Announcing...
Live Webinar with Frank and Dave!
Wednesday, February 2 at 6pm MST
Why Invest in Mobile Home Parks
Presented by: Frank Rolfe & Dave Reynolds
Frank and Dave will discuss why....
Mobile Home Parks, unlike other types of investment property, can actually be more lucrative in a recession.
How you can get real cap rates of 10-20%, and cash on cash returns of 15% to 30%+ with Mobile Home Park investing.
However, the business is much more complicated than it appears. To buy mobile home parks successfully, you have to know what makes a good deal, and how to negotiate it aggressively and make the right steps to maximize your return.
We have saved many people from making the same mistakes that we have made over the years and this is just as important!
Learn the real life business of finding, negotiating, performing due diligence, buying, operating, turning around, trouble shooting and selling mobile home parks, including the insider secrets and tricks to making money in this extremely important commercial real estate niche.
Join Dave and Frank for a 1hour, information overload, webinar; with Q & A available afterwards.
They teach the TRUTH, not the Hype!
REGISTER NOW FOR THIS WEBINAR!
Dave Reynolds and Frank Rolfe have combined forces to bring the real estate market a better perspective on the multiple successes you can have with Mobile Home Parks. Together they have a combined experience of 20+ years of deals under their belt.
Monday, January 31, 2011
Friday, January 28, 2011
Stay Out of the Roto-Rooter Business!
Mobile home parks are one of the largest users of roto-rooter services. The habitual sewer clog is as much a part of park management as storing hay is for a farmer - it's just a natural byproduct of the business.
Why do mobile home park sewer lines clog so frequently, anyway? There's basically three reasons:
Cooking with lots of grease
Mobile home tenants are very big consumers of fried foods. That's how they maintain their healthy figures. And every time they fry something, whether it's bacon, or fried chicken, or French fries, they pour the grease down the drain. Sure, you were taught not to do that when you were 10, but mobile home park tenants don't really care since they don't own the sewer lines.
When the grease hits the water in the sewer line, it starts building up and collecting other grease, ultimately creating a "snowball" effect. When the ball becomes large enough, it closes off the sewer pipe.
No disposals
Mobile homes in most parks do not have kitchen disposals. As a result, big items that don't dissolve into water are introduced into the system, such as lemons and orange peels and other bulky masses. They collect with the grease balls, and shut down the line.
Bad behavior
Nobody ever said that mobile home park tenants are well behaved, but in the case of the sewer system, they are particularly bad. Many times, they will deliberately shove things into the sewer line (normally by removing clean-out caps) just to see what would happen. We have removed such items as Power Rangers and T-shirts and bricks. How did they get there? I'm pretty sure you can guess.
Alright, we've established that you are going to get sewer clogs - so how do you fix them?
Well, the worst thing you can do is to try and do it yourself. Fixing sewer clogs yourself is one of the all-time worst ideas you can have. Here's why:
You can't buy the professional grade equipment you really need
When you buy the roto-rooter machine at Home Depot, be advised that it is like a play toy of the real machine. That machine fits in the back of your car, the real machine takes up the entire back of a truck. In addition, the special fittings and blades that the pros use do not come with the Home Depot model. You need to be able to cut the clog into pieces - the Home Depot unit can only push it farther down the pipe.
There is a lot of liability when using the machine
Do you really think that your park manager or maintenance man is capable of running something like this without getting injured, or injuring people or property? Think again. The metal wire that pushes the machine forward can do incredible damage if not used correctly. It can cut off a hand or foot, or blind someone. It can easily knock a hole in a car door or in a neighboring trailer. Do you really want to be on the hook for that?
You don't mess with sewage
When you have a sewer clog, bad things can happen. You can get sewage backing up in the houses, or coming out of the ground via the clean outs. Plus, your tenants can't use the bathroom. As a result, the city inspector will get called, and he will be all over you. If the spill is bad enough, you may have to do a Phase I environmental assessment. That's a huge impact to your business.
If you want to try painting the laundry building, who cares? Want to plant some bushes? Go ahead. But only a idiot would mess with their own sewer. The risk/reward is just not there.
