All Forum Posts by: Jim Johnson

So I use a slightly modified commercial real estate contract. I never use a Letter of Intent, and when selling, I require full contracts. If presented with a letter of intent and a contract for basically the same offer, I would take the contract every time. I know opinions vary and I am not trying to forge a rabbit trail here. I just extend the dates a bit from a general purchase and sale agreement. I tie most of my dates into the end of the 'due diligence' or 'inspection / objection/ dates- what ever you call it in your part of the country. So I put in I want say 20 days for the owner to provide me with the document package, and if the documents are not provided by the 20th day, there are automatic extensions built in to push that date out. Only I (buyer) can push that date. If the seller blows the date  I can call the contract in default and walk from the deal. Or, I can precede, or extend. There are several auto extensions built into this one area. Sometimes the documents can take a month or longer to get. Then- once the 'document deadline' (DD) is met all other dates can be added in, as they say things like- Inspection Objection deadline is 45 days after DD. Though, I do have an auto extend built into the inspection objection deadline also. If you want a phase 1, and it is winter- you need some fudge in your inspection deadline because snow followed by a hard freeze can blow dates pretty quick. There are also times of the year- like the months November and December and January that can be very slow for inspections because people work less. 

So- if your going to build a contract- I recommend you set the first dates, and let the rest flow from the first one. 

Also- I use the same real estate contract in every state. Its a contract and I am not a real estate agent so, I do not have laws stating I can only use certain contracts etc. If the seller does not like something in the contract they can counter. I also always ask if I can present my contract to the seller. I will send them a copy of the contact and then set up my computer to share the screen. That way I can go through the contract section by section so they can fully understand it. If they have questions I can answer them instead of a real estate agent guessing what something might mean. 

I also want the seller to hear me, to feel my competence and energy. I want them assured I am the best person to buy the park. I really want that if the seller is financing the park. So my advise is to know your contract inside and out. Find someone you can present it too. Practice it several times a day for several weeks. Have your friends listen and ask questions in the middle of you presenting. You do not want to be caught not knowing what terms mean because you need to be the expert in the room. 

ok- off that soapbox. I will say I have used the same contract for about 10 years now. I modify it a little from time to time and have used it in several states. 

People will ask- the answer is no. I will not share it. The contract is written for my style of putting deals under contract. It is set to my cadence, my flow chart for due diligence. I am experienced so I do things differently then people just getting in as my comfort level in the evaluation and due diligence process is pretty advanced. 

But that said- I did share some fairly advanced contractual things, and if you can figure out your pace and stay on top of the flow of dates and deadlines- a contract that flows like mine can save your behind. It forces the owner to get you documents quickly for review, and allows you to massage the dates a bit without needing more documents signed. One last date you REALLY need to have auto extensions put in for is the appraisal deadline. I just did a deal in the mid west and the appraisal took 60 days. I had 20 built into the contract. Some banks will only use one person, and if they are backed up- your hosed. So that auto extend allowed me to stay in contract and I was able to not default. Because the date for earnest money to go hard is tied to the appraisal, I remained safe in case the property did not appraise. 

So a bit of advise- getting parks that are operating and keeping them going is one thing- Jumping in and rehabbing homes and filling them with renters or buyers is quite another. They are not one inn the same skill set. Managing that process of filling homes and fixing homes is tricky no matter what- when you bankroll is with like 4-5 houses- I can not see how you can keep your head above water. 

This park sounds like it needs a local retired handyman who wants to put some sweat equity into a park and make a few bucks selling it down the road. The owner is selling you on what is called -pro forma, or what the park can do once it is up and going. At 40% I do not think a bank would touch it unless you have a strong relationship and they know you will take a loss and pay anyway. 

Buying repo homes is touch and go at best. 

I would guess you have an owner that bought a park that was full and rented out. He has people moving out and he does not have enough cash flow to make the loan payment and fix a house. If you lease the park, I would make sure you have full control of making the loan payment, and I would have a 'performance quit claim deed' with some solid trip provisions built in so if the owner goes sideways you can grab full control. If there is no underling debt you need something that converts a purchase price into a note you can make payments on in case of a death. Well- you do not need to do anything- but I have all of that plus a lot more in my lease options I use to secure parks long term. 

