All Forum Posts by: Paul Stout

By the way, in the interest of full disclosure I am not technically a park owner at this time.  I will be in a couple of weeks as I am closing on my first park the first week of May.  I just wanted to make sure I wasn't misleading anyone by my previous statement.  If anyone is looking to invest in mobile homes in central Illinois please PM me as I will have two lots to fill once I close.  

I am am member of quite  few different forums and I always get annoyed when people start their responses to questions with "I don't have a clue what I'm talking about but..."  However, at risk of sounding like one of those buffoons I must start this post with the following disclaimer; I do not invest in mobile homes nor do I recommend anyone else invest in mobile homes.  I have good reason for my beliefs.  I do understand that many people do it successfully like @John Fedro and I certainly cannot discount his resounding success.  You would be well served to make him a partner in your investing plan because nobody knows that space like he does.  His course appears to be more of a partnership than a "buy my books then you're on your own" course that so many "gurus" like to push.  That is just my impression from looking at his website.  I have never actually purchased anything from him.  I do like his vomit story he tells on his numerous podcasts.  Anyway, I invest in mobile home parks and I recommend anyone wanting to invest in the mobile home space step it up a notch and challenge themselves to look into investing in the whole park.  I am realistic enough to know that people will do what they have set their mind to so I will add some information to this post and hope that you find it helpful.  There is an article that I read a while back on psmag.com.  Google "How trailer parks can save us all."  The article is an easy read and if you open your mind it should give you some very constructive insight for your chosen path.  When I read the article I saw a theme woven through the story that can help someone who is looking to invest in mobile homes in an area like yours.  These 55+ communities are like big families.  They all care for one another and are very close.  An unfortunate part of life in one of these parks is the loss of friends on a fairly regular basis.  I have to believe that the average person who has a parent living in one of these parks who passes away would dread the thought of having to deal with a "trailer."  Since the communities are so close-knit I would think that to be successful you would almost have to become part of their family.  Once you did you would be the first person to know about a mobile home vacancy due to death.  You would most likely be providing a service to the family by easily removing this burden from their lives.  I don't think anyone pursuing this course should have any apologies or feel like they are preying on these people when they are down.  As long as you are fair with the family you truly would be doing them a service.  I have to think that if you tried to rip one of the family members off your career in that park would be over.  People in these types of communities take the art of gossip to a professional level.  I would also try to work with the park owner/manager to get a discounted rate or even get them to wave the lot rent while the unit is unoccupied.  Remember that you are providing a service to the owner of the park.  Approach them as a partner or beneficiary of your plan.  As a park owner I can assure you that anyone willing to fill vacant spaces or homes is an asset as long as they are not slum lords or unscrupulous in their dealings.  I hope this information is beneficial.  This is just an idea and a snapshot of how I would approach the issue if I were in your shoes.  That being said, the cash you have can be leveraged 4-5 times to 1on a park.  Mobile home parks are tailor made for absentee owners as long as they are purchased correctly and managed with effective systems.  Just another thought to consider.  One more thing, if you use a little imagination you can make this plan work and stay in full compliance with Dodd-Frank.  Just ditch the terms "Land Contract, Rent-to-own, etc.." from your vocabulary.  I am no attorney but rent credit programs and even lease options should serve you well and keep you out of trouble.  Always consult legal counsel to be sure.  

Ditto on what Jack said.  You may find a park that already has bank financing.  If so and if the owner is running the park properly (big if) the bank will most likely want to keep it on their books.  There are mortgage brokers that have experience with parks that can help.  Most national and international banks will not be worth investing your time in.  Small local or regional banks are your best bet.  If it's a good deal and you are a good borrower (good credit, payment history, and steady income) they will probably work with you.  I highly recommend putting together a professional looking and comprehensive package to give to the bank which has pro forma for multiple scenarios looking ahead at least 5 years.  I just secured a loan from a bank for a park and I used 8 different pro forma scenarios and included quite a bit of information about the market and parks in the same area.  The bank loved it and gave me a yes within days.  I also wrote a bio on myself.  Many small banks will not work with people from out of town.  The bio broke down that barrier.

@Crystal Hall Parks like this one (bad deals) are easy to find.  Keep looking and you will find a good deal.  I highly recommend saving the turnaround parks for when you have more cash and experience.  If you try to short cut the process of building wealth the only thing you will attain quickly is bankruptcy.    