Conclusion
A roto-rooter service in most markets is about $250. That's a bargain. Call the professionals and save yourself a lot of aggravation, time and risk.
Why do mobile home park sewer lines clog so frequently, anyway? There's basically three reasons:
Cooking with lots of grease
Mobile home tenants are very big consumers of fried foods. That's how they maintain their healthy figures. And every time they fry something, whether it's bacon, or fried chicken, or French fries, they pour the grease down the drain. Sure, you were taught not to do that when you were 10, but mobile home park tenants don't really care since they don't own the sewer lines.
When the grease hits the water in the sewer line, it starts building up and collecting other grease, ultimately creating a "snowball" effect. When the ball becomes large enough, it closes off the sewer pipe.
No disposals
Mobile homes in most parks do not have kitchen disposals. As a result, big items that don't dissolve into water are introduced into the system, such as lemons and orange peels and other bulky masses. They collect with the grease balls, and shut down the line.
Bad behavior
Nobody ever said that mobile home park tenants are well behaved, but in the case of the sewer system, they are particularly bad. Many times, they will deliberately shove things into the sewer line (normally by removing clean-out caps) just to see what would happen. We have removed such items as Power Rangers and T-shirts and bricks. How did they get there? I'm pretty sure you can guess.
Alright, we've established that you are going to get sewer clogs - so how do you fix them?
Well, the worst thing you can do is to try and do it yourself. Fixing sewer clogs yourself is one of the all-time worst ideas you can have. Here's why:
You can't buy the professional grade equipment you really need
When you buy the roto-rooter machine at Home Depot, be advised that it is like a play toy of the real machine. That machine fits in the back of your car, the real machine takes up the entire back of a truck. In addition, the special fittings and blades that the pros use do not come with the Home Depot model. You need to be able to cut the clog into pieces - the Home Depot unit can only push it farther down the pipe.
There is a lot of liability when using the machine
Do you really think that your park manager or maintenance man is capable of running something like this without getting injured, or injuring people or property? Think again. The metal wire that pushes the machine forward can do incredible damage if not used correctly. It can cut off a hand or foot, or blind someone. It can easily knock a hole in a car door or in a neighboring trailer. Do you really want to be on the hook for that?
You don't mess with sewage
When you have a sewer clog, bad things can happen. You can get sewage backing up in the houses, or coming out of the ground via the clean outs. Plus, your tenants can't use the bathroom. As a result, the city inspector will get called, and he will be all over you. If the spill is bad enough, you may have to do a Phase I environmental assessment. That's a huge impact to your business.
If you want to try painting the laundry building, who cares? Want to plant some bushes? Go ahead. But only a idiot would mess with their own sewer. The risk/reward is just not there.
Conclusion
A roto-rooter service in most markets is about $250. That's a bargain. Call the professionals and save yourself a lot of aggravation, time and risk.
Thursday, January 27, 2011
10 Ways to Raise the Value of Your Mobile Home Community
1. Raise Rents: A $10 per month rent increase at a valuation using a 10% capitalization rate, can increase the per lot value of $1,200.
2. Submeter Water and Sewer and Trash: By installing water meters and billing the residents back for water and sewer and trash you are in effect increasing your bottom line. I often think this is one of the most equitable ways of to pass on expenses to the residents as they only pay for what they use. In my experience when meters have been installed the master water and sewer bill is reduced by 30-40% as your residents become conscious about the amount of water going through the faucets. Leaky faucets are fixed, toilets no longer run continually, cars are not washed every day, etc.
3. Enforce Rules and Leases: By enforcing reasonable rules and regulations your community will be regarded as a safe and comfortable environment. Get rid of problem tenants. If you are worried about losing the rent from one or two problem residents, consider that you may lose even more good residents and potential residents by keeping those that are causing problems and not obeying the rules.
4. Reduce your Property Tax Expense: Contact a company that specializes in going to bat for you with your county tax assessor to get your valuation and taxes reduced. Many states and counties base the assessed value on the purchase price. However, most mobile home parks should have a business value component that should not be taxed as property tax. These companies often work for a % of the reduced taxes thus no money out of pocket.
