February 2007

This issue of the MobileHomeParkStore.com and MHBay.com Newsletter includes: 

1. Important updates, news, and new features of MobileHomeParkStore.com and MHBay.com
2. Questions and Answers with Dave
3. Ebook: Mobile Home Park Investing
4. Will Your Next Purchase Contract Be Set Up to Succeed?, by Dean Thompson, KC Capital
5. Tell us what you think and send us your articles!

In the past 30 days, there have been over:78 new mobile home parks listed for sale on MobileHomeParkStore.com and at least 24 confirmed sales.  I even sold one of my own parks from a lead from the site within 40 days. Heres what George had to say:

2-10-2007

Hi Dave,

Could you please take the listing off the site? We have had quite a few interests in the park and it will be sold to one of those.

Thank you,

George R. 

Selling your Mobile Home Park:

How would you like to try selling your mobile home park on our site for FREE for 15 days?  No further obligation or strings attached!

Find out more here about this special offer!

Are you seeking employment or are you searching for employees for your community?

We have an employment section for this purpose and all listings are FREE! 

Find out more about the Mobile Home Park Employment Section Here!

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 DaveQuestion: Dave, just read your ebook and found it to be very well done. My question is in regards to depreciating parks on a 15 year schedule instead of the 27.5 I'm using. Can I really do it? Can you point me to other sources of material that support your statement? Can I begin using a 15 schedule on property that been on the 27.5 schedule?  Thanks, Gary Answer: Gary, Thanks for the comments on the book and I am glad you found it useful. Here is a link to publication 946 from the IRS - go to page 31 to the section on 15 year property or page 95 to the section on Land Improvements.  This is where I get my basis for depreciating water, sewer, electric and gas lines over 15 years.  Also, roads, sidewalks, fences & shrubs. http://www.irs.gov/pub/irs-pdf/p946.pdf?legacy=1 As far as your other question, go to page 13 of this same publication and you will find the answers. Dave

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Question: Hi Dave, This is S. Gill. Thanks a lot for answering my questions to buy a mobile home park. I am looking each and every day for a good park. Please answer my following questions: --All parks I like have septic and well. Very few parks have city water and sewerage - How risky is to buy a park with septic and well. --One park I liked has 2 large septic tanks and the park has 53 spaces. The  park is built in 1960 and the septic is never upgraded. Please tell me if it is worth to buy this park. --What to look in a park with septic and well and how long they last. --How expensive is to fix a septic and well if it fails. --Do you think it is good to just ignore the park if it is old and has septic and well that have never been updated as it could  be impending big expense for a person like me who has no experience. Thanks, S. Gill Answer: In most cases it is more risky to buy a mobile home park or any real estate investment where the only means of water and city is in the form of well, septic, or private sewer system.  However, this risk can be mitigated if there are city utilities nearby and it is cost effective to hook up to them. If there are not city services available then you MUST hire experts to thoroughly check out the existing systems as well as review reports and violations with these systems.  It may be that everything is operating as expected currently and may continue to operate well for several years.  I have owned many parks that had private utilities without too many problems.  The park that I did get burned on with a private sewer system was one in which I did not do my homework/due diligence like I should have. So, if the inspections reveal that everything is working as it should you still need to consider that the time may come in the future that you will have to drill new wells, replace septics and drainfields, or replace park owned sewer plants.  Before purchasing the property it would be advisable to look at these potential future costs and whether or not they will be feasible.  For example, if the park is on septics and drainfields and the drainfields go bad, is there adequate room on the property to add new drainfields and how far will the sewer lines have to be extended to reach these new drainfields. It is still common for many parks to have one or two lots per septic tank and drainfield and assuming you can get permits and there is is room to replace these drainfields, this can just be considered a normal cost($3 - 7K per system).  However, as in your question where there are 2 septics and drainfields to service 53 spaces, the cost to replace/repair this problem may in the several tens of thousands of dollars, once again, assuming there is adequate room to do so. It is usually better to purchase a mobile home park that has public utilities but I would not ignore parks that do not have them.  You will just have to perform the proper due diligence and include any potential risks in your negotiations. Thanks, Dave

Mobile Home Park Investing E-book!

Written by Dave Reynolds, MobileHomeParkStore.com, LLC December 21, 2006

Available for Instant Download!

• How I Started in the Mobile Home Park Business with Credit Cards
• Why you should invest in Mobile Home Parks
• Over 15 strategies to find Mobile Home Parks to Purchase
• Valuation of Mobile Home Parks (with or without park owned homes)
• A list of over 50 Due Diligence items
• Powerful ways to Increase the Value of your Mobile Home Park
• Financing, Insurance, Management, and much more!

Find out more about the Mobile Home Park Investing E-book!

1-24-7007

Hi Terri,

Thanks again for your time.

