November 2009
Newsletter
This issue of the MobileHomeParkStore.com and MHBay.com Newsletter includes:
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Our Newest Service - Mobile Homes for Park Owners. We have spent the last year working on this service. We have negotiated the absolute lowest prices on homes from reputable manufacturers nationwide. These are brand new homes for the same price or less than repo homes. Stop wasting time and money rehabbing older homes. Update the look of your park with homes residents can afford. |
How to Turn around a Mobile Home Park When you buy a Mobile Home Park that needs to be turned around (and most parks need some type of turnaround), the first thing you need to do is disengage the prior ownership/management. Face it, if the park is not running like it should be, you will most likely want to start over with a new management team. Even though the prior owner is usually to blame for the poor operations of the park, it is difficult to keep the prior managers that have been trained poorly or incorrectly. So, in most cases, fire everyone and start over. There are always exceptions to the rule, but they are few and far between. I have found that it is easier to train a new manager than to retrain the existing one. However, when you are firing or not hiring people, you want to stay on good terms with them. Don't tell the owner that he is clueless or the manager that you are not hiring them because they are incompetent. Keep everyone on good terms because you may need to call on these people later to help with issues that may arise such as locating sewer cleanouts or water turnoffs, who to call for a certain problem or issue, tricks on how to get the lift station pump back on, tenant histories, etc. If you completely alienate these people, they will not be willing to answer simple questions down the road that can save you or your new manager time and money. Also, either before or after the transition to new management, you need to collect as much information as you can. One important piece of information to find out is a list of who has helped out with the repairs and maintenance of the park in the past. This can be the guy that is 70 years old and has puttered around the park for 30 years doing odd jobs, to the previous owner down the street that built the park and knows it inside and out, to the plumbers and electricians that have worked in the park since its inception. Many of these old-timers have great memories and will be able to help you solve problems as they arise. You can never have too many people on your team that may have advice as you go to turning around and operating a mobile home park. Once you get as much information as possible, you need to develop a turnaround plan. This turnaround plan will begin during your due diligence and then be updated once you take over and then many times after that. The important thing is to write it down and use it as a reference. The key in devising your plan on turnaround projects is to come up with a specific written plan and then execute it in small steps. Don't try to take on too much at one time. For example, patch the roads now to save some money and then after you have the increased occupancy, and have higher rents and lower expenses and more equity, then just before you are ready to sell or refinance, put your asphalt overlay in then. Don't go out and buy 25 homes that need complete rehab. Instead buy a good variety of homes in smaller chunks and then as they are rented or sold then buy some more. You will soon learn whether your demand is for the 2005 16' x 80' three bedrooms you can sell for $20,000 or the 1980 14' x 70' two bedroom homes that you can sell for $5,000. Once you know what the demand is for then you should go about filling that demand rather than just making a guess at it. This turnaround plan will include such things as: General Cleanup of the Park: The goal here is to have the residents see that we care about the park and that we will do our part and clean up the common areas, keep the grass mowed, haul out the piles of trash scattered around in hopes of having the residents start to take pride of ownership of their own homes and lots. The first cleanup of the park is usually on us and we will do a thorough once over cleanup of the park that will include bringing in dumpsters for not only the common areas but also for the residents to use to get rid of the junk in their yards. We stress to them that this is there one time to straighten up and clean up for free. Because the next time, it will be on their dime. If they don't mow their grass or pick up the trash in their yard then we will do it for a fee and these extra fees will be either an additional profit center or a tool to motivate the residents. We will also work with the residents on a case-by-case basis to help them buy paint, skirting, steps and other similar items that they can't afford to pay for in one big lump sum but can pay an extra $30 per month for if we buy it and make sure it is installed properly. This system of loaning the residents money is usually only for them to do improvements to the outside of their homes and