All Forum Posts by: Frank Rolfe

42 x $325 x 12 x .6 = $98,280 estimated net income. Those 3 RVs are not what a bank is going to want to see so they better be nice looking and have all the trappings of long term with outdoor furniture, etc.

11 POH are probably worthless as you need to put more money into them for rehab than they will bring to sell them unless they are 1990s or newer and you can get on with 21st Mortgage at a value of probably $10,000 a piece.

Not sure what the stick-built house will rent for since it's inside a trailer park.

I'm guessing your first offer would be around $1.2 million.

But the big question on the value would be the location. Both size of metro as well as housing prices.

The other big item is what the market lot rent is vs. the current rent.

Terrible deal. Let's dissect it by separating the real property (land) and personal property (homes):

Assuming the lot rent in the area is $250 per month, then the numbers would probably be:

7 x $250 x 12 x .5 = NOI $10,500. At a 10% cap rate that's a value of $105,000.

As for the homes, if they are older than 1990 then they are probably worthless because the cost to make them in good condition to sell them is more than they will sell for. If they are 1990's or newer then they might be worth $10,000 a piece, but even then you have too few of them to get with 21st Mortgage to offer mortgages on them. But if they were all 1990s in perfect condition, that's only a value of $70,000.

So the absolute most this deal is worth is more like $175,000.

But even then, there's the issue with well water and septic -- private utilities on parks that small is often a suicide mission as if one goes out the cost to put it back in service will destroy your numbers (remember that it costs the same to build a well to serve 100 lots as it does 10 lots).

Just trying to keep you out of trouble.

There are so many items you need to check on a mobile home park in due diligence and we wrote a course around it.

Here is a short list of the most "deal-killing" items:

1) Test ad.

2) Certificate of Zoning from the city or county.

3) Phase I environmental report.

4) Review of last 3 years of P&L (and tax returns if available).

5) Forward forecasting budget.

6) Rent roll and payment history.

7) Review of the water, sewer and electric systems.

8) Size of each lot.

9) Confirmation of which homes are occupied and which are vacant.

10) Rent comps on all competing mobile home parks.

11) Study of the metro market.

12) Survey and title.

Mobile home parks are much more complicated than they look. "Due diligence is the mother of good luck" according to Ben Franklin (even though he never owned a mobile home park). Those who do great due diligence seem to always succeed and those that don't often go broke because diligence makes your purchase an investment as opposed to speculation.

Rule #1 in paving: don't ballpark it. 

We have paved millions of dollars of park roads over the last 25 years. What you are going to find is the price throughout the U.S. is enormously variable. So rather than "guess" at the price, get an estimate or two.

When you are paving asphalt over a gravel road, you are talking about a "from scratch" job, as opposed to adding an asphalt overlay on top of an existing asphalt surface. So you need to know it's going to be really expensive.

Before you go forward consider two other options:

1) Use a "road base" surface (also known as "caliche") which is a step up from gravel but relatively inexpensive. This is the same material that you put under asphalt, but works perfectly fine without asphalt on top. Some lenders will allow this -- particularly in states that have a lot of severe weather or mountainous terrain.

2) Put down a "chip and seal" road, in which you put down tar and then aggregate on top. That's a standard approach for many county roads, and is well-known for lower cost and durability.

As long as you are trying to improve the roads, don't forget to install paved "parking pads" -- typically 20' x 20' squares to park two cars on each lot. Lenders are as particular on this as on road surface. 

An inexpensive parking pad option (asphalt and concrete are the standard methods) is to form a 20' x 20' square on each lot with landscaping timbers, metal edging or even railroad ties, and then filling that box in with crushed granite or some other type of rock.

Replacing roads is one of the highest capital items in any park project, so make sure that your deal will support this cost. Get three bids during due diligence and make sure you have the room in your budget to get it done. If a park needs $200,000 of road repair and it costs $600,000 for the park, then the total price is actually $800,000, not $600,000. Make sure that all of your macro budgets and goals are based on reasonable expectations.

