Bought a Trailer Park at auction- feeling a little nervous....

Real Estate Deal Analysis & Advice

Bought a Trailer Park at auction- feeling a little nervous....

Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes

I had been powering through bp podcasts and feeling my oats, so yesterday I went to an auction of a small trailer park just to see what it would go for. (I had previously seen it with the broker but they were asking too much.) I ended up signing a contract on it. I am feeling a little nervous and so I wanted to see if I am missing some angles.

Quickly about me- primary occupation attorney, started investing in 2006 I have 13 units of my own (9 SFR, 2 duplexes) and manage/own 4 SFR with a partner, we have also done two flips this year.

The deal- The auction did not go high enough to meet the reserve but I was high bidder and worked out an owner financed deal- $70,000 purchase, 20% down, balance financed by owner at 6% over 15 years. The trailer park is located outside a small town in Central Oklahoma. 21 spaces, 9 park owned single wides, 1 park owned double wide, 1 2500 sq ft owner's home all on 11 acres which includes a lagoon. There are no other trailers in the park (i.e. space renters). Currently 7 of the single wides and the double wide are rented out. Everything is run down and in poor shape. The owner is 80+ years old and has not been able to keep up with the place. I have looked at the two trailers which are not rented and the main home and they are going to need about $5,000 total to get rental ready. I have not seen the occupied ones. The owner does not have good records so I am taking it based on what I see. This is purely a cash flow play, I don't expect much appreciation.

The payment is less than $500 per month, taxes and insurance are about $150 (not insuring the single wide trailers- they are not worth it). Taxes are cheap because it is probably still zoned agricultural. Should not change too much with this purchase price.

Current rents-

Double Wide - $450

7 single wides - $300 each

Total - $2550 gross

Additional income after repairs- Main house $500, 2 singles $600

I assume it is going to take a year or so to stabilize the park after it was so run down. I am also going to be a little tight on cash because of the down payment and fix up costs. This is going to almost double my management time/costs. I am trying to move into real estate investing full-time so that is o.k. for a time. Any advice on making the transition from two full time jobs would be great!

Anything I am missing?

Thanks!

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Sounds like a great deal I have owned 2 parks with private water and sewer.. At least here in Oregon this is very serious stuff.. And you would want to make sure you walk right into the county health department and have a chat with the head honcho.. Make sure your water system is approved . ( ours we have to monitor monthly) and that your on site septic system is good to go... Make sure you have a reputable septic company go out and give it a thorough examination prior to closing. Have a well company do a flow test and test the water for any nasty's. If that all checks out fine then I think you got your self a winner as long as tenant base is manageable. One of my parks it was a breeze another park I had was lower end and it was management intensive from a lot of angles.

Lastly what I would do is not own any of the MH.. Sell them on contract and then charge a space rent.. you can back into your total rent. Much better to have someone owner occ the MH's so you don't have to maintain them and you should get a touch better type of tenant. rehab on old MH is a ***** parts are not off the shelf etc etc. As the tenants pay off the MH you can then slowly raise rent as well B/C they now own them and there is no place to take them you have a captive audience. However even if lets say you wanted for one of the homes and space 300 month total.. If you charge that for space rent and sell the home for 2k and 50 bucks a month until paid.. you will still save money big time on maintenance over the course of the years.. The joy of owning a park is your only maintaining the park not the homes as well. Hope these comments are well received and good luck on it.