5. Reduced other ongoing expenses: Get multiple insurance quotes, evaluate telephone costs and extras, negotiate with plumbers and electricians to get a lower hourly rate, etc.
6. Fill vacant lots: How much is a vacant lot worth? In many cases, a vacant lot is actually costing you money to keep the grass mowed, the lot clean, and so on. If your lot rent is $200 per month and based on a simple formula that a lot is worth 60 times the monthly rent, then an occupied lot is worth $12,000. Would it make financial sense to spend $2,000 to cover the home moving costs of a potential resident? I believe it does. Other incentives I have used include, free or reduced rent for the first year or two, free installation of new skirting, free steps and decks, and the list goes on. Be creative and stay ahead of your competitors. It is much more effective to come up with 50 ways to market to one customer rather than 1 way to market to 50 customers.
7. Buy homes for Resale or Rental. Buying used homes and placing them in your community for resale or rental is another way to drastically increase the value of your community. As mentioned before, each time you fill a vacant space, the value of your park increases. As a community owner you have an advantage over most mobile home retailers in that you do not need to make a profit on the sale of new and used homes. If you profit by $12,000 per space in equity each time you add a new home, you can sell the homes at breakeven and be way ahead.
8. Increase the Curb Appeal: Encourage residents to clean up their yards and property. Hold clean up days on a monthly basis. Have new and attractive signs installed at the entrances. Repair roads and maintain adequate street lighting. Have monthly rent discount incentives to the residents for things such as: Property of the month, most improved property, etc. Additionally, financing for your residents such things as new skirting, paint, wood siding, and other outside improvements can get the homes looking better as well.
9. Add additional income sources: If you have some vacant land, consider adding some mini storage units, or fence it off and offer storage for RV's, Boats, and extra automobiles. If you have highway frontage, look into placing billboards or selling easements to billboard companies. Look into getting Cable TV or Wi-Fi for the entire park and in doing so, your residents will get a break on these costs and you should be able to profit as well.
10. Dedicate streets and utilities to the city. Although is not too common for established communities, if you can talk your city into making this happen, you just reduced your exposure to street repairs, utility repairs and metering.
2. Submeter Water and Sewer and Trash: By installing water meters and billing the residents back for water and sewer and trash you are in effect increasing your bottom line. I often think this is one of the most equitable ways of to pass on expenses to the residents as they only pay for what they use. In my experience when meters have been installed the master water and sewer bill is reduced by 30-40% as your residents become conscious about the amount of water going through the faucets. Leaky faucets are fixed, toilets no longer run continually, cars are not washed every day, etc.
3. Enforce Rules and Leases: By enforcing reasonable rules and regulations your community will be regarded as a safe and comfortable environment. Get rid of problem tenants. If you are worried about losing the rent from one or two problem residents, consider that you may lose even more good residents and potential residents by keeping those that are causing problems and not obeying the rules.
4. Reduce your Property Tax Expense: Contact a company that specializes in going to bat for you with your county tax assessor to get your valuation and taxes reduced. Many states and counties base the assessed value on the purchase price. However, most mobile home parks should have a business value component that should not be taxed as property tax. These companies often work for a % of the reduced taxes thus no money out of pocket.
5. Reduced other ongoing expenses: Get multiple insurance quotes, evaluate telephone costs and extras, negotiate with plumbers and electricians to get a lower hourly rate, etc.
6. Fill vacant lots: How much is a vacant lot worth? In many cases, a vacant lot is actually costing you money to keep the grass mowed, the lot clean, and so on. If your lot rent is $200 per month and based on a simple formula that a lot is worth 60 times the monthly rent, then an occupied lot is worth $12,000. Would it make financial sense to spend $2,000 to cover the home moving costs of a potential resident? I believe it does. Other incentives I have used include, free or reduced rent for the first year or two, free installation of new skirting, free steps and decks, and the list goes on. Be creative and stay ahead of your competitors. It is much more effective to come up with 50 ways to market to one customer rather than 1 way to market to 50 customers.
