All Forum Posts by: Robert Seed

@Jay Hinrichs I agree, DF doesn't effect the bigger players, it's the individual consumer and investor it hurts most.  

I hope they get rid of it or at least dial back some of the nuances of it that are most restricting, such as the 2 years of income history, since most employees these days only stay in a job for about a year or two, also if there was anything we learned from the recession, it was that just because you work in a job 10 years doesn't mean you will have a job tomorrow.  

Simultaneuosly, I hope that foreclosure processes are sped up to enable a recoup of collateral faster for bad loans.  The problem is the foreclosure process is very different from state to state, so I don't think DF or national regulation or deregulation will help this much, I could be wrong.

If foreclosure was faster, lenders could take on the risk more comfortably, which ultimately helps the lower income folks that are paying high rents right now.

We have tenants paying rent rates for 1 and 2 bedroom places in lower income neighborhoods that could easily match the same mortgage amount for a $200,000 home.  So ironically, the DF act continues to help investors with cash and penalize those that could benefit most from debt.

Who knows, we have to make money no matter what Washington does :)

@Taryn J. Good question.  

Taryn, first off, proof of funds is easy, just go to this website: http://besttransactionfunding.com/  or many others that can provide you with the proof of funds letter to submit with your offer.  If the listing agent doesn't like it, that's their problem, you just need to be confident and not let them push you around.

Next, you need to understand what the ARV (After repair value) of the property is. For example, in this case, you said it needs no repairs, and say they are listing it already at ARV of $110k, so what you will want to do is take 70% of that amount less your desired wholesale fee and make that offer.

For example: $110,000 x .7 = $77,000 less $10,000 wholesale fee = $67,000.

Make an offer to them for $67,000 and see what happens.

If they say they won't take an "assignable contract" ask them why not, as for any commercial property I purchase I first put in my name and then assign to my new LLC I form during the escrow period. If they don't like that, and will not accept an assignable contract you can still do what's called a double closing, meaning you buy the home and sell them home on the same day and you can use that same company that gave you a proof of funds letter to provide the cash to close, and resell the same day.

OK, I'm really simplifying things here and there is a lot to learn.  I recommend finding a local investor that you can bird dog for first, and ask them if they will help teach you how to properly value properties.  Work for them for free until you learn what you need.  Read a ton, but don't get too distracted by too many strategies.  

Also, don't get too focused on one deal, like this one for instance.  Make an offer at $67,000 and see what happens, they will probably not accept it, which is fine, but if they do, you can probably find a cash buyer pretty quick.

When I was doing a lot of wholesaling, I was making 25 - 100 offers a day.  Listing agents get mad at you, insulted by your offers, etc etc... that's OK, they don't have to like your offer, and if 97% say no, but 3% say yes, you can grow a good business.   The key is making a lot of good offers. 

Side note on this specific deal: mobile homes on land can be tricky due to lending requirements and constraints on foundations. What you want to ask the listing agent is: "has the home been de-titled, meaning, it's no longer a DMV vehicle, but rather, attached to the land and sitting on an FHA foundation". This will enable it to receive traditional financing from a bank, whereas if it has not been de-titled, it will be more complex and you may need a cash buyer, possibly owner occupant, which could be hard at that price.

Lastly, I'm starting to look for more mobile home parks in North Carolina and maybe you can wholesale to me and make some money finding us homes for our parks.  

Good luck to you

Roby

@Brian Spear Virtual high five on the MHPs.  

I agree with your reasoning for confidence in MHPs going into our next recession, whenever it happens. My only concern I am having on some of the MHP deals that come across my desk lately is that due to scarcity and popularity of MHPs, sellers are really pushing the boundary for asking price which is then pushing the boundary of conservative DSCR.

I see sellers putting too much emphasis on park owned homes and land value.  I've still had luck finding 10 Caps +/- (land income only), but usually after much negotiation and reasoning with the seller as to why the homes don't get lumped into the cap rate.  

To throw another question to this crowd, is there some inherent value with parks being that they can easily be developed in the future as homes or other with power and water already in place, vs storage is more committed long-term to being storage?  I don't know much about storage, but just a thought.  For instance, we have one 82 unit park where each pad is 1/3 acre, which eventually, when land value increases enough, may be worth developing.  Just a thought...no math to back this up. Thought of another way, are you getting more dirt for about the same cap rate with parks vs storage?

@Jay Hinrichs Thank you for the feedback.  

@Jay Hinrichs  LOL that's great.  I don't think he mentioned the Taylors.  He almost exclusively developed from scratch and owns in SSF and San Jose, I don't think he procured much if any existing parks.  His first park was 600 units...  more ballsy than me.  

