All Forum Posts by: Michael Mies

1st time analyzing mobile home park and would like some critical review from anyone that’s experienced with this type of investment…

Nine (9) unit mobile home park (seller owns mobile homes) located in the Charlotte NC area.

Seller asking $379,000 (seller has agreed to carry $265,930 at 4.5% with 5 year balloon)

4 acre country setting – property is in very good condition. Average age of mobile homes is approximately 20 years, but very well maintained. Less than $3,000 of deferred maintenance identified during inspections. Average tenancy term of 4 years for current tenants. One year leases intact – no rent increases in last 4 years (increasing rents 10% on lease renewals should not be a problem).

Raw land in area sells for $18,000/acre. Estimated cost to develop raw land into comparable park is $110,000. Estimated replacement cost of mobile homes is $15,000 per unit. Total estimated cost to replicate property is $317,000.

Owner provides water (community well), sewer (individual septic systems), outside street lights and general maintenance/repairs of mobile homes. Tenants responsible for lawn care.

Income - $62,100 ($575/month/unit average)

Vacancy (8%) - <$5,175> (<5% historical last 4 years)

Expenses - $23,331:

Taxes - $1,200

Insurance - $4,500

Maintenance/Repairs - $9,000

Utilities - $1,500

Advertising - $150

Administrative - $150

PM (12%) – $6,831

NOI - $33,776 (total cash outlay - $118,970)

Mortgage Payments - $1,347/month ($16,169)

Total cash flow end of year one - $17,607

Cumulative cash flow at end of year five - $94,927

Payoff of balloon payment at end of year five - $242,416

Cash ROI – 17.14%

Total ROI - 21.46%

BTY – I’ll be using my SDIRA to purchase this property and will use cash generated from property to fund flips with other investors (averaging 15% return). At the end of five years, I would either payoff the balloon note with additional SDIRA funds and hold for continued cash flow or simply sell to another investor.

Do these numbers appear in-line for mobile home parks?

@Jason Haney - I'm always interested in Charlotte area foreclosures!

Hello Tim,

I live and invest in the Charlotte area and have looked into building a 4plex (or larger), but can't justify the cost new-build given the current rents.  There are, however, many older multi-family properties coming to market (in prime/up-coming locations) that may be candidates for upscale rehab.  Are you currently living in Charlotte?

I’m using my SDIRA to fund the purchase price of my first RE investment:

·Purchase = $74K (w/closing cost)

·AVR = $145K

·Repairs = $25K

·Anticipated Lease = $1,250/mo (NOI of at least $700/month)

I have $82K in the SDIRA (I’ll need to obtain outside funding of $25K to cover repairs and maintain adequate reserves in my SDIRA).

Option 1 – Obtain non-recourse "cash out" loan (5/1 ARM, 15 year, 4.875%). Every bank I've consulted has a $50K minimum loan restriction. Assuming there's no prepayment penalty I could make a first monthly payment of $25K and then continue to make monthly payments of $700/month until paid-in-full (37 months +-). Total closing ($3K) and interest ($2.3K) paid during this period would total approximately $5.3K. In effect, I'd be paying approximately 7% interest (annualized rate) for the $25K.

Option 2 – Obtain a similar loan with a private investor (for only the $25K required for repair) and pay off in three years.

Although I initially discounted option #1 (upfront costs seemed excessive and I didn't like the concept of borrowing more than I actually needed), I'm now seriously considering this option… but with a twist. I could use the "extra" $25K as leverage on other investments. The only downside (other than the obvious of leveraging IRA-owned properties) however, is that I may decide to flip the property if a buyer comes around with an attractive offer (anything over $140K) during the first six months following rehab.

Any other options to consider or critical feedback?

@Sean – Too easy, not enough pain and conflicts with my position (based on past problems with other friends/family)

@Dawn – He already liquated most of his “stuff” (including his house), as part of his do-it-alone “all-in” plan. Bad timing on his part, he needs to rent an apartment ASAP (he’s been couchsurfing with friends & family for too long already). Very frugal and hardworking kid, but too much of an optimist!

@Michael D. – You read my mind… I’m leaning this way as I give it real consideration. Here’s the email I just received from him:

“I spoke briefly to my agent and he says there is an easy way to structure this.