7. Buy homes for Resale or Rental. Buying used homes and placing them in your community for resale or rental is another way to drastically increase the value of your community. As mentioned before, each time you fill a vacant space, the value of your park increases. As a community owner you have an advantage over most mobile home retailers in that you do not need to make a profit on the sale of new and used homes. If you profit by $12,000 per space in equity each time you add a new home, you can sell the homes at breakeven and be way ahead.
8. Increase the Curb Appeal: Encourage residents to clean up their yards and property. Hold clean up days on a monthly basis. Have new and attractive signs installed at the entrances. Repair roads and maintain adequate street lighting. Have monthly rent discount incentives to the residents for things such as: Property of the month, most improved property, etc. Additionally, financing for your residents such things as new skirting, paint, wood siding, and other outside improvements can get the homes looking better as well.
9. Add additional income sources: If you have some vacant land, consider adding some mini storage units, or fence it off and offer storage for RV's, Boats, and extra automobiles. If you have highway frontage, look into placing billboards or selling easements to billboard companies. Look into getting Cable TV or Wi-Fi for the entire park and in doing so, your residents will get a break on these costs and you should be able to profit as well.
10. Dedicate streets and utilities to the city. Although is not too common for established communities, if you can talk your city into making this happen, you just reduced your exposure to street repairs, utility repairs and metering.
Wednesday, January 26, 2011
Am I the Only One Who Sees this Opportunity?
A huge percentage of Americans have virtually no retirement savings and will end up living strictly off of their Social Security payment of around $1,000 per month. And the ranks of these Americans are growing daily as the "Baby Boomer" generation ages. This is the greatest "affordable housing" challenge in history - are we up to the challenge?
How can someone live on $1,000 per month? Even a recent article on MSN.com had the answer - in a manufactured home community. However, that article discussed the concept of several families sharing a single, multi-section manufactured home in a very expensive community. I don't think that most Americans are willing the shack up in their retirement. But can someone live in a manufactured home community on $1,000 per month? Let's see. If your income is $1,000 per month after tax, and you pay $100 for Medicare insurance, $50 for auto insurance, $300 for food, $100 for gas, $200 for electricity, that leaves $250 for lot rent which includes water, sewer and trash. Is this lot rent of $250 per month including water, sewer and trash available on the open market. It sure is. There are many, many manufactured home communities that offer this kind of rate.
So if someone could sell their house, or some other asset, to raise the cash to buy an older manufactured home for, say, $10,000, then the numbers would work for them to live indefinitely on $1,000 per month after tax (remember that social security checks are tax free), assuming that their social security payment is constantly adjusted for inflation (which it is).
And where do you find attractive, clean, safe manufactured home communities with lot rent of $250 per month including all water, sewer and trash? In most cases, out in smaller towns and rural America. Not in the big city, where communities tend to be cramped, unattractive and dangerous - nobody sane is going to be willing to retire there. But what about all those nice communities in smaller towns? The ones with all the vacancies? The ones that have been laboring for decades in areas with low employment and few folks moving in. The ones that you can buy cheap, often with seller financing.
Am I the only one who has noticed this opportunity? Perhaps this is the only chance ever to make a success of these rural and small town parks. The planets appear, to me, to be aligned perfectly to push these little appreciated assets into fully-occupied income properties. Am I the only one excited by these trends?
So how would you harness these trends and make money with them? First you would need to buy some very inexpensive manufactured home communities in areas that are attractive to retirees. They should have city water and sewer, if possible, and solid infrastructure. A beautiful, safe location. A proximity to a bigger town with some big-city amenities that retirees would like, such as bookstores and quaint restaurants. A lot rent of about $250 per month including water, sewer and trash. And enough vacancy to make the seller offer attractive terms and carry the paper. The existing occupancy should, if possible, cover all the expenses and note payment. Now you simply have to wait for all those $1,000 per month retirees to start beating down your door. Right?
Wrong. There is one big missing ingredient. And that is for the industry to promote the fact that anyone can live comfortably on $1,000 per month. It's too large and novel an issue to effectively promote as a small community owner.
It never ceases to amaze me that an industry as large as ours can never effectively promote itself to seize the opportunities presented in the marketplace. All we ever want to do is to look and talk more like stick-built housing - when, in reality, it is the affordable housing side of the business that holds the most promise. All those folks who are going to have to live on $1,000 per month have no alternatives but manufactured housing. The ones who can afford the upper end models can afford many, many other alternatives.
