Fixer upper or stable income for first MHP acquisition?

Question

Hello all. I am looking into buying my first park within the next 3-4 months. I am pretty young and just bought a house so I don't have a lot of capital to put into the business. I have been running the numbers and if I go through a private/hard money lender for down payment + seller financing for rest, my debt service will essentially eat up all of the operating income.

That's actually ok with me. I have a job that pays decently, and I really just want to build equity right now. While browsing loopnet and MobileHomeParkStore I have seen 2 types of parks: fixer uppers that require a lot of capital but have a lot of upside and established/well run parks that have good income, but not as much short term upside potential. When I say stable income I mean something like 95% occupied, many long term tenants, no need for high cost repairs in the near future, etc.

My question to the successful MHP owners here, if you were in my shoes would you try and go for the fixer upper or a well run park for your first purchase? I'm leaning towards a park that is pretty stable and will give me time to learn the role while not having to make too many costly mistakes. If I don't make a dime on this for 2-3 years that's really not an issue for me as long as I'm building equity.

Any constructive advice/criticism is welcome.

Jay Hinrichs · Answer

MHP investing is not appropriate unless you have adiquate cash reserves and capital to run said park.

along with the reality of getting finaincing... if you have zero experience and not much money you stand zero chance of getting any kind of institutional financing which leads you to owner finance deals.

these are possible usually old tired landlord trying to take their management headaches and put them on you.

I love MHP's in general @Curt Smith as Curt says for me personally i would not buy one that is not on public or city sewer and Water... Been there done that on one's on private systems.. those can really turn ugly to the point of losing the whole thing because fixing or replacing old decrepit systems will cost more than the park is worth in its best day.

we just did one in Oregon and you would be surprised how much you spend modernizing it.. this was a 19 space and we spent 250k in cash out of pocket to get it up to speed.

Curt Smith · Answer

I strongly suggest you educate yourself re buying and running a MHP.  Take the in person boot camp from Frank and Dave, often mentioned in the MH and MHP forum.

You needed to read back 6 mo in the mobile home / park forum.

Go to:  mobilehomeuniversity.com and click training and signup for the boot camp.

#1 tip: avoid your first park with a well or lagoon.  Septics per home or per 2 homes are OK.  Not ok when the whole park is on one big septic system.

Rich Ferradino · Answer

I would buy one based on low occupiency. If it's low occupiency AND really bad shape I'd partner with someone who has the means to dedicate their full attention for the first 3 months to deal with repairing homes, bringing in new tennants and kicking out the old problem ones. Tree trimming, park sign updating, infrastructure repair, getting new leases signed, new park rules implemented, exterior fence updating, etc. Make sure you have the capital for such things.

Our biggest expense we didn't see comming was water and trash. A certain national trash removal company we used charged $90 each pickup when the flaps of trash lid weren't touching the top of the can. If I were you I would call and ask multiple trash companies what their position is if the trash is too high. Some are more lienient than others. Our solution was to bring in city trash and the tennants pay for trash which goes on their electric bill that the city provides so you don't have to worry about it at all.

Tyson Cross · Answer

Yes, to echo what Jay said above, I would not suggest you go into a park with no cash reserves. As mentioned above, you are not likely to get a HML in second postion - you may find a community bank to do that, but they're going to make sure you have the ability to cover the payments (liquid cash reserves) usually up to 6 months.

Second, even if you have the cash, you need to educate yourself on mobile home parks. How long have you been looking at them? There is a lot to know and frankly, you shouldn't pull the trigger on them until you thoroughly understand everything about them. There are several different types of turn arounds and each one does take some capital, unless you find the rare park that ONLY needs increased rents to work. Even then, the tenants will look to see what improvements you make when you raise rents.

To build equity in MHP you do that primarily by improving operations and increasing the NOI. To do that, you generally need some capital, if even a little. You certainly don't want to use the cash flow to do improvements, you will get yourself in a hole.

I'm actually selling my house to buy my first park this year. Good luck!

Joseph Graeve · Answer

On your first point, I think that there are plenty of deals out there so you shouldn't settle for a deal that would have no cashflow after you finance. Also both of those lenders are going to want first deed of trust and you'll only be able to give it to one. Its rare to find a hard money lender to take 2nd position. I recommend finding private investors at local meetups or on BP to help you put the downpayment down. But still you should have cashflow, It doesn't matter if you don't need it because the cashflow needs to be there to make your investors feel comfortable and to pay for emergencies and things that come up. I suggest you do the fixer upper one because after you get the financing in place everything else you raise is yours to keep. It will allow you to learn more and see the ins and outs of the business.

Jonathan Towell · Answer

I'm interested in the same question and looking for MHP deals too.

Capital takes a lot of time to deploy. So, if you find a fixer upper, it might eat up a lot of your time. On the other hand, returns on fixed up properties can be lower.

I'd guess it is really a matter of preference.

I highly recommend The Mobile Home Park Investing Podcast by Kevin Bupp and Charles DeHart. I don't exactly recall them picking a side in this debate, but I do know they discuss the pros and cons of each approach thoroughly.

Dominic Mazzarella · Answer

@Tyson Cross

I have been researching this industry pretty heavily for about 7 weeks now. But I don't know what I don't know yet and that's definitely not a good thing. I think I'll spend some more time over the next couple of months learning as much as possible/saving cash, and looking for a partner. Thanks for the info by the way.

Fixer upper or stable income for first MHP acquisition?

Most Popular Reply