Nathan,

A Phase I Environmental Survey is a study done by a licensed environmental engineer that reviews whether or not the property is potentially polluted. This can be from a number of factors including leaching from neighboring contaminated land, but most commonly mobile home parks can fail the test due to stupid things that owners did in the past such as burying trash (results in becoming a landfill) or installing gas tanks (either commercially or for their own use). A Phase I costs around $2,500. I would NEVER buy a property without a Phase I being conducted as the downside will surely bankrupt you if it turns into a significant contamination site.

Only about 1 in every 100 properties we have studied have had a contamination issue, but the risk is too great not to have the study conducted. Most sophisticated lenders require a Phase I before they will make a loan on any property. Over the past 25 years we have uncovered some massive disasters that we fortunately were then able to cancel the contract on during due diligence.

The best guy in the U.S. for doing a Phase I is Mike Renz with Renz Environmental in Ohio -- he goes nationwide. We have probably done 200+ Phase I examinations with him. But regardless of who you use, the key thing is to definitely do it.

Do not buy a mobile home parks that has:

1) No operating permit as evidenced by a Certificate of Zoning.

2) No demand as verified by running test advertisements.

3) Failing private utilities unless you have an approved plan to fix them and can afford to do so.

4) Dirt roads unless you have a lender that will finance it, or the capital budgeted to pave them.

5) One individual (other than the park owner) that owns a huge number of the homes (most lenders will not make a loan if one person owns more than 5% of the homes).

6) Does not have a clean Phase I environmental assessment.

7) Does not have a clean survey.

8) Does not have a clean title.

9) Is overpriced in such a manner that you will not make money with it based on reasonable performance.

10) Does not have a healthy risk/reward relationship (buy low risk with high reward and avoid high risk with low reward).

Why are you following this path and not simply surrendering the title to the mobile home, making it part of the real property, and then selling it as a single-family home for cash with a real mortgage on it? 

That would be hugely easier and more profitable in this case.

It's been done but only in RV parks. "Glamping" (glamour camping) has been around for a few years now and people pay AirBNB prices for the novelty in staying in an updated Airstream or similar travel trailer. Some owners are reporting AirBNB revenues of up to a third of their gross revenue in great locations.

I don't think that you'd be successful with a mobile home park version of glamping unless you had just the right niche as most people have a very negative stereotype of "trailer parks" and would not want to stay there even for the novelty of it. You would need an audience that thinks of the glory days of mobile home parks (the Elvis years of 1950s and 1960s) and not the Eminem "8-Mile" version.

If you do it properly, yes. If you don't, then no.

If you can afford it, mobile home parks are far superior investments to mobile homes.

Before you do anything LEARN what you are doing. You can get a ton of information online -- just Google.

Embrace the concept "think like a person of action and act like a person of thought". 

All that being said, don't be afraid to take action, and that means you should start learning immediately about any investment options that interest you.

When I got into the mobile home park business everyone said I was an idiot. Disregard what others say. Learn the basics and, if you are still interested, start making offers.

"Rent to own" became illegal in 2008 with the SAFE Act, unless the park owner is SAFE Act licensed and follows the laws of the SAFE Act and the 2010 Dodd Frank laws. A "rent to own" agreement is considered a "disguised mortgage" under the law. So probably all of those transactions you are inheriting in this sale are actually technically wrong. That being said, you have to honor all signed leases and agreements when you buy the park, so you can't just suddenly say "wait, these are not SAFE Act compliant and therefore void" because they're probably not. It's an issue that there is no case law for, as far as I know, and another moment in which the government's direction is not clear. So most park owners simply service these inherited agreements until the tenant either ends up with the home or runs off and abandons it.

In valuing these, you should certainly put very little value in the homes to begin with, and even less in these documents. Only 1990 and newer homes actually hold value, as you can get actual mortgages placed on them by actual SAFE Act complaint mortgage providers like 21st Mortgage, PEP and Triad among others. But nobody does real mortgages on 1980s and older homes, so they are effectively worthless. You will spend around $5,000 renovating a 1970s or 80s home only to find it will sell for maybe $1,000 on the open market. As a result, most park owner simply give these homes away to the existing customer rather than even get involved in them.

The bottom line is that you should not put any value at all on these homes if they are older than 1990, regardless of whether they have these potentially incorrect "rent to own" documents or not.

Buy the park based on the "real property" income which is the lot rent. Don't put any value on the homes or their "personal property" income.