not the inside. The things that we see or that our bankers and future buyers will see. The typical scenario for us is to have an initial cleanup weekend or weekends until we are satisfied that the biggest part of the work is done. This is the only time that our residents can dispose of appliances and couches for free. Infrastructure Items: What needs to be fixed immediately? You want to prioritize this list as the costs can be huge. For example, water that is leaking everywhere that the park owner is paying for is much more important to fix than some potholes here and there. You will look at things such as water lines, sewer lines, electrical services, gas services, roads, trees, other park structures, etc and then do an inspection of each. You will make a list of each item and then decide what needs to be fixed now, next year, in five years, and so on. If the sewer line backs up 5 or 6 times a year and it costs $300 per time to roto rooter, then that needs to be weighed against the cost of replacing the sewer lines. I would much rather spend about $1,500 per year unclogging lines than spend $150,000 up front running new sewer lines. The items that usually require immediate attention are those that will reduce your risk of loss of both money and residents. Most of the time it is trimming trees, repairing roads, installing water meters, and a general park cleanup. Existing Park Owned Homes: Are the existing park owned homes in reasonable repair? If not, what needs to be done and who will do it? At what cost? Are they worth fixing? Most of the time the homes are worth fixing when you consider it will cost you about $2,000 to $3,000 to dispose of an old home and then $3,000 to move a new or used home in without including any of the cost of buying and rehabbing the home that you put in to replace the old one. For $3,000 to $5,000 you can make most older homes presentable and attractive to potential purchasers. What work will you do to them (ie: repair them to a minimal standard to living up to replacing all the carpet, painting, cabinets, new skirting, siding, etc. Remember it costs about $2,000 to $3,000 to dispose of an old home. If you put that money into the home in repairs and just give it away, you now have a rented lot. If you pull it out, you have still spent that $2,000 to $3,000 and have a vacant lot. Buying & Selling or Renting Homes: Will you buy homes to fill lots - how many - what price range - total budget for homes? For the homes you buy will you rent them or sell them? Where will the money come from to buy the homes, set them up, and rehab them? Who will move the homes, set them up, rehab them, and sell them? Where can you buy the parts from (skirting, doors, etc) and can you get them wholesale? Preparing Your Budget Before you ever bought the park you should have prepared a budget and projections of how you will operate the park, upcoming rent raises, items you will pass through to the residents, how to improve collections, who to evict and so on. Sometimes the park you are buying will need nothing more than an adjustment to the rents and getting them to market. This is an easy one as the residents are aware of the rents in neighboring parks and they will expect a rent raise. We just took over a park that had rents of $90 per month in a market where the rents were in the $250 to $300 range. Crazy Huh? After purchasing while hanging around the park and training the new management, several of the residents came up and most of them asked about the rent raise. The normal question went something like this… "How much is the rent being raised because I am on a fixed income, on disability, between jobs, or name the excuse". The answer was easy and went something like this… "I am not sure yet but the park down the road charges $275 and then another close by park charges $300 and most other parks in this area are in that range. I don't think the rent will go to $300 per month but we will evaluate the market and come up with a fair amount". Everyone seemed to be ok with this answer and a few people said it would be ok if the rent did not go up above $200 or $250 per month. A few weeks later, the residents received their rent raise letter bringing the rents to $250 per month and offering a $50 discount if the rent was paid by the 5th of the month. The only person that we lost over the rent raise was someone that had an RV on one of the lots and was using it as storage. There are a few other issues to deal with in this park but the rent was the big one. With an extra $110 per month per lot the park's cash flow will support the other improvements to be made without a problem. When you are buying homes, make sure that you budget enough to cover all of the costs of getting the homes setup and ready to go. If you have $100,000 to buy homes with, you can only pay $10,000 per home installed, rehabbed, and ready to go. If you have 50 vacant lots then you may opt to go for lower priced homes first so you can get more of them rather than buying only a few new homes. After all, the lot rent is going to be the same on a new home versus a decent older home. Turning around parks that need to be in-filled are