All Forum Posts by: Daniel Smithson

Hey JC - welcome to the forums and cCongrats on your purchase! 

Contact Mobile Insurance Agency to see if they can help you out. They are a broker and deal with all of the major commercial carriers in the space so they'll be able to get you the best deal for your property.

Selling the homes vs renting them is your preference. If the homes rent for appreciably more than the lot rents to make it worth the extra overhead and headache, keep them. If the spread won't cover the additional maintenance, taxes, and other expenses, sell them off. If you sell, you should gain a more stable tenant base as well.

Hope that helps get you moving in the right direction. Good luck!

@Daniel Kyle - I don't have any experience in campgrounds or RV parks, but my wife and I kick around the idea of buying or building an RV resort in the smokies area quite often. Just love it there! 

I do have experience in MHPs and know that campgrounds are much more of an active business than passive real estate deals like MHPs. Not that it's a bad thing - the cash flow can often be better - but you will be putting your time into it or hiring out the people who will. And of course, location is even more important as you need customers who want to visit. You can create that demand with the right amenities, but you have to have a lot of capital to invest in building them. The nice thing about the Gatlinburg/Pigeon Forge area is that the amenities are already there, you just need the accommodations.

I'm following this thread because I'd like to know more about this too! Thanks!

@John Erlanger - I don't think either of us were insinuating what the market value would be as we don't have that information. It's quite easy to look at the numbers provided and back into what the capitalization rate would be on the asking price of the real estate. It's just a comparison metric to boil down net income vs price. The OP's job is to compare that number to where the market CAP rates are for comparable properties and negotiate from there.

My only point was that the asking price seems high based on the size of the deal, current income, and potential of the real estate. There are obviously more factors that go into underwriting a deal.

I calculated out about the same CAP rate as @Paul Moore which is high for a smaller park like this. Always look at it through the eyes of a lender and what kind of terms you can get on the deal. 

What are the market lot rents in that area? I assume they're higher than $200 unless it's a very rural area. Sometimes it's good to look at the end potential of a deal and see if the spread is worth it to you. It's not ideal to pay for unrealized upside, but in the competitive arena that is real estate today, you have to be willing to be flexible sometimes. Of course, that also means your underwriting has to be even stricter which means knowing the asset class right side up and upside down.

We were lucky to raise private money for our home purchases with the intent to BRRRRR (extra "R" for relocate) them with 21st Mortgage's used home program once they were rehabbed and rented in the park. If you're working with fewer than 10 open lots, they won't be a good option. We budgeted about $15k total cost on each one, which is likely the highest we could go with a refinance anyway since they're all 90's metal-on-metal homes.

If private money isn't an option, some local banks may be willing to do chattel loans or a business line of credit, but you're going to be looking at pretty small institutions. Most banks don't want to deal with $15k loans, especially with the added risk of still having to move and set up the home.

Despite their low purchase price, used homes can be very capital intensive. There is also the herding cats activity of setup, hookup, rehab, etc that really makes it difficult to justify in the end. We're going with new homes in the future since it will be less out of pocket up front and will attract a better tenant.

Rent Manager is the standard for the MHP space, but it gets pricey for a small portfolio. We plan to move in this direction when it makes financial sense. 

We currently use Tenant Cloud for our park and it does most of what we need it to do regarding invoicing, rent collection automation (online via bank transfer (Dwolla), credit card (stripe), or Paypal), online leases, background checks, and maintenance requests. It's not a perfect solution but the price is right for a small portfolio. 

Of course, many of our tenants (mostly the inherited ones) like to live "off the grid" and refuse to do anything not in cash. For them, we use a local bank with a deposit only account. The deposit slips are scanned so we can see who is paying. This comes with several caveats regarding accepting payments from a tenant who may be in default so you'll want to read up on it and make sure your lease is written in a way that this is less likely to come back and bite you in an eviction situation. For us, so far, it's not been a problem.

@Mike Reynolds - welcome to the MHP game! It's not an asset that banks or appraisers understand very well. Be thankful, not angry, that the bank is willing to underwrite it at all. Look at your job as educating them, but being willing to work around what their comfort level and underwriting rules allow. At the end of the day, you don't want ego to get in the way of a deal so roll with the punches and get it done!

To answer your big question - yes, it's totally normal for a seller to carry a second note to get the price they want. Your title company or closing lawyer should be able to draft this for you and file it with the county. Remind the seller that this note is sellable as well, they don't have to hold it for the full term. Just make sure the terms work for you. That's a reasonable accommodation for the seller to make given their lack of financials. 

Based on your numbers, there's a lot of potential in this deal to build equity quickly. Just make sure you have enough capital going into this deal to make the necessary improvements to the park and homes, not just the closing funds. 

A couple of DD questions to look into - don't feel like you have to answer them here:

1. How is demand in the area? If you've already rented 3 lots prior to closing, it seems like demand is good. If so, don't sweat the current tenants too much, just make sure you have some reserves set back for tenant turnover. You're likely going to turn over most POH tenants in the first year anyway. Remember that evicting for non-payment of rent is difficult right now so reserves are even more important.

2. What is the condition of the POHs? This is where you'll get burned. Walk them all. If every turn over leads to several grand in rehab to bring homes back up to sellable standards, it could eat into profitability for a long time. Grade them from A (just cleaning), B (light rehab - a few grand), C (heavy rehab - up to replacement cost), or D (tear it down and replace with new) and plan accordingly. 

3. Why are you pricing your rents so far below market ($450/mo?)? You should take your time easing your current resident into the market rent, but new lots and residents should be at market. If your park is nicer than the other park down the road and only two lights further, don't sell yourself short. This allows you to do more cap-ex projects and make your park as nice as it should be. Trust me, you want to attract the best tenants possible. You don't want to compete on price alone.

I've had movers quote us all over the place for moves and setups - everything from a $1000 (no way, these guys were fly by night, unlicensed and uninsured) to nearly $8k. Within the Chattanooga, TN MSA, we're usually around $3500 for move and set up on piers from a reputable company. If your area required concrete pads or anything else like that, plan on much more.

Utilities will vary depending on the distance from the utility hookup to the home. 

• Plumbing in a home with water and sewer already under the pad usually runs about $500-$1000 (they have to put all of the drain lines back on the home) but can vary depending on number and location of bathrooms and the kitchen. 
• 200 amp service pole with hookups to the house and permits, plan on about $1,500. 
• Plan on HVAC too as most cities will require a permanent heat and/or cooling source depending on your locale for the electric permit. Hooking an existing system back up is usually just a few hundred dollars up to $4,000 for a new unit with the install.

Homes run the gamut with prices. Everything from "Free, must be moved" to upwards of $30k for a lightly used, almost new home. Set up some craigslist alerts, keep an eye on FB marketplace, offer up, even your local paper will have leads on these. If you're really motivated, driving for dollars can land you some good leads. Hit up parks that are in the middle of replacing older homes with new ones - we grabbed a 5 home package deal for $12k last year doing that.

Is the park in a decent metro with access to municipal water? If so, at a $30k sales price, it could very well be worth tapping into that utility and getting the park back up and going quickly. If not, I'd start with the health department and see what is required to recertify the well. 

Also verify the zoning as part of the usual due-diligence on a park to make sure the park is still at least grandfathered in as an MHP. It should be, but I don't have any experience with totally abandoned parks. 

Sounds like an interesting problem to solve!

Agreed with Leslie. 15% is too low. Base industry accepted minimum is 30% on large parks. 40% if including utilities. Add 10+% for smaller parks.

You might gain some back if the roads are publicly owned and each lot has a direct tap to city water/sewer.