All Forum Posts by: Paul Stout

@Mike Stock The previous comments by @Jeffrey H. and @Thomas S. are spot on.  The only thing I would add is that if the market shows the demand you will also have to determine if that demand substantiates the cost of the homes you will place.  It is one thing to have buyers and another to have buyers with the ability to pay what you will need to ask.  You may have a hard time filling this park with homes in the price range that you will need to be at.  There are usually not enough used homes on the market and new homes may be above your highest logical price.  It is dangerous to pay more than the value of the pad itself.  In other words, whatever a home with an occupant will add to the value of the park, that is likely what your maximum purchase price should be.  

$225 X 12 = $2700

$2700 - 30% Expense Ratio = $1890

$1890 at a 10 cap = $18,900

That is just an example.  You will have to plug in your park's rent, expense ratio and your market's cap rate.  See bestplaces.net to see what the median household income and average rents are.  That should give you a rough idea of what the market can afford.  If your monthly housing bill costs your tenants more than 1/3 of their gross monthly income you are asking for defaults.  Stretching payments out past 3-5 years can also cause you some heartache.

@Account Closed If I knew more about the asset class I would certainly keep it and you being a mini storage investor I would expect you to keep it. I have to force myself to steer clear of all of the shiny objects I see every day.    The impulsive entrepreneurial me wants to keep it.  The logical focused me says stay with what you know.  This park has 100% direct billed utilities and that is a huge plus in the MHP market.  I would receive the same revenue with a mobile home and incur half the expense.  The park's current expense ratio is 16%.  Under my management I forecast 20%.

Not a bad thought @Mark Byrge  If the facility were larger that would definitely be worth a look.  I would say that the minimal income makes that strategy unlikely.  It would probably not be worth it for an operator.  Also, I do not see a higher and better use play on this property.  Anything can happen but based on the open nature of the surrounding area I don't think it's likely.

This is a great question @Mike Stock  I should have asked it before I put my current mobile home park under contract.  The park I have under contract has a small storage facility on the grounds too.  I can tell you how I evaluated it.  I don't know if it was the correct way or not.  This unit has (3) 12'X24' and (2) 24'X24' spaces.  The current EBITDA is $205 per month which I feel is under market.  I gave it no value on my offer price for the park since there are repairs needed and it will cost money to deed it separately.  I did assign a value in my loan application package to the banker.  Based on what I was able to find in the area I put the value at $31,500 which is based on a 10 cap and an expense ration of 25%.  I believe the monthly EBITDA should be $350.  It is at the edge of the park so I plan to deed it separately and sell it.  I am a mobile home park investor not a self storage facility investor.  The banker did not balk at those numbers at all and they are carrying paper on many self storage facilities in the area.  I gave him a pro forma based on me keeping it and one with me deeding it separately and selling it.  He felt that the price was reasonable based on recent sales of facilities in his area.  

$350 X 12 months = $4200

$4200 X 25% expense ratio =$3150

$3150 at 10 cap = $31500

My price quotes on survey and title work are $2500

Repairs will cost approximately $3000

I plan to sell FSBO so I should net around $25000

That will go directly to the bank to release the mortgage on that piece of the property.  I will probably ask $35000.  Again, I am not a mini storage investor so this could be way off.  My other though is to tear it down and place another mobile home.  Preliminary price quotes place the demo and site work to prepare for a mobile home in the $7500 range.  That will add more value and income to the overall picture.  Once I close I will do more in depth research to see what option makes the most sense.  The city is open to allowing me to add another mobile home lot.  The market is good for both storage facilities and mobile homes.  

Smaller parks can be tough.  Economy of scale.  I would say it is worth it if the market is starving for economical housing.  Look at best places.net to get some income and home prices in the area.  Also look at the unemployment rate and average rents.  If the home prices are below $80k then the low range homes are in the mobile home price range and it may be hard to compete with.  If the average rent is below about $650 the same applies.  You also want to know if there are a lot of land/home deals available in the area.  Those are bad.  The population is a little low.  The market drives the deal.  If you can get it tied up on contract for a price you feel is reasonable run some test ads.  If you don't get a few calls a day the demand is not there.  Make sure you have a contingency in your contract to cancel within your due dilligence period for any reason and you get your earnest money back.  It sounds like some of the homes may cost you money to remove aside from bringing new homes in.  It can cost over $5000 to move a home so be sure to factor that in.

Great point @Charlie DeHart I too have seen that scenario played out to the tune of taking a 22 space park. This man decided the same. Instead of renovating he would just sell for $1 and let the tenants fix them. Well they never did. Once they got too bad even for them the tenants left. They also stole anything of value.  His park now has three tenants due to that and other management missteps.  I am negotiating a purchase of the park.  It is hard for him to grasp that his park is now worth less than 10% of what he paid for it.  

I think your assessment of courses and gurus is correct for the most part @Daniel Boucher I am very skeptical of experts and programs and rarely pay money to purchase these things.  I am not recommending Johns course.  I am merely stating that he is out there and that he is successful at doing this.  There is need for research and common sense before one spend their hard earned money.

@Michael Fortier Park Street Partners website contains a lot of great info at parkstreetpartners.net.  I have also bought the mobile home university study course from Frank Rolfe and Dave Reynolds.  It is pricey but well worth the money.  Along with @Jefferson Lilly and Brad Johnsons podcast, which is excellent, check out @Kevin Bupp podcasts.  There are many focusing on MHP investments.  

Regarding @Account Closed comment regarding $1 mobile homes, he is 100% correct on the "skin in the game" issue.  However, there may be circumstances where that is the only option (albeit the last option).  So you must prepare for the worst case.  The MHP university audio course covers this in great detail with real world examples.  

I believe MHP investing is right for me and is an exceptional investment vehicle.  There are not as many experts available as there are with other classes but everyone in this class are eager to help and share their expertise.  I have reached out to most of them and they are all good people.  MHP investors provide a community service by providing low income families with the opportunity for affordable home ownership that they could otherwise never dream to attain.  It is truly in a class of its own in many aspects.

@Jabri Carter I was going to post a comment but it would be identical to what @Yany Rivera already stated.  John Fedro markets a program and even though I haven't invested in it, I have heard nothing but good reviews.  He also structures it as more of a partnership than a course.  It is worth looking into if your funds are limited and this is something you are going to pursue.  In the interest of full disclosure, I do not recommend investing in mobile homes.  However, I also understand that people will do what they set their mind to so the best advice I can give besides don't do it is if you do it, rely on an expert who has made it work to show you how he does it.  John Fedro is a genuine individual who has built great wealth atound the concept.  I personally recommend investing in the park instead of the home.  That does,of course, require much more capital.

I agree 100% @Jeffrey H.  That is a rule of thumb and as with all rules of thumb they are just a starting point.  You have t know your market.  Also, there is obviously an upper limit.  I can't say what that is but you probably nailed it in your example.  The rule does not determine value nor tell you what to spend.  It merely should alarm you if you are exceeding it.  That is all.