the most difficult, time consuming and costly types of turnarounds. You cannot count on others bringing homes in to fill your vacant lots. It is something you have to do. Don't get suckered into thinking that the dealers will fill your park up. I was recently talking with a successful investor (new to the MH Business) that was looking at a community with about 300 vacant lots. He was thinking about spending 3 million for the deal with only 100 occupied lots. He thought he could fill the park up within 3 years. I asked him if he had about 3-4 million in additional funds to buy the homes to fill it up. He said no, but had figured that the local dealers would bring homes in and sell them onsite and it would not be a problem filling it up. I know the market where this park is well and also know that there are probably less than 25 new homes being put into communities per year in this market from dealers (and this is a big market). I told him that if he marketed like crazy, offered big move-in specials, and did everything right, that he would be lucky to get 10 homes per year. At that rate, it would take about 30 years to fill the park. This is reality now and unless you are going to buy the homes and move them in, it is difficult to fill lots. Additional Random Thoughts: Also remember that a park that has mostly older and smaller homes (more of a trailer park) will need to be much less appealing than the newer park with big lots and newer homes. An older park will attract a different clientele than a 4-5 star park and there is nothing wrong with that. I have no problems owning the oldest parks in town. With older parks, focus on the cleanliness and safety of the park and not new clubhouses, pools, new asphalt, and replacing all the homes with new ones. Instead focus on trying to get the residents to maintain what they have and try to get them to keep the outside painted nicely, the skirting up, a nice set of steps, and junk piles that are at least stacked up nicely. Safety and Cleanliness! Also, I have found it useful to educate these residents on how to keep the rain from coming into the homes with sealant for their roofs and also around the windows. After all, you want the homes to last a long time and water is the biggest enemy. As you move up to nicer communities, your focus will not really change but you will want to keep up the common areas and amenities a little more. Focus here on keeping the grass mowed, the streets patched, and the entrance inviting and so on. You will also have to enforce your rules stricter as you don't want someone to bring in a pile of junk and a trash heap next to $30,000 and $50,000 homes. Not that you can't allow older homes into the community, you just need to make sure they are kept up well and have good paint outside and attractive skirting. Remember in the mobile home or manufactured home business, as a community owner, you will make the same amount of money (if not more) from the older homes and communities than you will for the fancy 4 and 5 star ones. For one, you can usually charge the same amount of rent because your residents on the older home parks don't have mortgages and can actually afford to pay the same lot rent as their counterparts in the 4 and 5 star parks that have big mortgages on their homes. Those big 2004 doublewides sure look nice but in many cases they are ticking time bombs with big mortgages on them. The question for many community owners is not if, but when am I going to have to buy that home from Greentree as a repossession to keep it in my park. After all, if I do not buy it then it will be a sad day when the mover shows up to move it down the road to another park. Another reason that newer and older parks make about the same amount of money is that in older parks your maintenance expenses are usually lower, there are fewer repo's, higher occupancy levels, and less common areas and amenities to worry about. Converting from large dumpster pickup to individual receptacles. At most parks that are currently on a centralized collection system (dumpsters), we will tend to go toward individual pickup in a short period of time. Not only is this more desirable for the residents, but it also helps to save all the problems with dumpsters. The biggest one that we have experienced is people overloading them with items that don't belong in them as well as being too lazy to actually get the trash into the dumpster. Also, with dumpsters it tends to be a place that both residents and non-residents like to drop off appliances and couches and tables. Conclusion Turning around a mobile home park can be a rewarding project but needs to be well laid out in advance with reasonable budgets and expectations. If the turnaround is management related, and you can solve the management problems, these are relatively easy. If the turnaround is market related and the issue is occupancy then strap yourself in and get ready for a bumpy ride. These can be done, but they take lots of time and money. About the Author Dave Reynolds is a successful real estate investor that has specialized in the acquisition of Mobile Home and RV Parks for the past 12 years. He has the keen