All Forum Posts by: Adam Johnson

Regarding the trash - we own one park currently.  When we took over, trash was left to the tenants to deal with on their own, they were supposed to hire their own company to pick it up.  The first year managing the place, we hauled out a little over 100 tons of garbage that was inside/underneath/all around abandoned homes and scattered all over the grounds.  Immediately upon taking over (before we started hauling out the trash), we told our tenants it would be included in the rent, accompanying the notice of a rent increase.

My point is, in my opinion, it is important to control the trash somehow, or it could start to control you.  Control can come in several variations, but I definitely wouldn't recommend putting it back with the tenants, it could have negative implications.

Water is fairly easy to set up tenant billing for because it can be metered.  I'm not sure how I feel about a separate garbage fee versus simply saying it is included in the rent and making the rent high enough to cover the cost, but still competitive with other parks.  My thought is that you run the risk of nickel and diming your tenants.  Just my opinion.  I like to make money, don't get me wrong, but I don't want my tenants thinking that I am making money on their backs.  Our rents/fees are competitive with the market, but it is much simpler to say that certain things are simply included versus rent is "x", but then I'm going to charge you for "y", "z", and a few other things.

I'm not trying to give legal advice here, consult with an attorney before doing anything on this.  I understand what you are trying to accomplish here, but sometimes there is more than one way to accomplish the same goal.  My first reaction is that trying to bill separately for sewer could turn into a billing (and potentially legal) headache.  Instead of creating another bill for sewer, if that cost is a concern, what about simply raising the rent?

You will find that some expenses are simply a part of doing business.  Survey other nearby parks to see what they charge per month for lot rent as well as what is included in the rent (trash, water, sewer, street lights, etc.).  Come up with the closest apples to apples example you can come up with.  That will tell you if there is room to bump the rent.  That will accomplish the same goal of increasing net income, but you will likely find that it is easier than trying to come up with a creative way to bill for private sewer.

You are on the right track to look at submetering the water.  If the park currently provides water as part of rent, this is a tough cost to keep control of.  Tenants tend to care more about a drippy faucet or toilet flapper in their home if THEY have to pay for the wasted water.

I'm too far away to comment on location.  I like to drive through competitive parks to get a feel for their occupancy/vacancy.  If area parks have a lot of  empty lots, you will likely have slower absorption.  If they are full or nearly full, that is an indicator of stable or rising demand.  Find out what they charge for lot rent and what is included too.

I don't give much value to rental income from homes and many lenders also ignore that income stream.  I prefer to rent the space only, with the homes being owned by the occupant.  Try to determine if the other homes are all owner-occupied.  Investor owned homes in a park can get real tricky if/when you have an eviction.

Well and septic generally push the value down.  Some park buyers avoid them altogether.  Learn more about the age of all infrastructure that you are responsible for.  These are big ticket items when it comes time to replace/update.

My first reaction to the seller's cap rate is that it is pretty rich (he's dreaming).  This is a modest size park, but too small for institutional investors to drool over.  They tend to attract higher valuation/lower cap rate.  If the rental income from the homes is included in the income, the seller's numbers are already skewed.

With all that said, keep digging for details.  Might be worth it, even if it proves only to be a "practice" deal analysis.  You should always have some vacancy with a property this size.  If you don't, your rent is too low.  11 out of 55 vacant might be a touch high, see what the current owner/manager is doing to rent lots.  If they aren't doing anything to rent them, that may be the problem.  If they are turning themselves inside out and still not renting lots, then the market may not carry any more.

I own one park so far and actively looking for more.  I'm not an expert, but do have a few years experience.  Our park is well and septic.  When we took over, occupancy was below 40% and it was pretty much a mess.  We paid a price accurate for the amount of work that had to be done.  We still have a long way to go, but are making good progress.  

Jay brings up an important detail that I skipped over.  Well water and/or septic generally lower the price point too.  My park is well and septic, but I take for granted that my background is underground utilities/commercial site work.  I can say that I bought my park at a discount knowing these systems needed extensive work.  My park is also larger, so it can carry a full time maintenance/upgrade guy that tinkers with both systems almost daily.  He saves me tons of headaches because he simply handles the problems and saves me from having to hire out every repair.  That is a trickier balance with a smaller park and definitely something to consider.

Look closely at the age of the infrastructure too.  When I bought my park, they didn't show a lot for repairs...because they left a lot broken!  We have reduced our water consumption by 15,000 gallons per day, just by finding and fixing leaks.  That number is even higher because we increased occupancy by around 40%

Glad I could help.  I've learned lessons from nearly every deal that didn't close.  If nothing else, you will gain confidence talking with sellers and trying to put something together that makes sense.  If I had a dollar for every deal that I sent to the garbage can, I wouldn't have to set my alarm for tomorrow morning to get out there and keep trying myself!