That's awesome that just an RV is paying 450 per pad.  Flipping parks like you did is not a bad move at all, especially in such a short turnaround time.

That actually brings up a question maybe you or someone on here can answer for me.  I'm currently looking at a park out of the area that is 200 pads plus 150 KOA campground pads.  I don't know much about campgrounds, but this place is almost always full, tent sites which are about 50 of the units rent for $35/night, rv sites about 50 units are about $55/night and cabins $100/night another 50 units.  Does anyone know what a typical expense ratio to expect for a KOA?  I would assume since it's more like a hotel it would be around 60-65% but I don't know.  Any other concerns with KOA?

Thanks again,

Roby

I would love to get into self storage as well, no physical tenants sounds amazing... but I love the mobile home parks.  

The first few hundred units were tough getting to a critical mass with enough units to build my management company, but since then we just keep plugging in more and more parks.  We could easily scale with our current team up to 5,000 units with very little more overhead, so it's definitely getting fun.  Technology is really revolutionizing this industry.

Side note, one of my associates in South San Francisco owns 3,600 mobile home pads that rent for $1,200 per month and said he usually only has 4 or 5 late payers each month...unbelievable.  We visited his parks last year and he hadn't been there in over 20 years!!!  Talk about hands off.

But when he started, rents were only $50/pad but they just keep going up.

We see lot rents have doubled in Charleston, SC just in the last 5-6 years, amazing.  Top end parks here are now around $450/month.  We usually have 100% collections most months on the parks, but do file evictions to keep people honest.

I love hearing about the other investment options like the shared space etc... but my brain can only handle 1 or 2 strategies at a time :)

Hi Jason and Curt. Good questions and good feedback Curt. I don't have Storage or commercial, but do have SFR, Apartments and Mobile home parks, and I would agree, on the front end the parks eat up time if there is a lot of physical distress, but once stabilized, not too bad, especially if you just own the pads.

That said, filling empty mobile home park pads is not for the faint of heart...it can be very time consuming and slow, dealing with multiple vendors and government permitting offices.  It's far quicker to take a park that is already mostly full, and improve management then go find another deal to buy.  

In my experience the SFR is OK, easier to rent due to demand, however, repairs tend to be much higher when things go bad, such as HVAC, foundation or termite issues, roofs, etc...

I think all these investment vehicles work, it really just depends what you feel most comfortable in.

LOL.  Well said.  Yeah it's not for everyone.  But I can say in my portfolio of single family, apartments and mobile home parks, the parks significantly out perform anything else.  Once stabilized they are not as much work, but the hard part is converting the park from what it is at purchase to optimized.  Of course you can buy a turn key park as well, and just settle for a lower return, which is fine as well.

@Curt Smith and @John Arendsen I agree with both of you that some of the education related to mobile home and park investing can be overly optimistic, out dated and potentially risky for a new investor.

I have several parks and have been very fortunate that all of them have done very well.  In fact, I want a lot more, so if anyone knows of any, please let me know.  That said, I see time and again, sellers that have no idea how to run their park, and suffer the consequences.

I think it can be a great industry, but you have to have thick skin, patience, and conservative numbers.

Roby

@Brian Garrett  I think there have been a lot of great comments on here and different approaches to something we all take for granted...the 70% rule. 

I think the answer to your original question regarding why to multiply the 70% first, then subtract repairs was answered extensively. Basically, if you subtract repairs first, it reduces the basis of the 70% rule, which means you will spend too much money on purchase and your all in budget will be above the threshold to maintain proper LTV and profit margin.

The follow up question I hear you asking is, does the 70% rule work, specifically if you are going to buy, then rent and refinance.  This is a bit more tricky, because rent is not properly reflected in this rule of thumb. 

You referenced holding costs which make your all in budget go beyond 70%, this is true, however, if you are planning to rent the property as your exit strategy, you better hope that your rent exceeds your holding costs, if not, don't buy the damn thing!!!  :) 

Here is the silver lining: assuming your rent covers your holding cost, that nullifies the holding cost over the 6 month period while you are seasoning the property for a refinance, thus, you are still only into the property for 70% of ARV, and you in theory would get every last dollar back.

OK, that's theory, but as a primary buy and hold investor and only occasional flipper, I would say, the 70% rule is only for flips, and the key metrics to look at for buy and hold is: Cap Rate and Debt Coverage Ratio, then subsequently cash on cash return on investment, IRR etc... I almost never use the 70% LTV rule for my properties, but I mostly buy multifamily, not singles.

I think if you plan to flip, keep using the 70% rule, but if you are looking to buy and hold it's not very helpful other than letting you know you have a good equity cushion in the property if you had to sell, but this speaks nothing to rental performance.

Thanks for the good question

Roby