@Zk Lani That can be a really good size town. The park that has increased the most in my portfolio, it has increased about 400% since I have purchased it is in a market just like that. 30,000 metro area, in a very close small outlying town. The town has very steady growth. 

Some states, especially in the Mid west, are really built on chains of what I would call mid size city's. They have great bones and are very solid as they support all of the smaller communities the surround them. They have small colleges, a level 1 trauma center, they are the county seat. They tend to have diverse employment. 

Good luck with your swing at the fence and keep us updated on your progress. 

ok. So this is just a rental park. Off the bat- it is very very very small unless you have another property in the area or live really close. Rents for the homes must be around $600 per month to come to a 50 - 60 net. 

Your looking at paying $47,000 per pad- which is very high. 

Adding homes will cost you the cost of the pad and of the home. 

I think the park is valued on net income and not by breaking the park into the park components and the rental home components. 

I do not even look at parks less than 40 pads- too small and not enough tenants to spread the expenses around. 

If your moving forward, your next step is to know prevailing space rent for parks in the same are with the same amenities. Then you can break the gross income into space rent and home rent.

Then you need value the park as a park, and then value the homes based on age, turnover, condition etc... 

Then you plug in the income to see if it all fits together.

I suspect, the park is overpriced by a long shot- again- unless the location can be a McDonnalds or a gas station. 

Value is 1 of 3 things- and the process is called 'highest and best use'.

1) market value (like regular homes most of us live in)

2) income approach (Gross income - expenses (no debt service) / CAP rate)

3) highest and best use... geesh- this corner is right were a Mc Donnalds would put a restaurant. So it is not worth $300,000 but is worth $750,000

To get that type of valuation you would need to use an MAI for your appraisal. Regular home appraisers are not accredited to make a valuation like this. 

It is best to evaluate them as separate businesses.

Value your park based on space rents and break down the given operating expenses. Then add in reasonable and customary expenses the seller left out. Then do the same for the income that comes from the homes. 

Typical for me- if the homes are older a rough value per home is 18 months of income. You can also have the insurance company help with this. I call this 'blow away value'. If the home was blown off the lot, wind... what would the insurance company pay out. That will help settle values as well.

You can not capitalize the income or you will be paying $30,000 for a home worth $8,000. 

You also need to figure in maintaining and turn over. Rental homes are very, very costly. 

I have seen many cases where after expenses they only break even. You might as well give them tot he residents. 

 So prior to both was Mobile Home Millions. Dave and Frank were both presenters at mobile home millions. They felt they could put on a better gig. So The Mobile Home Park Store started the 'Bootcamp'. Mobile Home University was a separate forum operating by separate people. Dave and Frank bought MH University and folded the "bootcamp" under that entity. MH Academy came into the game along side MH University and The MHPS Bootcamp. 

There seems to be some bleeding of information that flows back into mobile home millions for all of the education stuff that exists today. Dave and Franks stuff is pretty original, and the data package they give you is purely from them. When you come right down too it, you have a few different people teaching much the same stuff. Its like going to any school or reading most any textbook, much the same data, authors write and present it with their own flair. 

So to answer a question like this you need to provide some additional info.

How big is the park? spaces?

How much is the space rent?

How much income comes fro rentals?

If the total income for the park is 50 - 60 k- it is not worth 525K unless that is something really special concerning the land or location. It is probably 5 or a 6 CAP park at that point. Unless your saying the NET is 50 - 60 k a year- but I think that is probably Gross.

Fill in the blanks and we can give this a go

It sounds like you have a great opportunity on a few levels. First, once you have the park under contract and all of your data you can really evaluate if you have a deal or not. The current owners cash flow means little, as they will not be in the same debt or probably management spot your in. Small parks cost more per pad to operate so the numbers shift as park sizes vary. A water leak fixed by a plumber is the same $1000 if you have 30 pads or 300. Absorbing the cost per lot is easy to see this way- It is $33 per lot on the small park and $3.30 on the large one. If your pas rent is say- #00 per month to keep the numbers simple- that is 10% of the gross on the smaller park. If your space rent is more like 150 per month- you at 20%... now your probably not making money that month as your profit is eaten up by expenses. 