Feel free to update with any new developments and best of luck!

I own one park and I am looking for more. I'm going to be blunt, but don't be offended, that isn't my intent. Before I even picked up a calculator to "check" the numbers, my brain was running from this one. If the Net Income Before Debt service is $ 117,500 and you are thinking about paying $ 1.6 million, my advice is find the closest garbage can. That makes this a 7.3 CAP rate, which, in my opinion, is crazy for this size park. I am a huge fan of owner and creative financing, and even then this doesn't catch my eye.

39 pads is a small park. When you go to sell it down the road, it will appeal to small buyers, and less of them, than say a park with 100+ pads. The REIT's are snapping parks up right now, but many of them are several hundred lots (or more) and THEY might be looking at a 7 CAP, but I highly doubt they would consider this size park, especially at that valuation.

This size park is tricky to manage - too big to be small, but too small to be big.  If you plan to self-manage, that helps, but you also need to consider the eventual sale (even if it is 20 years from now).   The buyer you eventually sell this to is going to ask the same question - how do I manage this?  If they are considering hiring a manager instead of self-managing, they may be less interested or interested at a lower price.

I don't think I can help you try to find a deal here because I don't see anything really to work with unless the ask/offer price was divided by at least 2 and possibly more.  Wholesaling the deal doesn't make any sense either in my opinion, I don't think you could flip the deal.

The only thing I can suggest is going back to the seller and simply saying you've run quick numbers and you just don't see any way to make it work for even close to his number.  Ask him to walk you through HIS idea to show you how it might work.  Bring his scenario back here for discussion and maybe we can help fine tune it for you.   

I look at this size park on a pretty regular basis, they are fairly common around me.  It isn't the size that pushes me away, it is the totality of the offering, I just don't see any way for this to be a money-making investment.

@David Fields I understand about the car. Something to consider in the future, if you are self-employed and an LLC or corp., buy the vehicle in the business name and have the associated debt in the business name. That way, when you fill out the Personal Financial Statement that goes along with every mortgage or loan application you do, you aren't lying by not listing it and it no longer counts against your personal debt ratio. I should have first said "I am not giving legal or accounting advice, consult your own advisors". That is also a step you can take now - ask for a referral from trusted friends/mentors to a decent real estate attorney, insurance person, and accountant. Start building your "team", even before you need them. I like to interview at least 2 or 3, just like a job interview. These are the people that you will trust your fortunes with. Good team=good advice. You are not going to do much to your score being at around 9% utilization. My point on that was more to help you keep personal living expenses tight. Glad to hear you are on the medical bill.

Kids make it more challenging, but not impossible.  Our 2nd kid was born the day after I finished a large construction project that I was almost certain would ruin us financially.  I never got paid a 6-figure balance that was owed to my company for completing the project.  It caused us a lot of financial hardship for a number of years.  That was 14 years ago.  Our kids have seen us come from a very tough spot to a decent spot as they grew up.  From an early age, we sometimes said "no" and sometimes came up with alternatives to things they wanted.  Some things they wanted they never got.  But the lessons they learned were lifetime lessons.  It is tough as a parent to say no, but it is far more important to learn and teach how to live within or below your means.  Everything should be on the table for consideration - can you get by with a less expensive cable TV plan (or no cable at all), can you save money by replacing burned out light bulbs with LED bulbs, can you mow your own grass instead of hiring somebody, you get the idea.  Think outside of the box...for everything.  We learned to do this out of necessity and 14 years later, still live that way because it simply is smart to do.  Consider your home a "business".

If you are finding "good" deals every couple weeks, your deals aren't strong enough, in my opinion.  Others may disagree with me, that's ok, my way isn't the only way.  I've used the following description to explain it before.  In my eyes, there are 2 ends of the spectrum, the sniper or the machine-gunner.  The machine-gunner blasts offers out everywhere and hopes he hits one, or buys as much as he can in hopes one will be a real winner.  The sniper, on the other hand, sits and waits in the weeds, sometimes for months or years, waiting for the perfect shot, lines it up and takes it.  That approach has worked very well for me.  It can get frustrating (I suck at patience), but it has allowed us to build substantial equity over the last 10 years of investing.

To explain further, continue running numbers on deals, but raise your own bar to the point that the only deals you would actually buy are the no-brainer deals.  The mentor that once told me "if you find the right deal you will always find the money" shared that lesson right after tossing 4 different deals I had brought to him in hopes of financing them.  I worked my tail off to present them and show my numbers and 15 minutes later they were in the garbage can.  I didn't give up, I asked why they weren't bank-able, he told me, and I continually got better at putting numbers together and finding better deals.  Eventually I started hitting solid, base-hit deals with numbers that just plain worked well.  I still own those properties.

