All Forum Posts by: Jim Johnson

I have a take on this subject though want to preface my comments by saying the RV Park business is not my strong suite. I think one can blame gas, or the age of the baby boomers, or the general economy but whatever you want to blame, RVing is down. In researching what they call "The Valley" in Texas... the area right along the RIO that is loaded with seasonal RV parks, there has been a slowdown since the September 11th events. The RV parks there are really hurting, and frankly the RV pads I believe are overbuilt for the demand. Now that is one state, and every place will have exceptions.

On a personal note... I own one of those RVs and am actually upgrading. In tracking the market, there are about at least 50% more RVs on the market today than a year ago. Prices of RVs are still trending down with coaches that would have sold last year for $110,000 on the market today for $60,000 and still sitting.

Now a bit on the RV Business. A park with a overnight component is managed very differently than a regular mobile home park. You can figure the vacancy factor is much higher, and the expenses per pad are also much higher. I personally believe the opportunity for theft is so great, it would be almost impossible to operate one of these communities and experience no loss due to employees pocketing some of the overnight money.

Marcial,
I like to look at the laws, and also the intent of the action. If your intention is to circumvent the law, by doing some trick into fooling the state or IRS, then I would say your really breaking the law. Your intention is clear. There is no real trick to being licensed. The education and the insurance and bonds will provide protection if someone comes after you once a home is sold. Rachel hits the nail on the head by saying you should play by the rules.

You are really looking for a triple net lease, with a option to buy. I have a pretty complex lease that was drafted by my attorney for this very purpose for mobile home parks. It basically states I operate the entire community, all expenses and improvements are on my dime. If the owner defaults, like death, IRS problems etc, or by mutual agreement I can trip the option. The lease for the park is pre set, and the purchase price is pre set as well. My in complex in that I have built in bumps for both the lease amount and the purchase price that are tied to the cost of living index in the largest metro area that adjoins the park... So the lease to the park owner can adjust every two years off the base line, and the purchase price is figured once off the base line as well.

I use a 2 bed, 2 bath apartment as the tracking devise. If the market rent is $500 in year 1... and adjusts to $550 in year 3, that is a 10% increase and my monthly payments to the owner would bump by 10%. If the next read was at $525... my payments would remain the same (I do not adjust down). If the next read it went back to $550, I go back to the new baseline, and do not adjust. So no adjustment again until the rents area over $550. The same adjustment for the price. If I was U/C for $100,000 and when the option tripped I was at a adjusted rent of $550, that is 10% over the baseline so my new purchase price is $550,000.
I only buy at VERY favorable CAP rates on the front end, like 20 CAPS or lease parks with huge upside in pad rent, expenses that can be passed on etc...
In advance, I am very open to sharing documents but I will not share this one. It is very complex and you really need to have your own agreement drafted if your going to play in this sandbox. I have shared the foundation of the lease, and will be happy to answer questions that might pertain to things I left out...

Originally posted by Ramon Pena Alvarado:

Im seeing a few deals here and there in the mobile home arena. Im curious about the expenses attached to mobile home parks.
In multi-family its safe to say that 50% is a good number, but Ive been seeing 30-40 % expenses on some parks. Are the owners just fudging?? Or are expeses really that much lower on MHP's?Thanks...
Ray..

Ramon,
This question is a bit more complex that you might realize. Expences on a park if your just tossing a general number out there vary depending on a few things. You really need to know what is included in space rent to determine this number. If the park provides water/sewer/trash to the tenants as a benefit, so it is not submetered by the owner or the city, you can figure your expenses IF your a well run park without water leaks in the main infrastructure or any of the tenants homes, will probably be around 40%. I am yet to see a park without leaks somewhere, so the actual expences will probably be closer to 40%. If the utilities are submetered, and you do not ahve lots of common area, so no pools, no clubhouse, no parks etc... you will probably run in the 25 to 30% range. Can you run a park with lower expenses, you bet. I have a park in Nebraska where the city charges for the water and sewer, I bill back for trash collection and the manager / bookkeeper charges $450 per month. My big expense in that park is taxes. It is under 15% if you toss in travel expenses...

So you might figure a rough estimate of NOI like this...

