All Forum Posts by: Brad Johnson

21st Mortgage is certainly a viable option. They have an aggressive financing program for rental homes. You might also want to go direct to the manufacturer. Legacy homes will finance around 70-75% of the total costs to buy a new home. 

Or you can always try to track down decent used homes: repos from Greentree or 21st Mortgage or used homes from MHBay, MHVillage, MHBO.com. 

Of course you'll need to come up with a lot more capital to buy used homes to rehab and move to your park.

Expanding on Brian's sound advice, I would also take a hard look at the sale price assumptions and try to determine how much of the deal's total return (IRR) hinges on the Sponsor's ability to accurately predict an exit cap rate 5-10 years from now. We love deals where a large percentage of the total IRR is derived from the property's cash flow vs. the exit price.

Reason being, capital markets are too volatile to consistently predict future interest rates / cap rates / investor risk appetite. However, yearly cash flow yields on multifamily properties (including mobile home parks) are easier to accurately predict as demand for shelter is fairly constant. Furthermore, office, retail, industrial properties will have contractual leases that dramatically increase a sponsors ability to peg cash flow returns. 

Unless you are investing in a development or flip and are comfortable with the sponsor's ability to execute, be careful investing in deals that only make money if sold for a big number well into the future. You can make a ton of money buying fully occupied CA and NYC trophy properties and hope for cap rate compression (which non fundamental driven appreciation) but this is also a great way to lose your shirt. 

I would suggest passing unless you get him to carry a 95%+ LTV, non-recourse, seller financed note and you're using this as a learning opportunity / platform to get into the MHP investment business. Otherwise, it doesn't seem worth it.

I wouldn't cap the MH rental income to determine value as the park owned home maintenance is too unpredictable. Rather you should go with a component valuation. Walk the property / homes and try to figure out how much each home (including the stick built homes) are worth, tally that number and there's your offer price. Also, since this is a 100% rental park, my guess is the homes are much older and probably need a fair amount of repair upon tenant turnover. Would assume the same goes for the roads and infrastructure. This is deferred maintenance that should be deducted from your component valuation.  

The wild card is the stick built homes. My guess is that the value of these will make or break this deal. Get a local RE agent to give your there feedback on what these homes are worth. If there in decent shape and can be accessed via the street (and not just through the park), you might be able to parcel off the homes, sell them and pay down the seller financed note (make sure the promissory note, gives you the right to sell off the homes - he'll likely agree provided you are forced to use the proceeds to pay down the loan and can't just split with the cash). 

Given that this 100% rental park, it's probably going to be too much work to justify your time investment. However, it you're intent on moving forward, my advise would be to do the component valuation and then low ball. Unless he advertises 100% seller financed, there probably aren't going to be too many bidders on this property. He might hate your offer now, but realize it's his best option in a few months. 

Best of luck.

@Account Closed

Hello Seth. Here are my thoughts to help you break into commercial real estate.

It really depends on what side you want to end up on (buy vs sell side).

While it would be difficult to jump directly to the principal (buy) side without any real estate experience, it can be done. You're not going to be able to land an private equity analyst job a firm like Blackstone, but with your accounting background (which will be helpful in CRE), you can likely break into a smaller owner / operator and gain some hands on experience underwriting real estate assets. You can also apply to an analyst program at one of the larger i-banks. They tend to recruit directly from undergrad programs, but occasionally make exceptions. They will likely test your financial modeling skills beforehand so I would learn some basic RE cash flow modeling before interviewing.

If you're half way through the CPA, I would get it. While not needed to work in CRE acquisitions, it will help you stand out amongst a sea of new analyst applicants and would be a nice fall back should you decide real estate is not for you.

You can also start at a brokerage like (CBRE or Colliers) to learn the CRE business and then jump to the principal side after a couple of years. A RE license will help you break into brokerage, but they'll hire you without it. If you're applying to a principal or private equity firm, listing an RE license on will not help your chances.

In addition to RE specific excel modeling, you should learn ARGUS (a RE software modeling program specific to CRE). It's not to helpful for multifamily (apartments) but will be useful for every other asset class.

Best of luck!

If you can get a seller to agree to escrow rents or warranty infrastructure for a certain period of time, by all means do so. Everything is negotiable, but this is a HUGE ask. If I was selling you a park and saw those clauses in your contract, they would immediately be redlined. The vast majority of sellers will not agree to these terms unless A) you were the only party interested in buying their park - not a good sign if the park was highly marketed or B) you were willing to pay a substantial premium to market.

The two risk items you've addressed (stacking the rent roll and near term infrastructure failure) can indeed be mitigated through due diligence.

On the income side:

Ask for bank statements, review check deposits, tax returns and review the leases to determine if the owner has leased up the park with all new, perhaps suspect tenants prior to closing. If the seller has horrible documentation, you can walk or decide if the market is strong enough to backfill tenants if a large number leave post closing. If the tenants own most of the homes, this is not a significant risk as they can't simply pull the home in the middle of the night. If they leave you can always resell or rent their home. If you've chosen a large enough market, demand for your affordable housing is not going to be an issue. Lastly, I would encourage you to stop comparing MHPs to large apartment buildings, you'll never buy one if you continue to do so.