The advice on the real estate license by Jay and Lisa makes a lot of sense.  I earned my sales license and later broker's license shortly after starting out.  I did so to learn as well as to increase my credibility when presenting myself as a professional.  I do virtually nothing with my broker's license currently except for deals that I am principal of.  Keep in mind this does add new challenges regarding disclosures, etc.  You will also want to work under a broker that knows investment property and is tolerant of your investing activity.  My first broker demanded that I pay her a commission split on a property that I bought personally that was for sale by owner.  She did absolutely nothing, had nothing to do with the sale, but still dug into my pocket.  I found a new broker shortly after.  I think this makes sense to at least consider.  You will gain knowledge as well as grow your network.  

I don't necessarily agree with Jay's comment about waiting to begin investing, but I don't disagree either. I'll try to explain by using a general example - every time a national "guru" passes through our area, I see all kinds of dreamy-eyed wanna-be investors show up at our local REIA meetings. Some of them get fleeced by the gurus, who convince them to run up their credit cards to pay for the "program" that makes it easy. (real estate investing is pretty simple, but not easy) Some of them actually buy a property, many of them pay too much for that property just because they were excited to buy something. Most of them end up doing nothing. If this is something you want to do, don't slip into the "doing nothing" category, but also be very careful before jumping into buying something. That goes back to my comment about doing the "no-brainer" deal with numbers that are just plain smokin'. That type of deal doesn't come along often, but you won't find it if you aren't looking at all. Use the "ok" deals just as practice on paper. My point here is to not do nothing. Get out there and do something to move forward, even if it is tiny steps forward.

Lisa shares a lot of great thoughts too.  However, a couple things to look into further.  I would not consider renting out my own personal residence for a second as an investment property.  Why?  The numbers will never work.  I bought my first personal residence in 1997.  At the time, I needed additional building and land space for my business.  That drove me to the property that I purchased - it fit my situation so I bought it.  A few years ago, my wife and I looked at our situation and determined it was too expensive, I didn't need the land or extra building anymore.  We considered renting it (we had been paying on it for 16 years) and ran the numbers, it would never work and create positive cash flow.  We sold it and bought another house more appropriate for our current situation.  In the process, we lowered our monthly housing expense and related utilities/taxes/etc. by about $ 500/month.  Our current home is also a horrible investment property.  It would never make us money and we would never consider renting it out.  Numbers don't lie.  Read any Rich Dad book - your personal home is a LIABILITY, not an asset.  If you had first run the numbers on your home and the numbers told you it worked as an investment, THEN you decided to buy it, I would change my perspective.  I would be willing to bet that you bought your home because you liked it for your personal residence.  Nothing wrong with that, but don't confuse it as an investment, it isn't.

I also caution you further on renting your home out as an investment property based on the fact that you have an FHA mortgage. Review the mortgage and note documents carefully first. There may be restrictions regarding it being rented out, they may require it to remain owner-occupied.

Please note that none of my comments are meant to minimize the comments made by Jay or Lisa.  Something you will learn over time is to take a little information from multiple sources to develop your own best action plan.  

The quick and easy answer to your question about the soup to nuts guide - to my knowledge, it doesn't exist.  My experience is not much different from yours.  I've been at it for 10 years, learn something new every day, have a strong balance sheet, and struggle with my paycheck every single week.  My paycheck comes from my holdings.  I am happy with where I am at, but always want more.

First a real quick bio on me - I started real estate investing in 2007 ish, about the same time the real estate mortgage market was imploding and you couldn't get money from anybody.  I went to a free seminar on  "making money in real estate", which was really a live infomercial to get you to sign up for one of several guru programs for $ 5,000 plus (AND they accept credit cards!).  My wife and I instead went to the bookstore, spent $ 40 on books to get started, and began learning.  At the time, my credit was horrible due to a business bankruptcy a few years prior, we had no money, we were in debt up to our eyeballs paying off debts from the business failure and we wanted a better life for ourselves where we would never have to worry again about money.  Fast forward to now - we DO have a better life for ourselves as a result of our real estate investments, and we still worry about money every single day.  Hey, nothing's perfect right?

First, regarding the "guide" you are looking for.  It is really going to be your own guide.  Yours will be different from mine (and others), but will likely share some similarities.  I don't believe in the different "programs" you can buy to learn how to do it quickly and easily.  You will lay out a ton of money/credit for a day or a few days of a crazy amount of information.  In my opinion, it is probably 10% usable and 90% fluff.  Skip those programs and do what you are already doing - read books, read and follow forum posts on topics of interest here on BP, and network with other investors or would-be investors.  That learning will be the same 10% usable and 90% fluff, but it will be a heck of a lot cheaper, preserving money to put into actual investments.  Most of the books can be found used too.  The words in the book are exactly the same as a new book, but you will save money buying used books.

