Am I crazy to try and buy 18 homes at once!?

Question

I've been learning a ton through various means for about the last 6 months and have made it my goal to acquire my first deal this year. While I have been open to mobile homes, it was not my intention to go that route, but more so pursue multi-family. So hence the somewhat open ended post. Through a family member I have been put in contact with an older couple in their upper 70's who hold 18 manufactured homes with their land who are ready to move on. Their son is the main one who will be handling the whole deal. I have talked a little bit to the wife, and I did at least learn that they are very well respected in the community where they hold the majority of their homes. They also have no real plans for the sales money except to just put it in the stock market or something. The county appraised value of the 18 properties is around $900,000. 16 of them are all in one deed restricted sub-division. The other 2 are in a separate sub division. What are some of the questions I should be asking in regards to them being manufactured homes vs what I would ask a seller of a SFH or MFH? Any other advice thrown in would be appreciated too. I'm hoping they will be open to seller financing.

Thanks!

Daniel

Thanks!

Daniel

John Fedro · Answer

Hi all,

First things first, it's great that you've taken such a passion and dedication towards your financial future, Daniel. As you mentioned, you are looking to replace your full-time income with some type of cash flowing asset. It is good that you are studying and ambitious. It is clear to see that you will absolutely be doing something with regards to real estate in the near future and likely throughout the rest of your life. Is this the right deal for you at this time? The answer is, "it depends".

First, with regards to your original question about any specific differences between the manufactured homes and a single-family home seller, not many. Most of the differences relate to the structure of the home itself. Obviously a single-family home and mobile home are very different in construction and will need to be inspected thoroughly no matter what the home. Many questions such as utilities will be the same as an SFR, however you want to know about the foundation that the mobile home is sitting atop. Are you able to add any more homes to this land? Are they well/septic or city water/sewer? Paved roads? City or private roads?

I'm assuming these homes are all rented. It is likely possible to obtain some sort of bank financing if seller financing is not available, however this is deal may not the best use of your financial credit leverage. Depending on the NOI of this opportunity, $900,000 can get you into a considerable size mobile home park or other type of investment (I really only know MHs). With that said, owner financing certainly would be ideal with the right terms if possible.

With all that said, it is good that you are reaching out to the seller and trying to figure out ways how you can help solve the sellers problem. Ask questions to figure out his needs and try to give it to him in a very win-win way. I encourage you to keep finding sellers and keep making offers whether this deal pans out or not. Keep us posted please.

Thanks for the shout out, Bill A.

Great advice everyone else.

Talk soon,John

Rachel H. · Answer

When it comes to buying and working with sellers, you always have to measure the seller. Is this person someone you can trust? Are they being honest with you? If they are, then you can go forward with your due diligence. Though, if they are not and you just cannot trust them (or even worse they lied to you!) move on...fast.

I've written extensively on this topic. A lot of real estate investors tend to only look at the numbers which is understandable in this business. Sure, there's the objective but there's also the subjective which is equally important.

If you can learn to measure people through the art of interviewing, you'll learn an invaluable skill.

Best of luck with your deal!

Daniel J. · Answer

@Billy Mclachlan

I am ultimately looking to replace my w2 income with cash flow.

Daniel J. · Answer

If it is helpful the properties are just north of Conroe/Houston, Texas in Willis.

Steve Hodgdon · Answer

@Daniel Jarvis To answer your question, NO you're not! Work the deal, see what you learn. Get all the help and advice you can. You don't have to buy. nothing wrong with getting some education.

Would you live in the park? It might come to that. Nothing ever works out like it's supposed to in the beginning. go get em!

Daniel J. · Answer

@John Arendsen I'm not quite sure how to answer that. It is a deed restricted sub-division of only MH. You are not allowed to lease the lots, you have to own the home and you can lease the home.

John Arendsen · Answer

So is it a 'RESIDENT OWNED COMMUNITY"? Or a "RENT/LEASE" MHP. I'm a little confused.

Daniel J. · Answer

@Belinda Lopez I don't have full financials but from what they have provided a conservative NOI would be in the 90-100k range. I do believe it is all real property. From the sound of it, and what they have provided, they have decent books. One of the homes was built in 96, and one in 98, the rest are all after 2000. They have been very well taken care of.

@John Arendsen It is in an area that is trending up and should continue to grow. Certainly things happen and growth totally dies off. I'm going to go by them tomorrow so I'll have a better idea of their state. In this case it would. It would be individual properties in a park, not the whole park in this case but those are very good things to consider.

Daniel J. · Answer

@Hunter Letchman That is very true. The only way it would work is if they were to owner finance.

@John Fedro Thanks for the thoughts! Good to know about the foundation. It is all on public utilities which are all paid by the tenants. The roads are public as well. My guess is that no more homes could be added as they are individual lots. I did talk with them a bit more this morning and found out that would would want closer to a 30-40% if they did do owner financing. While I certainly  could figure out how to obtain that size of down payment I'm not sure it would be the best use of resources and risk.

@Rachel H. I do think I can overall trust them. They are my aunts neighbors and while she is not in RE, she has a pretty decent measure of people.

John Arendsen · Answer

I never hear much from folks on these platforms about what's become my pet phrase; "Is the park in the PATH of PROGRESS? Or is it in a blighted and run down area where folks are leaving through natural attrition, employment or lack thereof, retirement, or other reasons.

You can have a great MHC with lots of homes but if it's in a run down area or a location that's being left behind there's usually a reason for it. What I always do is check the real estate trends in the area I'm interested in before I make any investments. If a community is in a state of disrepair there's usually a reason for it.

If it looks like the area, albeit run down and in need of moderate to extensive upgrading, is undergoing progressive and aggressive gentrification that's the perfect place to invest in IMO. However, if that area is being passed over for other more progressive and upwardly mobile (pun intended) areas I'd proceed with extreme caution unless you want to end up being a slum lord.

There's an age old adage in this industry, "The higher the rent the lower the value of the home goes". Point being, increasing rents in order to boost ROI which most newly acquired MNPO's must do in order to realize a return, disincentives the resident/tenants from doing any upgrading let alone deferred maintenance or MH replacement because they are more concerned about how to pay their rent.

If you own your own MH's its even worse in that you're less inclined to put good money after bad by trying to keep old heaps up and in a rentable condition. Additionally, the quality of renters diminishes as the quality of the MH's decreases.

Most importantly, however, old MHC's have old infrastructures and that's where a lot of newbie MHPO's can really take it in the shorts. Sure it's a fact that the one thing that makes MHP investing so alluring is the fact that the MHPO is only responsible for the land and utilities up to the pedestals while the resident/tenant is responsible for everything else.

But, if you have to start out by upgrading the in fracture you'll be biting off a big chunk of your ROI from the get go. Additionally, the MHPO has the responsibility of maintaining the roads, perimeter fencing, drainage, which can and usually problematic as MHP"s seen to be located in flood plains or on slippery slopes.

I could go on but don't have the time. As a final note I own and invest in MH's, stick built, commercial and ag land and do reasonably well in those arena's. I could have purchased or invested in MHP's several times but once I started doing my due diligence I always seemed to gravitate away from MHP's for one reason or another and they were usually pretty good decisions.

Am I crazy to try and buy 18 homes at once!?

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