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Paul Choate
OP
Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes
12y
@Mike H. wana know what I really think?
1 Reply
Jared K.
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
12y
I see a lot of parks here in Kentucky and know several people that own them. The numbers sound really good so I believe you got a good deal, especially owner financed!! As previously mentioned I would consider lease to own (not owner financed) so if the lease breaks...aka missed payments..you would still own it and resell it. I know people who have done very well with this one b/c in the end they own the lot and rent it out.
Your obviously doing something right b/c you already own quite a few properties and are a lawyer so your smart enough to write your contracts to protect your investment no matter how you do it. As long as people see there is a new owner and nice changes are taking place you should have no problem filling it up.
I get offered fairly nice free mobile homes if I will pay the moving costs and if I owned a place like yours I would advertise I were looking to buy mobile homes or looking for freebies. If it comes down to not being worth much just offer to take it for free and pay all the costs, it works! You can pick and choose deals and upgrade over the next several years.
Best of luck.
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Mike H.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
12y
I'd be right there with you if I hit the jackpot like this one.
I understand why there's a lot of speculation on doing due diligence from some of the other people early on. But the bottom line is the numbers have so much upside, its silly. You've found a true "honey hole" (as they say on American Pickers). :-)
It is definitely time for a happy dance!
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Mike H.
the reason one must be very careful with the private water and sewer is that those items can be very very expensive.. On one park that I foreclosed on and ended up owning.. The septic system went bad and could not be repaired all the lines were bad through out the park. It was 125k to redo the whole system and all the lines.. and this was for 24 spaces.
Water is not as bad unless your well dries up or is contaminated... You can be shut down sometimes permanently then its a bad investment.. So very thorough due diligence up front NO matter what the cost of the park is essential when on private systems.
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Mike H.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
12y
I can definitely understand why you'd want to get that water issue nailed down. I only do SFH's so I don't have any background on the private water systems of trailer parks. But I avoid well and septic like the plague because of the risk so I'm on the same page.
That being said. He's only risking 14k. If the water is bad, he's not really losing much. And the upside on that deal is absolutely incredible based on the numbers I'm seeing. So I just wanted to be sure there was at least something on the positive on how good a deal this actually was.
I think in any transaction, you have to do your due diligence to eliminate that risk. But that is assumed. The real key here is that if the water pans out, this is as close to a gold mine as you're going to find for 14k out of pocket..... At least it would be to me... :-)
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Sara Cunningham
Investor · Chesapeake Beach, MD · Member since 2013 · 273 posts · 37 votes
12y
Hi Paul,
I just wanted to congratulate you. I have no clue on mobile park investing and applaud you for being so diverse. Best of luck to you.
Sara
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Katie Neason
Flipper/Rehabber · Bryan, TX · Member since 2014 · 258 posts · 170 votes
12y
@Paul Choate hey Paul, just checking in to see how your due diligence is coming along for this deal.
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Jeff Wallace
Rental Property Investor · The Woodlands, TX · Member since 2014 · 345 posts · 288 votes
12y
@Paul Choate
What is your strategy for getting the vacant spaces filled? I grew up in KS and still look at opportunities there because my parents still live there.... I have come across a couple of similar deals in the past that had amazing returns if I could ever get the place full and paying at close to 100% .... but the unknown length of time (if ever) to fill a small town/rural park kept me from pulling the trigger.
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Paul Choate
OP
Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes
12y
@Sara Cunningham Thanks!
@Katie Neason - update:
I have a fairly weird legal/family background. Long story short, a few years ago my father and uncle- who are both attorneys- got me involved in a lake development project. It did not pan out but I happen to have a lot of contacts and familiarity with the regulatory agencies involving water in this area. I am all over the issues from a policy perspective. I have been in contact with the state DEQ and spoken with their local guy who is in charge of this particular park's area. So far so good. There are no known violations but I will need to get spooled up on the monitoring as it has not been done on the correct schedule.
Once, again thanks to everyone who alerted me to this issue. I think I may have found a niche I can work into as everyone else seems to want to run away from these situations (with good reason - you need to know what you are doing).
Also, I ran into a potential project because of this trailer park and I will report on Monday about it. I don't mean to be mysterious. It is a potential deal that I need to get under contract before I disclose it. So, Thanks again, everyone!