So how can we capture this market? We need to collectively begin advertisements in magazines such as AARP. We need to get articles published in the major newspapers and news web sites. We need to start speaking before large groups of retirees on the concept. We need to meet with governmental agencies to let them know this option exists. We need to get mentioned anywhere and everywhere. Basically, just plain old marketing.
Who will do this? We all need to participate. I really believe that this is our only salvation as an industry - to return to our roots as the affordable housing option, while at the same time, piggyback on a growing trend. Clearly, our attempts to market ourselves as a pricey alternative to stick-built housing have failed. We have been in a recession for the past eight years as an industry.
So will you join me in spreading the gospel that Americans can live on $1,000 per month in a modest manufactured home in a rural market? I hope you will. Because this might be our last shot of turning things around.
How can someone live on $1,000 per month? Even a recent article on MSN.com had the answer - in a manufactured home community. However, that article discussed the concept of several families sharing a single, multi-section manufactured home in a very expensive community. I don't think that most Americans are willing the shack up in their retirement. But can someone live in a manufactured home community on $1,000 per month? Let's see. If your income is $1,000 per month after tax, and you pay $100 for Medicare insurance, $50 for auto insurance, $300 for food, $100 for gas, $200 for electricity, that leaves $250 for lot rent which includes water, sewer and trash. Is this lot rent of $250 per month including water, sewer and trash available on the open market. It sure is. There are many, many manufactured home communities that offer this kind of rate.
So if someone could sell their house, or some other asset, to raise the cash to buy an older manufactured home for, say, $10,000, then the numbers would work for them to live indefinitely on $1,000 per month after tax (remember that social security checks are tax free), assuming that their social security payment is constantly adjusted for inflation (which it is).
And where do you find attractive, clean, safe manufactured home communities with lot rent of $250 per month including all water, sewer and trash? In most cases, out in smaller towns and rural America. Not in the big city, where communities tend to be cramped, unattractive and dangerous - nobody sane is going to be willing to retire there. But what about all those nice communities in smaller towns? The ones with all the vacancies? The ones that have been laboring for decades in areas with low employment and few folks moving in. The ones that you can buy cheap, often with seller financing.
Am I the only one who has noticed this opportunity? Perhaps this is the only chance ever to make a success of these rural and small town parks. The planets appear, to me, to be aligned perfectly to push these little appreciated assets into fully-occupied income properties. Am I the only one excited by these trends?
So how would you harness these trends and make money with them? First you would need to buy some very inexpensive manufactured home communities in areas that are attractive to retirees. They should have city water and sewer, if possible, and solid infrastructure. A beautiful, safe location. A proximity to a bigger town with some big-city amenities that retirees would like, such as bookstores and quaint restaurants. A lot rent of about $250 per month including water, sewer and trash. And enough vacancy to make the seller offer attractive terms and carry the paper. The existing occupancy should, if possible, cover all the expenses and note payment. Now you simply have to wait for all those $1,000 per month retirees to start beating down your door. Right?
Wrong. There is one big missing ingredient. And that is for the industry to promote the fact that anyone can live comfortably on $1,000 per month. It's too large and novel an issue to effectively promote as a small community owner.
It never ceases to amaze me that an industry as large as ours can never effectively promote itself to seize the opportunities presented in the marketplace. All we ever want to do is to look and talk more like stick-built housing - when, in reality, it is the affordable housing side of the business that holds the most promise. All those folks who are going to have to live on $1,000 per month have no alternatives but manufactured housing. The ones who can afford the upper end models can afford many, many other alternatives.
So how can we capture this market? We need to collectively begin advertisements in magazines such as AARP. We need to get articles published in the major newspapers and news web sites. We need to start speaking before large groups of retirees on the concept. We need to meet with governmental agencies to let them know this option exists. We need to get mentioned anywhere and everywhere. Basically, just plain old marketing.