ability to quickly assess deals, cut through hype, measure upside vs. downside risk, and make sound decisions. He has owned and operated over 60 Mobile Home & RV parks over the past 12 years in 16 different states. Dave received a B.S. in Accounting from Mesa State College in Colorado in 1992 and attended graduate school majoring in Accounting and Taxation at Colorado State University in 1993-1994. In addition, he acts as a consultant and educator for other mobile home park investors, has authored 4 books, and developed the largest and most respected websites dedicated to Mobile Home & RV Park Industries. These websites which receive over 10 million hits per year can be found at www.mobilehomeparkstore.com, www.mhbay.com and www.rvparkstore.com. Go to www.mobilehomeparkstore.com or call (800) 950-1364 and learn all about mobile home park investing, and our specialty products for investors. |
How To Retire On Just One Mobile Home Park Deal - Second Edition Studies have shown that only 60% of Americans have sufficient systems in place to derive enough income to retire - and even then, not very well. People spend decades scrimping and saving, and have very little to show for it. Let's be honest, at 2% return levels -- which is what safe investments are paying today - an enormous investment account of $500,000 is only going to pay out $10,000 per year. If you think you're going to be getting 10% per year in stocks, an illusion that many people had until the market crash wiped them out, then you're delusional. In a nutshell, the entire American dream of retirement appears to have been yet another bait and switch con. But there is another option. It's simple, direct and honest. It involves buying a mobile home park on correct economics. And living off the income for the rest of your life. Skeptical? It's a lot more legitimate than the other retirement concepts you've been working on. The basics of mobile home park deals Mobile home parks are one of the simplest forms of commercial real estate. They are so simple because, when done properly, they only involve land ownership - not buildings. By not owning buildings, you avoid the regular pitfalls of repair and maintenance and capital improvement and liability - all the things that make being a landlord such a hassle and scary business. You basically rent little plots of land to folks who have their mobile homes on them, kind of like a subdivision. These tenants ask nothing more of you than to leave them alone and have the water and sewer running and the roads solid. It's also important to note the impact of "affordable housing" This type of housing - basically housing for poor people - has endless demand. As America continues to fall apart, this is one part of the market that increases every day. It is not at all unusual for a mobile home park to run 100% occupied for decades. And that's even during recessions like the one we're currently in. It's a market that's here to stay, and the supply of units is not even in the ballpark of demand. The importance of scale Mobile home parks have a supreme advantage over single family home investments, as well as duplex, four-plex and even smaller apartment complexes. And that advantage is called "scale" - the sheer number of units that you own. A typical mobile home park you will buy is 30 units to 100 units. That means 30 to 100 tenants. Having that many tenants in a property results in terrific "diversity" in income - you have so many tenants that if one or two can't pay in a certain month, the impact on your income is minimal. The other important feature of "scale" is the multiplier effect of raising rent and cutting cost. If you have a 50 space mobile home park and raise the rent only $20 per month, that's an additional $1,000 per month in your pocket. If you can find a way to cut costs by only $40 per month per unit, that's an additional $2,000 per month in your pocket. And if you can pull off both, that's $3,000 per month in income to you. The retirement plan Here's your mobile home park retirement plan in a nutshell. Find a 50 space park (it can be more or less) and buy it based on real economics at a 10% cap rate (which is standard) - and so that it covers its own debt payment every month (no great challenge). Then find an extra $100 per month in lot income through raising rents a little and cutting costs a little. The result: $60,000 per year of cash flow to you. Sound too simple? There are already thousands of people who have pulled that off. Don't forget an unfair advantage you have as a mobile home park landlord: it costs $3,000 to move a mobile home. As a result, your tenant can't move out no matter how high you raise the rent or what costs you cut. Obviously, you want to be fair and reasonable. But it does give you carte blanche to make the changes you want to make. To make that same $60,000 per year with your IRA, based on current return levels, you'd need $3,000,000. Think that's going to happen? How to fund your retirement plan If you buy a 50 space mobile home park, it'll cost you probably about $500,000. Of that purchase price, you'll need around $100,000 (20% down). But in some cases, depending on the seller, you can do it with as little as 5% down ($25,000) and, in select cases, zero down. So which do you think is more possible? $0 to $100,000 on the mobile home park program, or $3,000,000 in the IRA? Summary Mobile home parks offer you the best opportunity to retire on a decent income. And you can get into the business immediately. What's holding you back from exploring it? |
