All Forum Posts by: John Jacobus

@Roman Tomkiv@Ryan Groene ☝🏾☝🏾☝🏾

@John Cornelius We are executing a project like this now in San Antonio and seek more like it.  We find these MHP expansions/development opportunities very attractive in the right metros where affordable housing supply is tight and job/population growth is healthy.

Projects like this will take significant time and capital.  A few things to keep in mind before you decide to move forward:

1) Utilities:  You will most likely need to obtain utility permits for each new home site that you intend to add to the park.  If the utilities are owned and operated by the municipality, you’ll most likely need to pay a hookup fee to obtain access to the municipality’s system.  These fees can be substantial ($200-$4,000 per home site, dependening on the municipality).  If the utilities are private, keep in mind that your private utility system may need to be upgraded and/or replaced.  All of this can require significant capital.

2) Acquiring Homes to Fill Your Park:  You can buy new homes to fill your vacant spaces ($35k-$50k for new single wide homes) and slowly sell them via a rent credit program or rent then for the long term.  Alternatively, you can buy used homes ($2k-$20k), rehab them for $1k-$5k, depending on the condition of the home, and rent them perpetually or slowly sell them via a rent credit program.  Both options are highly capital intensive.  One alternative to reduce the need for capital investment is the CASH Program by 21st Mortgage, which provides 90%+ financing to community owners to facilitate lot infill projects.  There are some downsides of the program (I.e., personal guarantees and subject to approval by 21st Mortgage) but it significantly reduces the capital needed to execute an infill project.

3) Land Use/City Planning/Zoning:  You will need to confirm with the city whether you can bring in new/used homes into the park.  You’ll need to confirm the setback requirements, the acceptable age of the homes, and the required permits.

4) Other infrastructure:  You may need to prepare the home site, lay concrete/asphalt parking pads, remove trees, add drainage trenches, and otherwise develop the land to accommodate the homes.

Executing this type of project can add significant value to your property but you must have a reasonable belief that you can earn enough after factoring in the $20k+ investment required per lot to create the new living space.

The market for buyers of properties with public utilities is certainty larger than the market for properties with private utilities.  As a result, properties with public utilities are probably more likely to sell at a premium relative to properties on private utilities simply because there’s more demand for the former.  With public utilities, you have lower maintenance related to water/sewer and lower risk of major infrastructure issues.  

Keep in mind that water wells and septic systems are widely used and can work well.  They aren’t inherently bad but the details matter.  

I’m having trouble finding value in parks on public utilities, simply because there’s so much buyer demand that it drives prices to an unreasonable level in the markets where I invest.  As a result, I’ve started to consider parks with septic and water wells.  I’m much more comfortable with septic systems than I am with water wells, so if I had to choose a park that wasn’t 100% public utilities, I’d pick a park with public water and septic.

A few ideas, all of which require research and feasibility assessment as they depend on local regulations and/or affordability / demand in your market:

1) add additional lots by developing unutilized land

2) add storage space / shed for residents to rent for a monthly fee

3) offer a cable or bundled cable / phone / technology package to residents; buy services at wholesale rates and sell to residents at discounted retail rates

4) adjust rents based on size / location / views/ambience of lots in the park

5) bill back water/sewer/trash, where applicable 

6) offer billboard/advertising space if your park has decent traffic visibility

7) lease space on property for cell tower operator 

8) cut grass on residents’ lots for a fee

9) paint/wash/skirt homes of residents for a fee

10) fill vacant lots / vacant land with area for long-term parking for boat/RV/equipment 

@David Renfro We are executing a major expansion of our park in San Antonio, which includes utility build-out and major restructuring of the home site configuration. We have two other projects, one in Houston and one in Mineral Wells, that will require similar heavy lifting and infrastructure development. I wonder if we could explore utilizing your construction firm for advice and/or to do the actual utility development work on one or several of these projects.

I also think we can share some insights into approaching MHP development.  We've struggled with many of the considerations you raised above and I'd be willing to provide additional color to what's been outlined above based on our experience in TX.

Milla,

We buy MHP communities of that size in the larger metros (50k+ people) in TX, OK, AL, GA, FL, NC, SC, KY, TN, and VA. We are serious buyers and have a track record of successfully closing and working through challenges discovered during inspection. Please keep us in mind for upcoming deals in the aforementioned states.

Thanks,

John

@Bram Klein The tear down, hauling, and site prep will vary substantially by area but prepare for $10k per site as an extremely rough guideline.  The water and sewer connections, assuming you anticipate hooking up new connections to the municipal lines, can vary substantially depending on the municipality's fees.  This can be $1k-$5k per new connection but definitely contact the city planning and/or development body to get exact figures.

I recommend that you explore community financing programs to keep capital outlay low (e.g., Vanderbilt and 21st Mortgage). There are some downsides to these programs but they definitely help keep cash requirements low at closing.  Some programs will allow you to finance and/or will reimburse you for site prep expenses, which is also nice.

Before you pursue the infill/overhaul initiative and base it on new home sales, you should have reasonable assurance that your market can “digest” new homes.  Infill / overhaul initiatives that utilize new homes can work well but only if there’s sufficient demand for housing at $35k-$45k (~$400/month payment + lot rent).  If alternative housing options are close to the sum total of the above, you may have trouble filling your new homes.  Talk to local dealers to check the new home sales volume, determine vacancy rates in local parks, and discover which models/floor plans are selling in the area.

We’re working on two projects, on in NC and one in TX, right now that are similar to what you describe.  Reach out to me directly if you’d like to discuss ideas and approaches further.

@Ryan Sajdera Start with the webinar below and also visit 21st Mortgage’s website for details (also linked below).  21st Mortgage will finance homes from all manufacturers, not just Clayton.  

CASH Program Webinar:  https://www.mobilehomeuniversity.com/emails-and-events/clayton-21st/cash-launch-interview/recording.php

21st Mortgage - Community Lending Program:  https://www.21stcommunitylending.com/apply/

@Ryan Sajdera Bringing in new homes directly through the manufacturer with a program like the CASH Program from 21st Mortgage is likely the fastest way to achieve what you described above while achieving the consistent and clean/safe vibe you aspire to create.  We’re doing the same to expand our parks by 20-30 spaces.  Otherwise, you’ll likely spend a lot of time searching for and slowly acquiring newer used homes that are in good condition.  They are hard to find in volume and require significant capital to acquire, move, and sell.  An alternative to buying new homes in bulk directly from the manufacturer is to buy used homes from a park that is being liquidated.  We recently ran across a park that was being redeveloped and had to move 40 used homes.  It was a quick way to pick up homes on the cheap but the quality and aesthetics spanned the spectrum.

@Jason Merchey In this market, it would not be unheard of for a small park near a large metro to sell at a 9%-10% cap rate.  Check with brokers to provide insight into cap rates on recent transactions.

Be careful about the composition of the NOI that you're capitalizing. It seems that you are very interested in the exit cap rate, presumably because you want a decent projection of the exit price. Capitalize the NOI related exclusively to the lot rent portion of your operating income. Exclude the home rent portion from the capitalized value, as MH's aren't real property and the income associated with chattel should not be capitalized. Add a shell value for the MH structures to the capitalized lot rent NOI to get an estimate of your projected exit price.