Be very careful when looking at parks with a small number of pads.

Lending- tricky. I happen to have lots of experience and when I call a bank for a loan or refi they always ask about me. I give them my history, and the questions go away. I actually have an intro letter I send with the loan documents they ask for. That said, I get asked a lot to be partners with people that have not been in the business just so they can get a loan and have someone experienced in the drivers eat to run the asset. 

My advise to you is- if you really want to learn how to do this, start with a class. I am partial to the MHU Bootcamp but when I got in there was not bootcamp. I got in by partnering with someone- and it happened to be Dave Reynolds. So purchased parks together and he guided me through operating them. Now that said- I had lots and lots of years in finding, putting under contract, doing due diligence and operating rental property so I was not by any stretch of the imagination green. 

Some big tips. If your not really confident putting the park under contract, hire or partner with someone who is. 

You make your money with you buy- you realize your gain when you sell. Screw up the buy side you have no chance on the sell side.

Due diligence- same thing here- unless you really know what your doing- hire this out. If you want local electricians, plumbers etc that is all good and recommended. Also- find someone that understand parks. That is critical. Someone that understands the 'what if' stuff and talks you through it. Anyone can operate a park when things go well, a good onsite due diligence person will rep you for what you might expect if the wheels come off. 

Educate / Hire / Partner

And remember- getting that first and maybe second loan will be easier if you have someone with experience on the ticket. 

So we have had zoning changes in parks we have owned and they can put huge restriction on your property. A park I have in Nebraska was just  affected when the Village wrote up new laws for mobile home parks. Any home moved in must be no more than 10 years old. When homes are pulled in a safety inspection must be paid for prior to the home being occupied. Though, there is no real checklist on what they are looking for or what the standards are. When I got the park you could pull anything into the community. 

In short, they can squeeze you. 

Things to really look out for are an age restriction, setback requirements, SQ Foot restrictions and time constraints. There is a county in Colorado that has a rule for non conforming parks. it says in a non conforming park if a home is pulled out a home no larger than the one pulled out can be put in, and it also states if the lot is vacant for longer than 90 days you can not put a home back on the lot. 

So- read the zoning and land use sections of the code. You might also contact the city or county and ask if there are any discussions concerning mobile home parks or manufactured housing that have been considered or brought to discussion in the last year. IF so- get copies of minutes and ask questions. 

If I were buying in the area- and if I was going to hire someone to tell me about the system here is what I would do.

These systems are not serviced by run of the mill plumbers- your looking for someone that pumps septic systems. And the bottom line here is- they are few and far between. So- you can in the course of your due diligence ask for the name of the company that pumped or serviced the tanks or fields over the last 3 years. I would also make calls to each of the local pumpers and just ask questions. Let them know the property your looking at and ask if they have ever worked on the system. Ask if they know anything about the system. Ask if they have not worked on it- who their best bet was to have worked on the system. Ask if they inspect systems and what the inspection consists of and what they charge. 

You are probably only a few phone calls away from finding the company that services the system.

Also- and this is key- ask if they would recommend any upgrades to improve the system. This will let you know if there is something missing, like easy access to the openings of the septic tanks, or maybe the tanks have 2 openings but only one is uncovered. Or they might let you know if they are called to any particular place more often, and maybe disclose a collapsed line or a field that is no longer supporting the evaporation necessary for the home. 

If you can get the guy that runs the service truck on the phone dig deep for what goes right, and what goes wrong with the system.

This is key to any contractor that maintains the property. Do the same thing for the electrician, the guy (in a regular sewer system park) that cleans the sewer lines. Meet with everyone after asking the big questions on the phone. Let them know you want the park to be perfect and ask them what needs to be done to make it so. 

Now- take what is said with a grain of salt... remember- they see $ signs and want lots of work. Some things are nice, but look for the things that create service calls. A sewer line costs, call it $300 to snake weather it is a park with 1000 units or a park with 10. If you have a lower unit count and a lower space rent- you REALLY need to watch the big ticket expenses.