You would place a lien on the property with agreement to uplift the lien at closing for the sale of the property.

The title company would then cut a check to you before I even see any of my proceeds.

My agent is contacting title company”

At least he's trying to do the right thing... I'll keep you posted

I have a nephew that has been rehabbing homes in Indianapolis and over-extended himself financially. In short, he needs $4K for living expenses. He currently has two homes on the market (listed only two weeks ago), which are expected to yield over $80K in profit. He holds clear title to the properties (consumed ALL of his working capital – no loans/outside investors).

Knowing that I refuse to lend to friends or family without the same protection I would require for a stranger, he asked me anyways (desperate times) - but only offered a promissory note. Although my first thought was to have his title company draft and record a trust deed/mortgage (accompanied by a promissory note), it may be impractical and cause problems if/when he actually sells the properties. Any simple, fast and effective ideas or recommendations out there for me?

FYI – The kid has already learned his lesson of being over-extended and not having adequate exit strategies. His pride got in his way of his judgment – otherwise, he did a GREAT job on these properties. I do, however, want him to REMEMBER the pain of poor planning…

Here’s the deal…

·1.89 acre lot with a 1680 sq. ft. (3 bed/2ba) manufactured home in great condition/well-maintained property (owner-occupied). Nominal repairs/updates required.

·Assessed tax value of $225K in 2008, $180K current ($168K land/$12K home).

·Property abuts to a very desirable development and is located on a street that has multiple lots which have been privately developed (homes now selling in the $300-400K range). Great schools in an unincorporated area (low taxes) within 30 minute commute to Charlotte (NC) center city.

·This property is definitely the "black sheep" of the expanding neighborhood (no HOA restrictions) and could be rented out for at least $1,200/month (possibly $1,400) or sold within 30-60 days for at least $125,000 (my estimated current market value of the land). Realtor comps came in at $150-$175K (albeit no paired sales or comprehensive analysis provided yet).

·Property was inherited by current owner, but subsequently obtained LOC and currently owes $95,000. Owner is moving and wants "a clean break" from the property (having personal issues with his deceased wife's family that lives in the neighborhood… which was originally a 25 acre family homestead before it was divided up among their family).

·Owner has initially offered to sell to me for $120,000, but willing to negotiate (I believe he’d sell for $100K if I had cash in hand!).

Initial thoughts…

Buy this property, rent it out for at least a year (season it) and then either refinance or re-sale to another investor or developer/home builder (holding out until more hi-end homes are completed on the street). The problem that I have with this option is that it ties-up too much of my working capital to fund my buy/rehab/flip operations.

I seem to have the property owner’s ear right now (he’s open to just about any idea or deal structure). Any advice?

Chris - I’ve also been toying with the same concept this past week… In theory, it seems like the logical step to use some of my IRA to fund my own REI opportunities (e.g., flipping). From what I’ve gathered thus far, in the end it basically boils down to the “passive” investment acid test (including intent to provide reciprocal loans as mentioned by Kaaren).

Consider this scenario:

Two completely unrelated investors share the common goal of funding individual investment opportunities in their respective (but separate) markets. They start helping each other analyze potential deals/execution strategies and become “accountability” coaches to each other. Investor #1 lands an opportunity in his market that requires $100K in capital to close and execute. Investor #2 funds the project with his SDIRA, by buying into Investor #1’s project-specific “entity”. Investor #2’s investment funds are secured by the RE (as collateral) until the loan is repaid, along with a pre-determined distribution of profits and/or interest. Once completed, all of Investor #2’s funds (including profits/interest earned) are returned to Investor #2’s SDIRA.

Unrelated to the noted scenario, Investor #2 finds a comparable opportunity in his market and executes a similar funding deal with Investor #1. Neither investor has any financial interests or operational control of each other’s project outside conditions contained within the project-specific investment agreement. In effect, both investors receive passive income from their individual investments… but unlike blind-pools, they maintain direct and frequent communications with the “fund manager”. In theory, it seems like the perfect opportunity for like-minded investors to fund their projects AND develop synergistic relationships. Unless an agreement is made that blatantly conditions investments on reciprocity funding, I would find it hard to fathom that the powers to be would prohibit such transactions. Just my two cents… GREAT topic!