Who will do this? We all need to participate. I really believe that this is our only salvation as an industry - to return to our roots as the affordable housing option, while at the same time, piggyback on a growing trend. Clearly, our attempts to market ourselves as a pricey alternative to stick-built housing have failed. We have been in a recession for the past eight years as an industry.
So will you join me in spreading the gospel that Americans can live on $1,000 per month in a modest manufactured home in a rural market? I hope you will. Because this might be our last shot of turning things around.
Tuesday, January 25, 2011
The Joys of Collecting Rent
Whether you use a standard on-site manager or a reduced duty greeter at your mobile home park, you may want to investigate the use of having the mail sent in off-site. The benefits to such a system are many, and the problems few. Many main-stream operators have embraced just this one piece of off-site management, due to its enormous benefits.
It ends embezzlement at the park level
Stories of managers embezzling rent are among the most common in the park business. I once bought a park from an owner that thought his park had no income - at least that's what the manager told him. He was shocked when we found an account with a balance of $35,000 in it that represented just the most recent rents that the manager had shifted into her name.
When the manager no longer collects rent, the ability to embezzle is eliminated. That is not to say that a manager cannot still impose and embezzle such things as pet deposits, etc., but the magnitude of the crime is reduced 1,000%.
It ends the mystery concerning evictions and late rents
Have you had a manager who can never give you the straight scoop on evictions? There are always a couple lots that never seem to go to court for some reason. Normally, these are just friends or family members of the manager - or people who have threatened them. When you are the creator of the collections list, you gain the upper hand in the truth on who is paying, and can make sure that all the correct demands are delivered and evictions filed. Nobody can hide then.
It perfects the assessment of late fees
By using the postmark on the envelope as evidence of the rent being late, it allows you to end any mystery on who to assess the late fees to. And you will be amazed at how many more late fees you have - the manager normally hides many of these late rents from you to shield her friends.
It makes you in control of the rent
This is the most important thing that collecting rent off-site can do for you. It makes you in control of the park's revenue. Many managers use the park rent as a weapon against you in their pursuit of keeping their job. They will threaten to end the regular collection of rent if you let them go and, in fear of missing your note payment, you keep them on.
In addition, when you let a manager go, their first attack is to disrupt the flow of rent, by misinforming tenants as to what to do with their rent - or even collecting it themselves and keeping it in revenge.
When you get the rent direct, the manager has no power over you. And that's a great feeling
Conclusion
Having rent sent in to an off-site P.O. Box is not hard. It costs about $100 per year for the box. What is your peace of mind worth?
It ends embezzlement at the park level
Stories of managers embezzling rent are among the most common in the park business. I once bought a park from an owner that thought his park had no income - at least that's what the manager told him. He was shocked when we found an account with a balance of $35,000 in it that represented just the most recent rents that the manager had shifted into her name.
When the manager no longer collects rent, the ability to embezzle is eliminated. That is not to say that a manager cannot still impose and embezzle such things as pet deposits, etc., but the magnitude of the crime is reduced 1,000%.
It ends the mystery concerning evictions and late rents
Have you had a manager who can never give you the straight scoop on evictions? There are always a couple lots that never seem to go to court for some reason. Normally, these are just friends or family members of the manager - or people who have threatened them. When you are the creator of the collections list, you gain the upper hand in the truth on who is paying, and can make sure that all the correct demands are delivered and evictions filed. Nobody can hide then.
It perfects the assessment of late fees
By using the postmark on the envelope as evidence of the rent being late, it allows you to end any mystery on who to assess the late fees to. And you will be amazed at how many more late fees you have - the manager normally hides many of these late rents from you to shield her friends.
It makes you in control of the rent
This is the most important thing that collecting rent off-site can do for you. It makes you in control of the park's revenue. Many managers use the park rent as a weapon against you in their pursuit of keeping their job. They will threaten to end the regular collection of rent if you let them go and, in fear of missing your note payment, you keep them on.
In addition, when you let a manager go, their first attack is to disrupt the flow of rent, by misinforming tenants as to what to do with their rent - or even collecting it themselves and keeping it in revenge.
When you get the rent direct, the manager has no power over you. And that's a great feeling
Conclusion
Having rent sent in to an off-site P.O. Box is not hard. It costs about $100 per year for the box. What is your peace of mind worth?