By the way, I really liked Dave's ebook, wish I would have had it before purchasing one of my parks. Sincerely, Michael R

Will Your Next Purchase Contract Be Set Up to Succeed?

By Dean Thompson, Sr. Commercial Loan Specialist, KC Capital

Timelines Involving Financing — Pitfalls to avoid and steps to a smoother transaction. Why are so many purchase contracts for income-producing properties set up to create timing anxiety, which ultimately risks a failed transaction?    I have seen both seasoned professionals and first-time investors unknowingly create conflicting deadlines in regards to key contract dates involving a Financing Contingency.  When deadlines conflict, the entire process of purchasing a property can become overly stressful and costly for all parties involved, including negotiating for an extension or possibly losing earnest money, third party costs, or even legal ramification for breach of contract.  This often leads to a “blame game” of sorts as to who is responsible for delays or failures. With that in mind, have you ever had a contract that required an extension?  Could it have been prevented?  To find the answer, it helps for the buyer, seller, agents, and lender to consider all of the steps being exercised in a contract, before outlining the deadlines.  Here are some common ones that most transactions have: 

• seller provides full property operating data
• buyer site inspection
• title research and commitment
• loan application submission
• lender initial review
• issuance of a ‘conditional pre approval’
• buyer submits funds for third party costs
• ordering third party reports
• completing third party reports
• securing insurance coverage
• submit loan application support documentation

After these steps comes: 

• final underwriting
• issuance of final approval
• meeting final conditions for closing
• drafting closing documents
• actually setting appointments to sign and return documents for funding

Knowing that all of these steps are taking place and that they each have timelines attached to them, buyers, sellers, and agents should ask themselves: do the contract timelines properly reflect procedures that all parties can realistically complete in the time allotted? Case Study:  John’s Story John’s purchase contract is written for 60 days.  Within the contract, he is given 15 days for due diligence (his site inspection, gathering operating data, etc.).  He then plans to apply for a loan in the week following receipt of his due diligence items, as he does not want to go through loan expenses if his due diligence reveals unwanted property issues.   As a part of the contract, he has negotiated with the seller to have the Financing Contingency expire 45 days after the contract’s start date. This deal is almost sure to need an extension, or at the very least, present a very stressful 60 days for John.  Why? First, as his timetable suggests, John will actually submit full application for his financing as far as 20-25 days into the contract.  However, if he does apply this far in, only 35 days remain in the contract for closing and funding. In a commercial transaction involving financing, does 35 days realistically allow enough time for the steps listed above to be completed?   Do a quick exercise and review the items remaining on the lists above by adding timetables for each to be completed, and calculate how many days you think John may actually need to complete this transaction. Most commercial loan transactions typically take 45-55 days from start to finish.  With this in mind, John’s contract expires 10 - 20 days prior to completion of his financing, and his Financing Contingency expires 20 to 25 days after he first submits his loan application.  In addition, these timing issues will surely be compounded with unforeseen delays common to commercial transactions, for such things as insurance underwriting, completing title work, etc.... This scenario is easy to avoid, but takes place all the time. First Steps to Cohesive, Smooth Transactions 

1. Talk to a mortgage banker/lender to determine some typical loan application timelines for the property type, size, location, and loan terms you are seeking.
2. Before signing the contract, create a side-by-side timeline showing both contract and financing deadlines clearly labeled, and see how they match up.  (Start the financing timeline on the date that the full initial application is delivered to the lender with the expense deposit and/or application fees.)  Also, did you remember to allow for an unforeseen events, holidays, etc...
3. Deadlines for financing and closing should always take into account the buyer’s actual receipt of property information for either due diligence or the loan application.  In an example where the typical loan application timeline is 45-55 days, set the contracts expiration date for 60 days following receipt of full and proper operating data from the seller.  Truly, there is no reason to begin a financing contingency without the property data, because it is required for both the loan underwriting and the appraiser.  So, if the contract is signed on the 1st, and the seller takes 11 days to provide the requested property data (i.e. rent roll, operating statement, copies of leases), the contract timing, in essence, begins on the 12th day.
4. Sometimes, updated property data is needed throughout the loan process; for example, a rent roll that may have become outdated.  Sellers can prevent delays in financing by being aware of this upfront and preparing to update and turn over any information immediately upon request.

Remember, a commercial mortgage for investment property will many times place larger emphasis on the property for financing approval than the buyer(s).  When the dead lines within a contract do not allow enough time for this data to be collected, delivered, and reviewed, the door is open to a failed or delayed purchase, along with possible costly monetary losses or legal issues. Avoid these pitfalls by understanding how the loan process contract deadlines can work together, and you will set the stage for a smoother transaction.   Contact Dean at (512) 901-9110 or dthompson@kccapital.com