40 pads at $200 per month, owner pays all utilities.
so 40 x 200 x 12 = 96,000
96,000 x .6 = 57,600
now take the NOI and divide it by the CAP rate you want to buy the park for... so lets say a 12 CAP
57,600 / .12 = $480,000

14 CAP...
57,600 / .14 = $411,428

and so on... finding parks with expenses that can be cut are a real key to adding huge value quickly to a purchase. Take the same park and submeter water... thus lowering expenses to 25%...
40 x 200 x 12 x .75 = 72,000
CAP of 12... 72,000 / .12 = $600,000

that is $120,000 increase in value, on the same CAP, just for passing on the expense of water...

Now I am making it sound pretty easy where you must do a whole bunch of due diligence to know even if you can pass on expenses, and there is cost to buy there meters and labor to install them. So it is more complex thank I am making it sound here... but the concept is solid. Without rasing pad rent you can increase the value.
On a side note... in every park I have done this to the water consumption has gone down by at least 25%, in some cases over 50%. The tenants just fixed leaks...

This is a great thread as it cuts right to what makes investing in a MHP such a good investment. I will take some issue with the post on vacancy, as filling spaces can be tricky. I tend to look for primary upside in under market rents and in utilities that can be sub metered. These can be huge bumps to your NOI. You need to check in your due diligence with the state so you understand what sub metering consists of, as every state is different. In some state you have to register as a public utility! So watch out for that... As for filling pads. I have found that to do this you need to purchase the homes, set them up and then sell them on payments. In most markets you will need to budget about $10,000 per home, and find a way of managing that process from another state (unless you buy a park very close to where you live). I will not argue there is money to be made by filling a park, but if the home costs $10,000 to move in, and it increases the value of your park by $20,000 you might spend an whole lot of money putting 15 or 20 homes into your park. You also need a lot of disposable income to do so.

A word of caution: If your looking at this strategy you must have a park with enough pad rent to support a increased CAP rate. If your pad rent is $125 per month, your CAP increase might be $10,000 to the entire value of the park, or less depending on your expenses per pad. You really need to understand the relationship between a pad rented, the expenses and the total cost of buying, setting up and selling the home. In many parks pulling in homes is a wash at best. You might make your money back on the home, but is that your best investment dollar? This is a advanced technique for investors with skill sets in park management and in set up and sales of mobile homes.

Well... this is a interesting thread and I would say it depends. If the home is a rental, the same way you might rent a stick built home, the answer is probably yes. If your evicting a mobile home as a park owner, then you need to read the statute to see if different notice or procedures are mandated by a 'mobile home park act' of sorts that might exist in your state.

For example, in many states you need to give 60 days written notice if your making a rule change or raising rents in a mobile home park. Where in a rental, the code might mandate 30 days, or less. Back to the Colorado code, if I raise space rent I have to give 60 days notice, and provide the owners name, mailing address and phone number or the rent raise is not legal in a MHP. For a rental, the rules are different. So read the statutes as you might have the same property and two different levels of compliance to remain legal.

I think there are several layers to this post without many people knowing it. If your read the law in Colorado for instance, you need to be licensed if you sell homes, and also if you hold financing on homes. If you finance them over 12% interest, you need to also be a registered lender with the state of Colorado. So be sure you really read the fine print to see if there is a requirement to be licensed in your state...

Becky,
This is a loaded question but I will take a swing at it. Let me state, I am not a tax adviser or an attorney, this is just how I do things. I hold my notes in a S Corp. Could using a LLC with a 'S Corp Election' do the same thing, probably it could. I hold my notes and rental properties in separate entity's. I do hold my real property (rentals homes, multi family homes and mobile home parks) in separate LLCs. I hold every property in a separate LLC. Interest reporting to you is as ordinary income, and you give your buyer a 1098 each year. Then you file who you gave a 1098 to each year with the IRS. The IRS looks at your sale as a one time taxable event to you, this is somewhat complicated. If you buy a MH for $1000, and sell on a note for $5000, you have a taxable event of $4000 due the year you have sold the home. There is a process to discount the value of the note, say to $000 total. Then you have a taxable event of $3,000 and the rest of the taxes are due over the life of the note. Each principal payment would break down to 75% being tax free, and 25% being taxed as ordinary income. I recommend you look up Jon Hyre, realestatetaxlaw dot com. His accounting program is a great resource. he provides in debt accounting for Lonnie deals, and even a quickbooks template to get you started. You do go tot he DMV each time you sell a home, or if you do several each month you might go once a month. My paper work is not closed at the DMV, I have it closed off site, mostly by the park managers and it is notarized. I take the security agreement and the old title to the DMV and file the lien. Every property get recorded. As for forms... if you send me a email I will send you a copy of the forms I use. You should have an attorney in your state review the forms. Each state has different requirements so be careful. You might also look at a home that has a lien on it, and ask the owners for a copy of their paperwork to review. You might gleen some good information to what paperwork is necessary by doing that.

