All Forum Posts by: Paul Stout

Yes @Travis Weldon

@Anthony PatriziI had the same thing happen and then I contacted First Financial and spoke to Barb Quinlan. The refi was easy and my appraisal came back $40k higher than the brokers appraiser. They also do 90% LTV on HELOC's. I was very pleased with their service. I think the branch I worked with was in Highland.

@Andrew Clark Always double check your rule of thumb with hard calculations. The lower the ARV the less room for error. Be very conservative on your ARV (final sale could be 10%-15% below your asking), don't forget to factor in construction overruns and discovery work (typically budget a 15% cushion), don't forget to budget acquisition costs (6%-10% of purchase price), selling costs (6%-10% of ARV) and holding costs (be conservative it will almost always take longer than you think or than your contractor tells you and may take more time than anticipated to sell and for buyers to secure funding). If you buy a home with an ARV of $250,000 a $5,000 oversight can still make you a nice profit. On the above example a $5,000 oversight will bury you. I agree that partnering or seeking other sources of funding is a good idea. Without experience it can be difficult though. You may be better served leveraging the $25,000 into a $125,000 buy and hold property or use some of it to launch a marketing campaign to wholesale, wholetail, or BRRRR.

Try the BP Marketplace.

Welcome @Scott Jones!

It's pretty much a given that you will not have top quality management in the MHP business @Hannah Hammond.  The key to a successful MHP investment is not the management, it is the systems.  There is training and assistance available out there.  Don't be afraid to make a $1,000,000 offer on one of those parks in your area that is listed for over $1,000,000.  Remember too that if you set your closing date correctly the rent credits and security deposits are buyer credits on the closing statement.  On a 75-100 space park that could be a substantial sum of money.  Most MHP investors accept that their investments will be some distance away.  With the proper systems it shouldn't be a problem.  Factor in your travel expenses when you evaluate the park. The owners will typically expect that.  One to two hours travel is minimal.  With good systems and mediocre managers you will not have to be there very often.

@Hannah Hammond The park you are asking about sounds familiar.  I believe I did an analysis on it a while ago and decided to pass.  I don't want to give the name of the park on the forum but if you PM me we can see if it's the same park and I can dig up my notes and share my findings.

Adrien Schebott her on BP has some great deals.  he had one in Dyer recently that looked like a good one.  I would reach out to him if I were you.

House hacking is where its at if you can swing it.  I have two kids and a wife who, lets just say isn't keen on the idea, so its out of the question for me.  If i could I would maximize my potential by purchasing a 4-unit building and make money while living for free.  There are some 5-unit properties that are actually classified as 4-unit residential.  I can't say I recommend putting a tenant in the "owners unit" but I would sure live there.  I haven't done enough research to find all of the legal and insurance ramifications of these 4-plexes with owner units but they sound like a great house hack vehicle worth looking into.  

@Hannah HammondI wish I had such a problem!  I will give you as brief an explanation of what I would do as I can but this type of discussion tends to get a bit lengthy so bear with me.  First of all I haven't read all of the suggestions above but I have scanned a few and I have seen many suggestions for purchasing residential multi-units (2-4 units) and small commercial units.  I have also seen a few suggestions on flipping.  Flipping may be a great way to turn the $200,000 into more money but there are a couple of things you need to bear in mind regard to flipping.  

Flipping is not a passive investment strategy.  Flipping is a job or it can be a business.  You will have to perform or pay someone to perform the duties involved.  These duties include but are not limited to finding and qualifying properties, purchasing properties, designing and planning the renovation process, finding and qualifying subcontractors, hiring and contracting subcontractors, inspecting subcontractor work, releasing draws to subcontractors, marketing the home and selling the home.  In my opinion, flipping is typically a speculative venture that carries with it more risk than buying and holding property.  Flipping typically is a good way to build cash reserves but not long term wealth.  Be sure that your "OPM" is open to the idea of greater risk and will provide this loan non-recourse before jumping in.

When it comes to buy and hold properties you should consider the following items.  Money is made on what is commonly referred to as spread.  This is the difference between your interest rate and your cap rate.  If you purchase a $1,000,000 property using the $200,000 (20% down payment and bank or current owner carries a note for the balance) your aggregate interest rate will most likely be around 6%.  The minimum spread should be 2% or more depending on how long you plan to hold the property.  In todays environment of low interest rates it should probably be closer to 4%.  The reason for that is that most analysts believe that rates will go up 2% in the near future.   If your spread closes you will have trouble.  Commercial loans are typically amortized over 20 years and have renewals or balloons at 5 year intervals.  If you found a 10 cap property you would be in good shape even if your interest at your first interval jumped up two points (giving you an aggregate interest rate of 7.6% and a spread of 2.4%).  Your initial cash on cash would be over 15% and your cash on cash after first renewal would be over 11% depending on your principle pay down and closing costs.  

With all of that information in mind you would be well served to download a free copy of the "Viewpoint" report from IRR.com. This report tracks trends in commercial markets for A and B class properties. The commercial market has been hot for the last couple of years due to low interest rates and REO's. This has driven the cap rates to mid single digit territory. Finding a B class or better commercial property at a 10 cap will be difficult if at all possible. You will find that as the class of the property decreases the cap rate will increase. The reason for this is that the higher cap rate theoretically equals out the risk, vacancy and collection loss. Be very careful with this strategy. Even though the purchase cap rate may seem high and your initial return will be attractive, you must consider the internal rate of return on lower class properties. There are ways to forecast this and you may see that a C class at a 10 cap is a worse deal than a B class at a 7 cap.

There is another asset class that is often overlooked that will allow low default rates, high collection rates, low vacancy rates, and can typically be found for 9-12 caps.  That is mobile home parks.  Arizona is a great market for mobile home parks.  If you would like to learn about this class there is no finer study guide than that offered by Frank Rolfe and Dave Reynolds through the Mobile Home University (mobilehomeuniversity.com)  be prepared to shell out about $600 for the study course and $2,000 for the boot camp.  

What I would do if I had the same offer as you, I would purchase a 100 space mobile home park at a 10-12 cap, perform the recommendations in the study course using the 10/20 method.  Once I made my profits on paper I could refinance and cash out my financier while keeping the park, keep the park and collect large returns, or sell the park and 1031 into a larger park.  Before you discount this asset class consider that the two largest investors in the space are Sam Zell and Warren Buffet.  Thats my two cents.