It sounds to me like you've made your decision but are looking for confirmation of that decision.  The market must drive your final choice.  If you plan to hold the properties long term you will have much less maintenance and expenses with mobile homes as long as you plan to sell the homes and only retain ownership of the land.  Duplex value is based on comparible properties for the most part and can therefore be more volatile.  Mobile home parks are typically based on the income approach.  If you have 25 mobile homes that average $200 per pad with a 30% expense ratio your value should be somewhere around $420,000.  That is based on a lot of assumptions of course.  The duplexes will be worth whatever similar properties are selling for at the time.  If you sell off the trailers you will own a parking lot with tenants who have a very high cost of moving out.  The cost of moving out of a duplex is next to nothing.  The biggest question is what does the market want.  Next will be what the town will allow and what will the infrastructure cost.  You will want to have public utilities billed directly to the tenants if you can.  Some towns may mandate city water and sewer anyway.  I would caution against private water and sewer or master metered utilities with submeters.  This is but a fraction of the considerations but it should be a good start.

One other thing.  You can get a recourse loan on a property purchased with an SDIRA.  The key is that the guarantee cannot be from the same person that owns the SDIRA.  If you have a partner they can guarantee the loan.  There are restrictions on who your partner can be.  If you are going through an SDIRA you should use a CPA that is intimately familiar with their set up and use.  

IMO @Crystal Hall you are paying full retail price for a turn around park.  Why are over 50% of the lots vacant?  What is the nearest MSA and how far is that MSA?  This park is a turn around park and should be trading at a 12-15 cap minimum depending on other variables.  Is the waste water treatment a bill from a municipality or private?  If this is private utilities I would walk away or offer closer to half the asking price with a 15 year zero interest loan with no balloon.  Don't let sellers make you buy future profits.  You have to work and pay to get them so why should they get anything for them?  I am also concerned that you will have a hard time filling the vacant lots.  You should never pay more for a mobile home than the lot is worth.  Your lots are worth about $15,000.  You  will have to find homes for $10,000-$12,000 after repair price depending on what break down, moving, and set up fees cost in your area.  That will not be easy and you will probably not be able to obtain financing for it.  It will be all but impossible to find a bank willing to finance a park with under 80%-90% occupancy.  The owner has no choice but to finance or sell for cash.  If he is asking you for a balloon payment under maybe 10 years he may be hoping that you fill some of the spaces and clean the place up and he can take it back after a couple of years since no bank will finance it.  There is much more to be said about this deal but I can only type so much on my phone.

Don't be disheartened @Tim White.  It can be done.  I bought my first park of 37 pads for under $500k with 20% down, no points, 20 year am, and a 10 year balloon.  It was also the first bank I went to about the loan.  If the deal is good and your credit is good the money will be there.  

They were shot! @Jeffrey H. Obviously there is more to the story than what I have the time to or people will spend the time reading about on this forum.  Not to mention that @Andriy Boychuk probably doesn't want me to hijack his thread with my poop stories.  The point of my comment is that I would probably have bought that small park if it had public utilities.  I have a rule to never buy a park with private utilities and that one was a good enough deal to make me consider breaking that rule.  After spending 4 hours with and $85 on a local plumber I decided to kill the deal and go back to my rule of only buying public utilities.  The simple fact is that people suck.  When you own a well its a hole in the ground that people drink from.  Your imagination can come up with a thousand bad things that can happen in that scenario and a million more things can happen that you would never dream of.  The septic system in this place was an even worse nightmare.  It was sized for maybe two mobile homes.    Of course it had been running that way for 30 years without a single problem so it should be fine right?  Wrong!!  The lakes of human feces must have just magically appeared the day before I got there.  It was an all around bad situation run and lived in by bad people.  If the park had public utilities I could have dealt with the other issues.  

I am of the opinion that any deal can be "worth it" as long as all of the good outweighs all of the bad.  You have to do some soul searching to decide what return you absolutely have to get and what your criteria for a park are.  Once you determine that you will have a control to work from.  From there draw a list of pros and cons and put a weight to each.  That being said, I don't think any small mobile home park deal is worth it unless the cash flow can cover any worst case scenario.  Evaluate the deal as if everything in the world that could go wrong did.  If it still makes sense then go ahead.  The market should be a huge driver here.  Since you have less sources of income you want to be sure that this con is outweighed by the pro of knowing that nothing will sit vacant for long.  In the end it is up to you to make sure it is right for you.  I would buy a 10-20 space park near my home in a great market if it had public utilities and was selling at a 20 cap. I would probably not buy a 10-20 space that had private utilities unless it was something ridiculous like a 100 cap.  In fact, I had a park under contract to purchase and it had 13 pads and was under contract for a 25 cap.  After the due diligence was completed I walked away because of the private utilities.  If I cant sleep at night then no amount of money is worth it.