Monday, January 24, 2011
FREE WEBINAR!
We can teach you how to invest in mobile home parks using a self-directed IRA. Check out our latest, FREE webinar at http://www.mobilehomeparkstore.com/articles/equity-trust-sdira-webinar.htm .
Tuesday, January 18, 2011
New Homes Less than Repo's!
Repo and used homes come with surprises, unexpected expenses, repairs and extra work.
• New homes look better, sell or rent for more money and even have warranties.
• What could you do with the extra money you will save?
• We can help you upgrade and update the look of your park.
• These homes are affordable for your tenants as well!
• Think of the advantage you will have in your market when you can sell NEW homes for less than others are selling USED homes.
How about a 2 Bedroom for about $14,000 or a 3 Bedroom from $16,000! From reputable, national manufacturers!
NOTE: in some regions the price may be higher or lower depending on such things as wind zone, thermal zone, roof loads, etc. Pricing is region specific, FOB factory, and depends on the specifications ordered by the community owner.
With Mobilehomeparkstore.com's NEW HOME SOLUTIONS program, you can now take advantage of the incredible reduced pricing now available exclusively to park owners from the major U.S. manufacturers. These are well-known factories selling their new homes for prices so cheap you'll be amazed. Two bedrooms from $14,000? Three bedrooms from $16,000? We've got 'em!
And you're not out there by yourself. Mobilehomeparkstore.com is right beside you, making sure that you get the customer satisfaction that we're known for. We set you up with the best factory for your geographic location and needs, and then we follow along with you right up through delivery. Our fee for this entire service is only 2.5% -- that's as crazy as the low pricing we can deliver.
Here's how it works: you email us what your needs are, and we research from our manufacturer database who has the lowest cost for that particular home. We will then call or email you with the new home price that fits your needs. If it sounds like a great deal to you, then we get you in direct contact with the manufacturer to place the order. We then follow-up with you through delivery to make sure that everything is fine on your end.
IT TOOK US OVER A YEAR TO PUT THIS PROGRAM TOGETHER AND IT IS ONE OF THE GREATEST RESOURCES ON THIS SITE IF YOU ARE TRYING TO BRING IN HOMES TO FILL YOUR PARK!!!!
Let us show you what we have to offer.
Click here to take advantage of this amazing offer!
• New homes look better, sell or rent for more money and even have warranties.
• What could you do with the extra money you will save?
• We can help you upgrade and update the look of your park.
• These homes are affordable for your tenants as well!
• Think of the advantage you will have in your market when you can sell NEW homes for less than others are selling USED homes.
How about a 2 Bedroom for about $14,000 or a 3 Bedroom from $16,000! From reputable, national manufacturers!
NOTE: in some regions the price may be higher or lower depending on such things as wind zone, thermal zone, roof loads, etc. Pricing is region specific, FOB factory, and depends on the specifications ordered by the community owner.
With Mobilehomeparkstore.com's NEW HOME SOLUTIONS program, you can now take advantage of the incredible reduced pricing now available exclusively to park owners from the major U.S. manufacturers. These are well-known factories selling their new homes for prices so cheap you'll be amazed. Two bedrooms from $14,000? Three bedrooms from $16,000? We've got 'em!
And you're not out there by yourself. Mobilehomeparkstore.com is right beside you, making sure that you get the customer satisfaction that we're known for. We set you up with the best factory for your geographic location and needs, and then we follow along with you right up through delivery. Our fee for this entire service is only 2.5% -- that's as crazy as the low pricing we can deliver.
Here's how it works: you email us what your needs are, and we research from our manufacturer database who has the lowest cost for that particular home. We will then call or email you with the new home price that fits your needs. If it sounds like a great deal to you, then we get you in direct contact with the manufacturer to place the order. We then follow-up with you through delivery to make sure that everything is fine on your end.
IT TOOK US OVER A YEAR TO PUT THIS PROGRAM TOGETHER AND IT IS ONE OF THE GREATEST RESOURCES ON THIS SITE IF YOU ARE TRYING TO BRING IN HOMES TO FILL YOUR PARK!!!!
