All Forum Posts by: JC K.

Try some of the smaller local banks.  Often they can provide good terms.  You have to get to know each other.

@Mike Gruttadaro, I love that you are making this happen and appreciate you are willing to share your experience.  I think I understand.   Your plan to lease to own homes is working out great, but with your goal to expand you'll ultimately end up with 'still too many POHs', despite your past success.  Have you had many of the new tenant/buyers move out?  If so, that is definitely a red flag.  

Here is something to consider. In theory, those added POHs are also contributing to your overall park expenses. If you account for those expenses then your return on cash would be lower than what you are calculating. If the overall return on cash on the park is being increased by adding homes, then you have a great thing going. Obviously when you do this you also increase NOI and market cap. However, if your return on cash is decreasing as you add homes then the math gets a little more complicated.

I bring this up because I am evaluating a similar situation. I found that I only want to add a certain number of homes at a given $/home because my return on cash diminishes the more homes I add. Despite this I still find it beneficial to add a number of homes because of the increase in NOI and market cap.

As for expanding an existing park, I think you'll find your return on cash will get a big hit.  I don't really have any numbers to share, but say you spend $15K per lot to develop roads/utilities and $30K to bring homes, then your return on cash could be below 10%.   Getting loans to develop lots seems to be a bit difficult these days.  On the other hand, if you were to build storage facilities instead you may be able to get bank financing and leverage the bank's money to maintain a healthier return on cash.  If you are not into storage facilities, then why not take that cash you would use to develop lots and use it instead to buy another park for way less than $45K per lot?

Please continue to share.  I'd love to know what you think after talking to the guys at 21st.  They have three types of programs they call CASH.  One is for used homes, one is for new homes and one is for rentals.  It seems to me they do work with manufacturers to move homes to parks much in the manner you eluded to in your post.  

Looking forward to learning of your continued success!

@Mike Gruttadaro I am very interested in your strategy and learning about your success.  Do I understand correctly that you have been successful in acquiring homes, but perhaps not so much in the lease to own side of things?

Have you looked into 21st Mortgage CASH program for used homes?  I recently spoke with one of their reps and I see some really good opportunities for investors that want to sell their POHs. I encourage you to give them a call. This may be a very good alternative for you. 

Would you please share a bit more about your strategy to fill your parks?

What kind of vacancy did you start with?

How many homes per year are you adding?

What is your roughaverage cost to buy, move, setup, and fix homes?

What is the average rent on POHs?

Will capital infusions lower return on cash to the point you may consider drawing the line at some point?

Your thoughts would be greatly appreciated. 

@Debra Nolan, I agree with Brian's advice.  As for your second question, here are some thoughts:

I want economy of scale!  The more units the better.  

I want the most leverage I can get!  If I could I would buy a $2,500,000 park with $250,000. Buying a $250,000 doesn't give me any leverage. 

How to get both of these things?

1) Master lease agreement (lease to own). Not as easy to accomplish, especially if you don't have the past experience a seller may want to see. 

2) Seller financing. The links Brian provided will be helpful. You need to develop strong relationships with owners. Don't start by asking for seller financing from the start. You'll need a strategy on how and when to approach the subject

3) Seller carrying a small note. I currently have a park under contract where the seller will carry a note for 15% of the purchase price. I also have a bank that is looking for 80% LTV and is willing to consider the seller's note in my favor. Therefore I only need to put 5% down. In your case, if you could replicate this you could buy a $5M park, IN THEORY. I say in theory, because at some point the lender is going to say NO WAY! Figure out what a lender will allow you to do.

Again, don't start your conversations with the seller by asking them to carry a note.  Again, you'll need an excellent relationship with the seller. 

4) Bank financing. Look for the local bank that will give you the highest LTV terms.

There are other approaches out there, but this is more or less my map. 

Identifying the right property and seller is key!

Finally, you are the only person that can determine the level of risk you can take. If you leverage too much and things go bad then you could lose everything!

Keep us posted. 

@Sonia Spangenberg, there are a couple of podcasts on building a MHP database in the mobile home park academy. Episodes 7 and 40. Hope this link works: 

http://mobilehomeparkacademy.com/ep-7-how-to-build...

For me, the best way to learn is to go thru the motions. I suggest doing this even if you aren't exactly ready to buy a park. Try not to spend money in doing so.  Don't fall in love with your first deal. 

I would also encourage you to setup some goals and time frames such as:

0 to 3 months:

Study all the free info online 

Practice valuing parks 

Contact all local park owners

Get your down payment ready

Start a MHP data base

3 to 6 months:

Expand your geographical market

Send mailers, make cold calls

Define your ideal park

Write your first LOI

Perform due diligence on one park without spending money (or spend little)

Develop a financial plan

Meet with lenders

6 to 9 months

Continue making offers and hope to close on one park.

...

Double cap rate in one year

Buy another park and repeat

Retire from your job

Write a book about your success 

Travel the world,

Run for mayor

Don't let the availability and proximity of the park draw you in without a sound financial analysis.  

The reason for not developing additional lots is that you will likely not make money on this.  

Unless you have experience with private utilities or have a person that knows this stuff very well you should stay away from those.  You don't know what you don't know.  These things could become an environmental liability, they could require expensive upgrades/repairs, etc.

If you still feel you want to pursue this, then develop a good relationship with the seller.  See if you can work together to fill vacancies.  Get him to lower the price and/or lower the down payment.  You may also want to research Master Lease Agreements.

What is it about this park that you drew you in?

I think it is very overpriced. 

Why are homes vacant?

I would not plan on developing lots, nor the income from selling homes. 

Who will manage?

There is no economy of scale. 

Sceptic and well water aren't desirable. 

I tend to agree the asking price is too high.  One negotiation strategy is to explain to the seller that lenders will typically want a cap rate ranging from 9% to 11%, depending on location.  This leaves the seller a few options: 1) Seller finance (or lease to own, or some other creative approach), 2) Lower asking price, 3) Sit on the market for a few years waiting for a fool. 

You may just want to move on to greener pastures.

Assuming no surprises (i.e. environmental issues, permitting issues, etc), you would most likely have okay cash flow from the start even if you did nothing. 

Take a look at the water bills.  I assure you you'll find high bills.  Tenants have no incentives to fix leaks if the park is paying the bill.  Therefore, if you sub-meter you can probably make some good money and significantly increase cap rate.

Then you could probably make some improvements to the park and raise rents.

Bottom line is I would do a financial analysis making worst case scenario assumptions to see what to offer.  If you want some help with this I'd be happy to run a few scenarios for you, free of charge.