May 2007
Newsletter
This issue of the MobileHomeParkStore.com and MHBay.com Newsletter includes:
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| 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 us 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! |
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 DaveQuestions: 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? Ray G 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 If you have received this mailing in error, or if you no longer wish to receive e-mail from us, please send an e-mail with "unsubscribe" in the subject line to dave@mhps.com You will be automatically excluded from any future mailings, including our Newsletter. If you would prefer to unsubscribe via postal mail, please contact us at: MobileHomeParkStore.com 18923 Hwy 65 (PO Box 457) Cedaredge, CO 81413 |