@Jeff Wallace the best thing about this park is that I don't have to do anything right away. The cash flow is amazing and I plan to put most of it back into the park in the form of cleaning and repairs. Once the roads are in good shape and all of the trailers are maintained or sold, then I will put up a sign (there is not even a sign advertising spaces for rent). You can't even tell it is a park from the highway out front because of the overgrowth. Since there is a recreational lake nearby I have considered using the unused lots as R.V. lots for shorter term rentals. I will have to see after I get in there and can gauge the demand better. However, if I am just left with what is currently going on, I am going to be happy. I have about 20-25 years of active investing left before I need to worry about exiting this park. I am born and raised here and I have not seen returns like these anywhere else. While this is not a growing area, it is not going down anytime soon as long as the oil holds. As I have studied the water and waste water issues, I can see I am not going to have any new parks to contend with anytime soon and this is the only one in the area. So, to answer your question, I am hoping a combination of improving the park, basic advertising and demographics will allow the park to reach its full potential.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Paul Choate
Paul again check with the DEQ RV's have a different requirement for sewage. If they are not hooking into your sewer system then that is moot.
RV's have many other types of chemicals in the affluent that is not present in regular SF discharge.. I learned that one redoing the park I foreclosed on.. But that's my state could be different where your at.
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Paul Choate
OP
Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes
12y
@Jay Hinrichs The unused lots are separated off from the trailers and closer to the highway so I thought this might be a good use of the spaces. I will check the requirements as I can see the difference. Thanks again for the direction. I am exploring all options right now.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
Paul if they don't discharge into your system then its moot... if they discharge into your system DEQ might have a requirement that you should be aware of.
Lots of arm chair quarterbacks here I know :)
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Paul Choate
OP
Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes
12y
@Jay Hinrichs is it common for RV parks to have holding tanks? It is not very expensive to have a septic company come out and pump out a septic tank so that maybe a cheaper work around. How was your park set up?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
Paul not sure if that would fly in Oregon ours had a dump station that was tied into the master septic system... but that may work fine were your at.. Just good to get the question answered. running RV park is a different animal as you know especially if your not there lots of cash for the night .. you will need security cameras to view the pads and make sure your getting paid
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Paul Choate
OP
Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes
12y
Update:
Funny thing happened while I was researching the water and waste water issues for the Park I am buying in a few weeks. I found and bought another.
New Park-
20 acres 100+ lots shut down by DEQ because of contaminated wells about 3 months ago. I heard about it on Wednesday and bought it at a tax sale on Monday for $9000. (Previous owners owed over $600,000 on the mortgage, $20,000+ back taxes and $70,000 fines.) All of that is wiped out by the tax sale and fixing the problems with the water (keeps the fines away).
I have met with the local and state representatives from DEQ. They want the existing wells capped and new water purchased from a local municipal water supply. I am meeting with the local municipality planning division on Monday to see what we need to do to connect to their system. I can still explore drilling new wells and am meeting with geologists and drillers to explore that much cheaper option. Not counting on it at this point.
Best case- I can connect to the existing water main which is currently about .25 miles away from the park and just purchase water going forward. This might cost up to $200,000 (based on previous owner's engineering reports). I am hoping to explore grants and other resources as there are other homes in the area which are all on wells that draw from this same contaminated water source. I think the out of pocket cost can be much lower if I involve the whole community surrounding the park and get federal or state grant money to extend the line.
Worst case- I paid $9000 for a 20 acre goat/horse ranch on the edge of town with a lot of existing roads and riding obstacles!
First park- Everything is looking good. No existing problems.
I will say that the environmental regulations for drinking water are no joke. I may have found a new niche to explore: finding parks that are not in compliance and jumping through all of the hoops to make them right. @Jay Hinrichs any thoughts would be appreciated!
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Jean BolgerPro Member
Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
12y
Wow, that's great! You'll be the expert in that arena in no time. I can see why others are intimidated by the water quality issues; as you say, it's no joke. But it sounds like you can't go wrong on this new park even if that isn't a solvable problem. I'm impressed with your initiative and wish you lots of luck!
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Paul Choate
.25 miles of water main should not run 200k that being said if its .25 miles and you need to run all new water mains and hydrants through the park then that adds up.
great story, you need a partner I will wire you 4500 tomorrow for 50% interest .. Oh hell I will just give you the whole 9k for a 25% interest :) Nice job keep us posted on this one send me private messages I want to see how this works out for you.
Is the park currently condemned with no one living there?
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Paul Choate
OP
Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes
12y
@Jean Bolger Thank you! It is a little scary at first. So far everyone seems to want to be helpful as long as I follow the rules.
@Jay Hinrichs I was confused about the cost as well. That was the number that was given to me by the previous owner and supposedly claimed by the engineering report. I have not seen it and I do not know everything the City is requiring before they allow me to hook up. They have sent me a rough outline by email and it seems very reasonable to me and should not cost anywhere near this number.
I appreciate the partnership offer! I think I will have to stand pat on this one:).
The park is shut down. The old owners told everyone to get out in June of this year which was when the original tax sale was. No one bought it at the back taxes of $20,000+. The DEQ never shut it down, it was just an excuse by the owner. The DEQ officials say they will not allow it to reopen as is. They were actually surprised the old owner did not just connect the water to the city. My theory is that they had fallen behind on the mortgages (1st and 2nd @ about $350,000 each). They had run the park pretty far into the ground as only about 50 spaces were being used. With the mortgages, taxes and penalties it just was not worth it to them to put even more money into the water system.
Since I got it basically for free, I can do a whole lot before I start needing to worry about the investment. (No one needs to freak out, I will be getting hard numbers and City and State approvals before I put any significant money in the park.)
As an additional bonus- there are actually 16 abandoned mobile homes still in the park and I think I can fix up about 10 of them. I am just letting some lot rent accumulate before I run them through our State's abandoned vehicle process.
I will pm you tomorrow with some specifics to get your take. Thanks for the comments!
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
12y
@Paul Choate
fabulous risk reward scenario.. for the price of a decent vacation you have a MH park.
Not sure how Ok handles MH.. in Oregon they are titled like cars.. So there is procedures to go through to claim title to them. .But heck in your case I would not worry about it.. Just rent the suckers out no one will make a claim
I am mildly offended that you did not need an equity partner on this deal.. maybe when you buy the next park for 9k you will think about all the good advice I gave you on the first park and feel compelled to let a good buy into the deal !!! :)
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Rick H.
Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
12y
What a great situation! Classic lemons into lemonade story. The key being the necessity to let the property go for taxes in order to clear debt. Would have cleared title, too.
While this may seem anomalous, in my estimation there are not only other MH parks but properties which this situation exists. Could be a fabulous opportunity and a solid niche.
In my experience, once you've remediated one park (or other property type) you'd be prepared to drill through the next one.
Please keep us up-to-date on both projects.
3 Reply
Jared K.
Real Estate Investor · Somerset, KY · Member since 2011 · 211 posts · 64 votes
12y
Keep us posted, love the knowledge flowing through on this post. I have always wanted to know more about parks b/c I may want to pick one up someday but currently I own multifamilies.
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Paul Choate
OP
Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes
12y
Update:
Park #1- closing should be next week, spoke with the broker today.
Spent some time with a former tenant who had lived there for 8 years until 3 months ago to get the low down on the park. Drove out there again on Friday to check it out. Here is what I have learned:
Current owner had a tenant "managing" the park for him. Owner does not even know who is in the units. Former tenants have told me that this managing tenant was skimming the cash rents. The park has gone down drastically in the past year because of this. That is why these tenants left. They also claim this managing tenant has 12-18 people living in their unit and have 8 pit bull dogs. I have driven out there and only seen 4 dogs but the traffic around their house does seem higher then normal. The other tenants seem to be basically regular folks and nothing is out of the ordinary of what would be expected in this situation. I don't completely trust the former tenants as it seems they have an ax to grind. I do know that something bad has been going on which is why I got it for the price.
So, question for the group-
How would you approach your first interaction with the tenants?
I am going to go out and give everyone applications. Then, if they have income and no major criminal records, I will have them sign a month to month lease with new rules. I am just going to cut the head off the snake and giving the "managing" tenant their 30 day notice. I am a little concerned about them tearing up the property on the way out the door, my personal safety and I also want to start off on the other tenants on the right foot.
Option #1 I go out by myself in my old F150 and be pleasant and firm. Let the sheriff deal with it from there. My only problem with this approach is that they may not take me seriously. This place needs an immediate wake up. I will need to go out there quite a bit in the beginning and my main handyman is a much older non-confrontational guy who I don't want to deal with any of this on his own. I tend to be overly nice to people as a general rule as I find people are generally nice back. However, I don't think this situation will work out that way.
Option #2 I borrow my brother's jacked up 4x4 farm truck and pay a high school buddy who has spent some time in jail (6'3", 290#, tattoos etc) to come alone while I am being pleasant and firm when I meet everyone. I am not expecting a fight nor am I willing to get in one. (I am an attorney and respect the law.) I don't currently carry although I am ex-military and not opposed to it. This is not a war zone. I have found when people realize that you are not playing around and have "varied" resources; they move on to easier situations. This buddy is not working currently and can be my handyman for the first few months.
