All Forum Posts by: Account Closed

The last park is in a county that levies a 15% tax on gross rents. In addition, there are some septic issues that are causing some inflated repair costs. The current NOI on that is around $40k. It's a home run but it needs about $200k of capital to fix some of the recurring infrastructure problems. It'll end up being a great deal but it's going to take a little work.

@Ronald Bourgeois These are subjective but it is a way to convey the quality of the asset.  3-4 star properties in my opinion have little to no deferred maintenance, they are well laid out and well planned,  have lots large enough for new home models, etc.  

I typically consider a 3 star quality park to be a good fit for most CMBS lenders.

I typically consider a 4-5 star quality park to be a good fit for Agency debt.

Again, the star system is subjective and that is how we typically use it. So, on a scale of 1-5 how nice is the park? I consider parks of a 3 star and up classification to be something a REIT would likely be interested in.

@Tyson Cross  You will!  All three came from brokers.  Once you get the first few under your belt, the broker world opens up.  These are smaller brokers too.  Not industry brokers.

@Gulliver R.  Andriy hit this concept perfectly.  Mobile home parks are a very different animal in that Andriy's scenario is not that uncommon.  We have the following under contract now:

122 (120occ) space park in western NY.  Lot rents $275 city w/s billed back, purchase price $3.77mm.  The market rent there is $505.  4 star community.

95(72occ) space park in MD.  Lot rents $240 well/septic, purchase price $1.65mm.  The market rent there is $465.  4 star community

90 (81occ) space park in MD. Lot rents $285 city w/septic, purchase price $950k.  Market rent is $465 (same market as above).  3+ star community.

Based on current financials, each of these deals are negative cash flows when the debt from the purchase is applied to previous year's financials. In fact, deal number 2 would have a DSCR of roughly .7 which is awful. However, the upside in these deals is unreal and pushes each over a 10CAP after stabilization. There aren't any park owned homes in any of these parks so stabilization takes place a few months after we send the rent raise letter. There is also very little market vacancy in any of the other parks so it would be shocking to lose a single resident jumping our rates close to market.

@Tony Sklavounakis Are you buying just the homes or the park+homes?  I would also disagree with you about weekly renters.  This is a budgeting strategy used by inexperienced landlords in an attempt to help budget for the tenants.  These are normally very irresponsible renters and weekly payments aren't scalable at all.  I can all but guarantee that when you make the switch to monthly you'll turn almost all of them and be rehabbing 11 homes.  Just my 2 cents.

@Zak K. We do pay for this and it all comes in rent manager with many more features not listed.  RMO is $75 per month per account and a small <100 unit owner can likely get away with having only one account.  The only thing it doesn't do, as far as I know, is auto post to Craigslist.  Even if it did, Craigslist change their algorithms very often so I'm sure it would have bugs.  We use a virtual assistant for Craigslist and they build the ads out of the information on file in rent manager.  We also have multiple email/phone numbers tied to craigslist accounts and go through a series of proxies to ensure we aren't getting flagged immediately.   We have competitors in this market but we tend to bury their ads a few pages back.

CAP rate is largely irrelevant on the purchase Abad. This is especially true if you are doing deals that are distressed. We've actually done a few deals where the previous owner had a negative NOI. As far as what we do, we approach each deal from the standpoint of, "If we applied our business model to this property, what would it look like." Once we approach a deal from that standpoint, we are looking to achieve a 16% cash on cash return in year 1 and 20+% by year 2.

As an example, we bought a deal last September where the owner had an NOI of $35,000. We paid $750,000 for that property. If I annualize it's performance now, the NOI will be $90,000 for the first 12 months. We are hitting a 20% CoC on this and it would likely trade for $1,000,000+ once it's seasoned. All of our changes were very minor such as improving collections, a rent increase, leasing up a few vacant units, and cutting a few unnecessary expenses. This is an example of a 5CAP purchase that is turning out to be a very solid deal.

@Nate Pattee You might consider calling 21st Mortgage.  They should be able to give you an idea what the new home financing will look like for your customers and you should be able to run a few test ads on Craigslist to see if you have demand at that price point.  The out of pocket per home is usually around $6,000 to set up the home and it gets reimbursed once the customer buys the home.  In all of the parks we use 21st, we literally can't keep inventory.  We sell them as fast as we get them.  If you stay on top of your marketing, the customers can afford the price point, and you have a decent manager, it wouldn't be unheard of to fill all of those lots in 12 months or less.

As an aside, 21st is a bit of a pain to work with but overall, they get the job done.  

@Gulliver R.  Usually you'll involve experts in diligence who will tell you how much life you have left and how expensive the replacement will be.  From there, you back into your savings budget.  Same concept as saving for a large purchase in normal life.  ex: I'd like to buy a $50,000 car in two years with cash.  I need to save ($50,000/24months) $2,083 per month to get there.  ex:  I'll need to fully replace my WWTP within 15 years.  I need to save ($500,000/180months) $2,778 to get there.

@Gulliver R.  We do have tenants pay for there own utilities in every park we own.  However, Capital repairs are usually not allowed to be passed through to the tenants.  For instance, if I have a septic failure, it's not really possible to pass through the $5,000-$10,000 repair cost to the tenant. If my lift station requires a $15,000 upgrade (lift station on city sewer), I can't pass it through.  The exception would be if you are a licensed utility provider.  These items are not usually booked as an expense.  They are usually an investment (asset).  They are an investment when you save for them because you will generally put the reserve money in a money market account and they are an investment when you use the money because they will be depreciated through the years and booked as an asset to land improvements (or a sub-account).

On the expense side, when you bill back, you will experience loss.  Usually in the ~10%-20% range.  This is usually in the form of bad debt but can also be from using the incorrect variance to calculate the utility rate (very common).  You will also be responsible for the line maintenance (sewer unclogs, tracking down/fixing leaks, etc.)  So, you're effective loss when billing back is maybe 20%-30% depending on the lines and how they were installed.

I hope this helps.  These things are always easier when looking at a specific deal.  I've looked at thousands of deals and I can usually nail down reserves and costs on utilities pretty well when looking at a specific deal.