MAXIMIZE WEALTH: WHY WOULDN'T YOU SELL? The market is evolving. It is constantly changing. It's no longer a given that the park/community that is worth $XX today will be worth more in one year, five years or ten years. In real estate investing , property values depend on many things: financing, the economy and the trend of the NOI (net operating income) being just a few. Successful real estate investors that have made money investing will tell you that timing was a key factor. If there is one take away lesson to be learned from The Great Recession of 2008 to the present, it's that real estate appreciation is not a given and it never has been. With cheap and easy debt and lots of optimistic real estate investors, the park and community business had a good tail wind going that drove up prices. Right now prices on communities are still pretty good. Who knows what the future will bring. THE OUTLOOK FOR MANUFACTURED HOME COMMUNITIES AND MOBILEHOMEPARKS
Investors will expect higher yields because they are pricing risk. In MHCs if the NOIs have been declining, they will pay less in order to set aside cash to buy repossessed homes, resident's homes (in order to avoid home move-out), and poaching of homes from other community owners, so they will price that "set aside" or "capital requirement" into the price for the community. A bifurcation of the community value has occurred. There is the real estate value and the homes' value. They are tied together but investors expect to pay a lot less for homes in inventory, rental homes, and home notes or contracts. Recently, in a sale of Colorado communities, the seller threw in $2 million of notes. The buyer paid NOTHING for $2 million in notes! In talking to investors, notes on homes in communities seem to be going at zero to 50%. Right now, interest rates are reasonable so prices on communities are still strong, but many experts are predicting that rates will rise. When that happens, parks and communities won't be worth as much as they are today. The additional debt service will push down prices. APPRAISAL REFORM SOUGHT How do you value a site built home when the sale comps are of distressed and foreclosed homes? Real estate industry organizations are crafting appraisal practices reform in order to fix the problem of all of the foreclosed homes in the US. Appraisers are under increasing pressure to keep appraisal values down after the peak of the real estate boom. The reform could very well affect appraisals for commercial real estate. In fact, one of the worries of commercial investment real estate investors today is how much devaluation might occur for their properties if the market gets flooded with commercial investment REO (Real Estate Owned) from the banks. "The dam seems about to break. We have seen work flow (distressed commercial real estate) increase 100% over the last 45 days," says Bruce Nell, PGP, Commercial Appraiser. Bruce and his firm were awarded the national appraisal oversight assignment by the FDIC. That is a mega-assignment. When the FDIC takes over a bank, the first thing it does is appraise the problem properties the bank has on the books. Obviously, the FDIC wouldn't be closing the bank unless there were problem loans. Appraisals are ordered on the loans and Bruce and his associates review the appraisals. The Feds always seem to get a bad rap for bungling everything they do. In this case, it's comforting to know that someone like Bruce, with deep knowledge and experience of commercial and investment real estate, is overseeing the FDIC problem properties. If you need an appraisal for your community, contact Bruce Nell at bruce.nell@pgpinc.com or phone 614-540-2950. Also, John Whitcomb, MAI has a specialty in appraising Manufactured Home Communities. Contact John at john@whitcombre.com or phone 813 -254 -0722. SITE BUILT HOUSING, MANUFACTURED HOMES AND DEPRECIATION Are manufactured homes in communities going to be on a level playing field with site-built homes as far as appreciation or depreciation of a home's value? For going on 10 years the community business has battled this oftentimes unspoken objection by the consumer for not buying a manufactured home in a community. "Don't manufactured homes depreciate? That's what my Mother (friend, etc.) told me," says the consumer. In a report released by Reuters in October, the following analysis of site built housing was put forth:
What does this mean for manufactured housing in communities? Perhaps, appreciation of a home's value won't be so much of a consideration by the consumer. Probably most site-built homeowners thought that it is a given that a home appreciates 5% to 10% a year or more. The site-built home devaluation has reminded everyone that isn't so. In times like this, the experts remind Americans that housing is shelter, not an investment. Your customer might not be thinking about depreciation and manufactured homes. Focus on the benefits of community living with your customers. Another possible effect on manufactured housing in communities is demand for pre-owned manufactured homes in communities is pretty strong and getting stronger. If this trend continues will more prospective manufactured home buyers choose to buy a new bare bones, plain Jane manufactured home? The manufacturers, especially Fleetwood and Skyline, seem serious on building a new manufactured home that community owners need for their customers and that customers desire to own. They are also building manufactured homes for smaller sites. Please read Frank Rolfe's article in the November 2009 "The Journal" magazine where Frank does a beautiful job of explaining Fleetwood's $18,000 three bedroom home. Contact me if you need a copy of the article. WHAT ARE SELLERS OF COMMUNITIES DOING WITH THEIR SALE PROCEEDS? Answer: It depends. Here is what some are doing. 1. Paying down debt on their portfolios. 2. Investing in land, considered by many to be a worthless investment today, but with the anticipation of a comeback when the home building and real estate market bounces back. When that happens, they will have zoned, permitted, building lots ready to go and sell the lots at good prices for big profits! 3. Net Leased Real Estate. The returns aren't as good as owning a community, but the trade off is that the tenant is responsible for operating the building, doing all the repairs and maintenance and the landlord has very little management time involved. The tenants are long term and often there are annual rent increases. 4. Medical office buildings. May not be a net leased building, but docs don't move very often and the aging population is creating more need for doctors, so thedemand should remain strong. 5. Making loans to investors that can't refinance. These aren't necessarily high risk loans. It's harder to get a loan today even for creditworthy, strong borrowers. A couple of years ago lenders were willing to lend to borrowers that wouldn't qualify for a loan in a normal market. Now some banks are acting as if all borrowers are unqualified. This isn't the banks fault. They are under increasing pressure from the bank regulators and examiners, so the banks are extra cautious. 6. Storage garages. There is a movement from the Manufactured Home Community business into storage garages. The attraction is not having to deal with home sales and home finance, less contact with tenants, and high tech management tools (pass key entrances) to lower the management requirements. CLOSING NOTE: The Urban Land Institute (ULI.org) recently held their annual meeting in San Francisco. Here are a few take aways that relate to the economy, multi-family investments and cap rates / prices. A. Investment Real Estate will be strong in this recession and afterwards. In the 1990s investors left the real estate investment market in droves because they were disgusted by the lack of transparency. Now investors want to invest in real estate. They see it is a safer investment than the stock market. Many are holding off because of the media hype about the looming commercial real estate implosion with loans coming due between 2010 and 2015 and no financing available. No one knows that will happen. B. Expect the US economy to recover sooner rather than later. The entrepreneurial fever, the technology strength, the fact that there are 100 million people employed and we have a $14.3 million economy will help to pull us out. C. The FDIC which has taken over hundreds of banks since 2008 is not selling off commercial real estate properties at down and dirty prices. That's good because commercial real estate owners don't need the distressed sale prices to devalue their commercial real estate. Instead, the FDIC is pricing the assets on a five year outlook meaning the buyer will pay more for the properties now. The FDIC is propping up the sale with low interest, non-recourse loans. For right now, the FDIC is doing what it takes to firm up prices on distressed real estate assets. Contact me if you would like a copy of the annual report from the Urban Land Institute. Joanne M. Stevens, CCIM Park and Community Specialist NAI Iowa Realty Commercial Brokering mobile home parks & manufactured home communities throughout the U.S |
New Service for Lenders: Mobile home parks are unusual additions to most REO portfolios, and require specialized assistance to operate and maximize their re-sale value. If you are a lender and have a mobile home park in your REO portfolio, or are faced with foreclosure on a mobile home park, then we offer consulting services specifically for you |
News Stories City Council Rules on Redevelopment Requirements How Much is That Going to Cost? |
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 Tell us what you think! Wed love to hear what you think of this issue! We need your articles and press releases - send your articles to perry@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: perry@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 |