On the infrastructure side:

Ask the utility companies for historical water bills to see if there have been large spikes (sign of frequent leaks). Get a few sewer guys (including the firm that current handles the park's sewer issues) to take a look at the pipes. If needed, you can run a camera to see if there are any major collapses.

Additionally, if you're nervous about infrastructure, don't purchase a park with private utilities (especially sewer - we are currently not buying parks with private sewer systems unless we can convert them to public). A one year owner warranty on a septic system isn't going to do you much good if you need to replace the leach fields in year 2. Short of a brand new packaging plant, private sewer systems are pretty scary if you don't know what you're doing. You'll likely need a large price concession or substantial capital reserves if you really want to pursue a park with septic or worse a lagoon system. If the thought of this makes you nervous, and by the concerns you've raised, I assume it does...I would advise you to only pursue parks with public utilities.

Best of luck

@Rachel H. @James Lewis

To Rachel's point, trip insurance is probably a good idea:

http://voices.suntimes.com/news/breaking-news/mobile-home-falls-off-trailer-and-lands-on-i-94-in-northwest-indiana/#.U2QnMxYse0s

FYI - If you're buying a new mobile home the manufacturer will often include freight and insurance in the total cost of the home.

@Curt Smith

If you are looking to carry paper on a few mobile home notes, learning the intricacies of your state's laws and registering to be compliant is probably not top of mind. However, investors / private lenders not adhering to the SAFE Act or Dodd Frank are indeed exposed to possible fines and penalties, which may wipe out years of profit.

Of course, the intent of these laws was not to target small private holders of mobile home notes. Nonetheless, if you're not in compliance with the letter of the law on this issue, you'll be adding additional risk to your investment.

We are not fond of unmitigated risk and wish to protect our investors' capital.

Therefore, the way we address this issue is through a rent credit program, which was first started by Sun Communities (large manufactured housing REIT). It resembles a lease to own program, but instead of paying down principal, the renter builds up credits, which can be used to purchase any available home in the Park.

The differentiating feature here is that the credits are not specific to the home they currently reside in.

Although it is indeed a rental, the tenant is building "equity" (credits) and has consequently....demonstrates pride of ownership and takes care of most minor repair issues on their own. The Park takes care of larger repair issues, which helps protect the value of the asset.

If anyone is interested in reading a little about the "colorful" and lucrative world of mobile home park investing, Bloomberg.com is running an article today on the subject. The authors did a commendable job showing both sides of the equation; mobile home parks offer investors stellar returns, but not without a lot of hard work and (at times) a challenging tenant base.

The article features my business partner, and Park Street Partners co-founder Jefferson Lilly.

http://www.bloomberg.com/news/2014-04-10/trailer-parks-lure-investors-pursuing-double-wide-returns.html

@Curt Smith regarding your mobile home park purchase contract question:

A mobile home park purchase contract is very similar to a standard apartment building purchase contract. However, here are a couple important contract clauses for mobile home park purchases:

1. Have the seller warrant that the property is currently permitted to operate as a mobile home park and has all the necessary zoning and regulatory approvals needed to maintain such approval.

2. Have the contract stipulate the exact number of permitted pads. The seller needs to warrant that there are no regulatory or non-regulatory restrictions that would limit your ability to replace a homes if one or more of the sites becomes vacant.

3. If pursuing bank financing, push for lender due diligence contract extensions. Non CMBS loans financed by regional banks take a long time to close. You'll want an automatic extension if you're able to show the seller a lender term sheet. Any seller acting in good faith should accommodate this request, but it's best to put it in the contract so you don't need to sign an amendment.

4. If seller financed - make sure it's non-recourse and that the promissory note has specific "cure rights" should you accidentally miss a payment.

5. Ensure the contract stipulates that you'll be purchasing all of the following:

• The land
• All improvements
• Any park owned homes (hopefully with titles)
• Any seller financed mobile home notes
• Any equipment necessary for park maintenance

Best of luck.

@Collin Goodwin

Here are four options.

1. Build a Mobile Home Park property management company from the ground up - cold call MHP owners (MHvillage.com has a comprehensive directory) and see if any of them are tired of managing their park (there will be plenty of people that say yes).
2. Negotiate a lease purchase, where you take over the management, pay the owner a monthly fee (similar to a ground lease with a purchase option), improve the park and then close at a later date when you have built up equity.
3. Identify a great deal, tie it up via an assignable purchase and sale agreement and reach out to a firm like ours. If we like and close the deal, we would pay you an acquisition fee and can explore hiring you to manage the park for a fee. Rinse and repeat until you have a portfolio of parks to manage.
4. Find hairy deal where the owner just wants someone else to deal with the park and is willing to do a 100% seller financed sale. These are not my favorite deals as the location / market is typically a disaster, but it is a way to get in the business without capital and the loan would be non-recourse to you.

Best of luck.