic location near to a mobile home park.
What is the economic impact of selling the asset as opposed to renting it?
The answer to this question almost always points to selling the asset. To truly
analyze the income from renting, it is important to include all the costs
associated with owning the asset, which includes repair & maintenance, property
tax, insurance and, of course, operating costs. I once had a used car lot that
was using as much in repair and maintenance as the gross rent. Much of that cost
was buried in the mobile home park pro-forma, but it was really the used car
lot's problem.
Can you obtain a partial release from the lender?
Even if it is to your advantage to sell the asset, you will not be able to
convey title unless the lender is willing to give a partial release of this
portion of the property. And the time to ask is now, not once you have begun the
process to separate it. In most cases, the lender is often happy to release the
portion for the proceeds - it is normally hard to have the lender accept
anything less than 100% of the amount you receive.
Begin the process of subdividing the property
If you have permission from the bank, then it is time to begin the process or
separating the asset from the park. This step is generally called "subdividing
the property" - making it into two separate pieces. This will require city
approval, and you will have to have a survey done of the area to be carved out,
as well as go before the planning and zoning commission and often the city
council.
You may also have to work out such issues as ingress and egress, especially if
you will have to share a common entrance and road with the park.
List the asset for sale
In most cases, utilizing a specialist broker to list and sell your asset is
money well spent. Sure, you can put up your own sign - but do you really have
the qualifications to negotiate price or speak with buyers such a specialized
item in a market you don't know that well. When I went to sell the 8-plex
apartment complex that came with a park in Shreveport, I enlisted the aid of a
real estate broker that specialized in multi-family in Shreveport. As a result,
I found a buyer quickly and at a much higher price than I could have ever
obtained.
Close on the sale
When you get offers, remember that you are selling an asset that is next to a
mobile home park. It is not a time to get proud and have visions of grandeur.
Take the first reasonable offer and run with it. Since the offers and interest
tends to want after the initial listing of the asset on the market, it is
important to treat every offer seriously.
Conclusion
Trimming off and selling all non-mobile home park assets is just good business.
If you follow this road map, you should have no problem in maximizing your
park's value through converting such assets to cash.
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