There are a lot of rumors about me as I am from a bigger small town nearby. This is a very small town. I want to present a total package to the tenants so that the bad ones will go now and the good ones will know things are changing. I need some minimal level of cash flow to keep it going until I stabilize it. I feel like a small show of force will get the message across.
Any thoughts? Anyone have any experience rehabilitating a group of tenants by separating the wheat from the tares? Should I just clean house?
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Katie Neason
Flipper/Rehabber · Bryan, TX · Member since 2014 · 258 posts · 170 votes
12y
@Paul Choate any updates? Hope all is going well!
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Paul Choate
OP
Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes
12y
Hi all!
Here's the current update:
Park #1 closed on the 19th. I have already had one tenant leave ;)! I went with the large high school friend option and it worked great. Everyone was very nice and polite. I gave them notice of cancelling the old leases and agreements and I have had 6 of them sign their new lease. I now have 4 vacant units and I am going to evict the one problem tenant. They have promised to follow the new rules but they have not moved their dogs off of the place. I did have a water heater stolen from one of the trailers so I will be installing surveillance cameras this week. I have scheduled to clean up the park next week by giving them 10 days to move all of their junk if they want it.
After looking at the trailers in more detail, I think I am going to need to replace about 5 of them in the next couple of years. They are just too far gone and have not been maintained properly.
I got my first call on a domestic issue between two tenants. Actually only the female is on the lease as the "boyfriend" did not want to sign it. I am going to give her notice that she needs to get a protective order and I will "ban" him from the park. If she does not and lets him come back I am going to evict her as well. Anyone with advice on this situation, let me know please. I think she is fine- so far. I am just not going to deal with it if she wont as well.
Met with the neighbor by my lagoon. He seems willing to work with me as he did a lot of the maintenance on the park in the 80's. His information was great as he has lived there since the 70's. He was very insistent that I evict my problem tenants so I think it will build some good will if I get that done. I was planning to do that anyway.
So far numbers wise, the first month was disappointing. The former landlord only collected $1000 in rent for September and did not have any deposits to turn over to me. Right now I am expecting $1600 from the tenants under lease for October. I plan on taking about two weeks to get two of the trailers ready to rent. I am hoping to get them rented by November. The main house and the double wide I am going to fix up to a higher standard and I wont be able to rent them out until I get rid of the problem tenants.
Park #2
Sad news- My partner and I have decided to go ahead and put it up for sale. We are cleaning it up and listing it for $49000. I have already received one unsolicited offer of $20,000 from a neighbor. I really hate to do it as I think there is so much potential but we have run into some snags. First, I met with the DEQ and basically there is little chance of us using the existing lagoons or getting new wells approved. I have also met with the City and they want us to bring the park up to their codes and annex into the City before they will give us water. The park is currently in the county and in Oklahoma there are very few codes and no enforcement. The City planning department basically said they were not going to allow any of the current trailers to stay.
The city was pretty hostile about the whole idea of the trailer park and while I don't have a personal problem fighting them, it isn't my money. I was hoping that a few things would break our way but it looks like it is a full redo and we will need to do everything exactly right and to their standards. Once again, I don't have a problem with any of that I and I still think it is a great deal. However, there is no exit strategy other than getting the park completely up and running and annexed into the City. We can't stop any where along the way and sell out without taking a large loss. Since my partner and I are new to working together, I would rather build up our base than stall out in a project that may grow too big for us.
So it was fun, but this one is going to have to be a cash out deal. I will try and update the thread when it sells or update the financials when they are complete for the month.
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Sara Cunningham
Investor · Chesapeake Beach, MD · Member since 2013 · 273 posts · 37 votes
12y
Paul awesome update. So sorry that some things are not going your way right now. I really applaud your determination to get things going on the other park though. No one ever said investing was easy and this is great example of how much work it takes.
I purchased a triplex in April and have had a rough time getting that up and running too. Much harder since I am investing long distance, between contractors and the tenants insisting that all utilities are included I'm getting to the last stretch repairs done, rents raised, although I did lose a tenant in the garage apartment and I just got it rented again after 3 months. Then the ARV wasn't what I hoped either. However I still feel that now I have all 3 units occupied again that this still gives me such good cash flow that I'm. to going to lose in the long run.
Keep us updated and good luck with finding a buyer.
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