I hope that helps... I am sure I have created more questions than I answered, so feel free to post up any followups you want me to expand on.

Originally posted by Sean Ie:

Hey all!
First like to intro myself and say how great this forum is...

Has any of you bought or currently own any mobile home parks? Can you give me any experience details? I've been hearing that they can cash-flow really well. I own acres vacant land south of the Grand Canyon in a tiny town called Valle. There are some mobile home parks around there and it gave me some ideas :idea:

Also have a good friend looking to buys some value added parks and I'm interested in partnering up with her.

Thoughts?

Thanks in advance! :rock:

Sean,
I am pretty experienced in the area of investing in mobile home parks. I have bought 4, and have another under contract. I buy parks that have upside in some way, pad rent, expenses or mis management issues. So my strategy is great if you understand how to add value, and would be brain damage for a more casual investor looking for a property with stabilized income. Let me post a example:
I bough a park in Southern Colorado which was 40 spaces, $180 for pad rent, the park paid water/sewer/trash. The local market was closer to $250 for pad rent and the local market also was sub metering waster/sewer and charging back for trash. The water/sewer bills were about $45,000 annually. So I bought the property for $450,000. In the first 60 days I put in water meters, hired a on site manager and implemented a pad rent increase to $220 monthly. I had 2 abandon homes which I bonded for title on, had a rehab done and sold on notes. Over the course of the rest of that first year I pulled in two more homes, sold them on payments and had another pad fill from another park in town. At the one year mark I raised pad rent to $240 per month, and now have 39 pads full. I will probably fill the last pad sometime in the next 60 days, and sell the home on payments. The park today is worth about $930,000 on a 11 CAP, which is about right for that part of Colorado. With the last pad full it should settle right at $950,000. It cash flows very well because I eliminated the water/sewer expense, and have bumped pad rents by $60 per pad. So I can keep it and let it cash flow, or sell it and 1031x the $500,000 it has gone up in value...
I hear the question coming, is that kind of return typical? The answer is, it can be depending on what your buying, how well you do your due diligence, how picky you are on the deals you pull the trigger on, how skillfully you manage the parks etc.

I hope this helps...

Originally posted by Sonny Sonny:

Mobile Home Park right now. Expenses are 10% total of gross rent if even that. Park is in a very desirable location. I have depreciated all that I can & because of my current situation tax on them profits will be stinging.

Obviously I could do a crap load of upgrades or even expansion, but park is located over 700 miles away in the heart of the Smoky Mountains.

Never a vacancy & a waiting list if ever 1 old tenant should pass - Senior all Adult Park -

The Real Estate Broker - said SELL SELL - but her formula was 100 - 120 x's the monthly gross rent receipts. I figured that to low, given the fact that there is room for expansion

Course in today's environment finding a all cash buyer will be tough & a trade is not really doable unless of course the property trade is located in my neck of the woods

Thankyou for your reply

Sonny

Sonny,
I read your post and might shed some insight on how to value a MHP. I own 4 parks, in 4 states and have more coming my way. Anyway, the correct way if your valuing by the income approach is to take the total yearly gross income, subtract all of the expenses except debt service (principal and interest payments). That will give you a NOI. Now go back and look at the expenses line by line, and add back in the Capital Improvements, normally these will be deductible over 15 years in a MHP. Once you have NOI, you can divide by a CAP rate. You will have to do some checking in your area what your 'star' park (one star, two star etc) is selling for.
If you sell the park, it is good advise to use a broker. You probably want to find one that markets nationally as you will probably find your park sells to someone out of state. You might research other parks for sale in your area on the web sites mobilehomepsrkstore dot come, and loopnet dot com. Also, mobile home park store has links to brokers and investors that service your area. Just thoughts... and good luck with it...