I learned a lot from the Kiyosaki books that I have read.  I have also learned a lot from reading Robert Stanley books (Millionaire Next Door, etc.).  Neither series is a "how-to" guide exactly.  They do, however, teach you a new way to THINK.  From what you posted, you are already starting to come around to a new way of thinking.  It is an attitude that develops in all of the successful investors that I know that I trust implicitly with their advice.  I know dozens of investors, but I only trust a couple for true and sound advice.  Those are the ones that "get it" in my opinion.

Few comments to consider:

• sounds like you are on the right track with the credit score.  That is golden.  I started with a horrible score, but worked my butt off to improve it.  Read up on creative financing deals, owner financing, etc.  I've used a lot of that very successfully
• Credit utilization of less than 9% is ok, but could be better UNLESS that utilization is for investments that will return more than the cost of the money.  If it is for personal expenses, fix them so you don't use any credit at all.  For example - you use a credit card creatively to work your investment, say to buy new plumbing on a new rental property so you can rent it out.  You figure that investment will return you 20% on that cost, and the interest rate is 15%, that's good use of credit.  On the other hand, you could use the same credit card to go out and buy new blue jeans because you want some, same 15% interest rate - bad idea unless you are a blue jeans model and that purchase is going to make you money greater than the 15% interest cost.
• regarding the note above - if you are using credit to increase your credit score, check with your own trusted adviser first.  You might instead consider making charges and paying them off every month to show utilitization still, but not pay the interest.  I think that still helps build your credit score but saves you interest cost, but I'm not positive
• live BELOW your means!!!!!
• Public record for medical bill - if you can fix this and get it removed, do it.  Although it may not necessarily prevent you from borrowing money, if you have a tricky deal you are working, this could tip the scales the wrong way.  I carried bankruptcy on my credit for 10 freakin' years.  I was doing deals in the second half of that period of time, but they became easier once it dropped off my report
• Car loan - grrrrr.  Sell the car and buy something you can pay cash for.  Many will disagree.  My wife and I have a very strong balance sheet.  We could pay cash for many different cars.  Instead, she drives a 16 year old Toyota with over 130,000 miles on it and the imprint of a deer in the hood.  It's paid for, it gets us safely from point A to point B every day, and our money and credit is available to put into investments that return money.  I drive a very nice heavy duty pickup that our BUSINESS pays for.  I also use that heavy truck for my business to pull trailers, haul job materials, etc.
• You say you have very little debt "not counting my car", you still have to count that car because lenders will.  It counts.
• You ask what you should do now - get out there and start looking for a deal.  Learn how to do your NUMBERS well, the numbers never lie.  I still own the very first duplex we bought.  I call it my "ugly little duplex".  It really isn't ugly, but it isn't anything special when you drive by.  It is a money maker though, so we keep it.  In the beginning, you will need to look at a LOT of deals and run a LOT of numbers.  Most will end up in the garbage can, and should.  You want the "duh" deals, the ones that even a dummy can make money on.  You will wait in the weeds for a while, grow impatient, but wait anyway.  A very wealthy investor once told me "if you find the right deal, you won't have any problem finding the money to pay for it".
• Private money versus hard money - who cares where the money comes from or what it costs - "if you find the right deal, you won't have any problem finding the money to pay for it".  Plug the cost of the money into the deal, regardless of the source or the cost.  If the numbers work, do the deal.  If the numbers don't, move on.  You are buying NUMBERS, not properties.
• Partners/birddogging - both possibilities.  Most important - get out there and get to know people.  Talk with them.  It will improve your confidence and make you a better investor
• Where to go next - keep going. I think you are on the right track

@Ken Rishel - wouldn't that be an ironic twist!  Government regulation from one agency causing consequences against another agency, when each agency originally intended to target the "rich landowner".  That could truly be a landmark case

@Sharee Mason - based on your more recent post - I tend to agree more with Tim's comment as well as your buyer's intent - look at this more based on CURRENT land value, not considering future potential value.  Based on the wording in the code you quoted, it appears the intent of the Town is to get rid of this use as soon as they can.  They can't deny it's former use, but they can "encourage" phasing it out by creative wording that forces it out over time, which is how this appears to me.  By the way - not giving legal advice here, consult a lawyer!   Just my 2 cents worth of opinion.  Your buyer is the one taking the chance, so price accordingly.  If he has a potential future use for the land that is in compliance with the current zoning, that may help overcome less-than-friendly zoning with the current non-conforming use.