Let us show you what we have to offer.
Click here to take advantage of this amazing offer!
Friday, January 14, 2011
New Years Resolutions
For those of us that currently own a mobile home park or are planning to buy a mobile home park one of the biggest obstacles we have is to rent our vacant lots. Face it, it is tough to rent lots with the lack of financing for new manufactured homes to be put into parks or communities.
Many people think that the goal is to rent all 25 or 50 vacant lots in their park. For example, I own a park of 100 lots with 50 vacant lots and I want to rent those 50 vacant lots. That should not be the goal. Remember the movie "What about Bob?" and the concept of "Baby Steps". That is exactly what we should focus on.
Our goal is much simpler, we need to rent one lot without losing any of the rented lots. Then after that goal is accomplished, we repeat.
How do we accomplish this goal? Of course we can keep on doing what we have always done. Run an ad in the paper, put a sign up at the front of the property, place a listing on the internet, or go out and buy a home and move it in to sell it. However, what we should be doing is looking for additional ways to fill our vacant lots. From the master of No B.S. Marketing, Dan Kennedy, I took away a simple concept that goes something like this:
You should not be doing one thing 100 times but rather you should be doing 100 things one time. And for those 100 things that are working keep on doing them as often as possible. So to accomplish our goal, we should think outside the box and start trying some unconventional marketing strategies.
Many people think that the goal is to rent all 25 or 50 vacant lots in their park. For example, I own a park of 100 lots with 50 vacant lots and I want to rent those 50 vacant lots. That should not be the goal. Remember the movie "What about Bob?" and the concept of "Baby Steps". That is exactly what we should focus on.
Our goal is much simpler, we need to rent one lot without losing any of the rented lots. Then after that goal is accomplished, we repeat.
How do we accomplish this goal? Of course we can keep on doing what we have always done. Run an ad in the paper, put a sign up at the front of the property, place a listing on the internet, or go out and buy a home and move it in to sell it. However, what we should be doing is looking for additional ways to fill our vacant lots. From the master of No B.S. Marketing, Dan Kennedy, I took away a simple concept that goes something like this:
You should not be doing one thing 100 times but rather you should be doing 100 things one time. And for those 100 things that are working keep on doing them as often as possible. So to accomplish our goal, we should think outside the box and start trying some unconventional marketing strategies.
Thursday, January 13, 2011
The BEST Ways to Keep Your Mobile Home Park Full
We are heading into a new year and are still struggling to increase our occupancy level on our vacant lots. The homes that are there seem to stay there and can be sold or rented but most of the lots that are getting rented are when we buy the homes and bring them in ourselves. If we can't afford to buy the homes do we just sit around and wait for the economy to turn around and the banks to start financing new homes to go into parks again? Of course not, unless you don't care. So for us that do care lets come up with a plan to rent those vacant lots. After all, they are costing us money to sit vacant.
Key to Remember: Don't focus on renting all of your vacant lots at one time but rather focus on renting 1 lot at a time without losing any of those that are rented. After you get 1 rented, then focus on renting one more and so on.
A Logical Approach to Seeing What Vacant and Occupied Lots Look Like on Paper:
Look at each lot separately and figure out how much that is costs you to own that lot and keep it maintained and functional (utilities protected, grass mowed, permit paid up, trash cleaned up, etc.). Let's say that it costs you $300 per year to keep it maintained. For you to break-even, you will need to bring in at least $300 or more per year on this lot. At a 10% capitalization rate, an extra expense of $300 per year equals a $3,000 decrease in the valuation based on the income approach.
Next figure out what this same lot will cost you if you have it rented for the full year. In this case, let's say that the additional expense to rent this lot would be $50 per month and this additional expense is due to water, sewer, trash and management of the resident. Note, this extra expense is a variable cost. By renting this lot, your other costs are not really going to increase in most cases (taxes, insurance, repairs, management, etc.). In many cases your management cost may go down especially if the manager is mowing the vacant lots and does not have to mow the rented lots. So this additional cost of $50 per month equated to $600 per year and as long as you bring in at least $600 per year in income from this lot you are over break-even.
Next figure out what the net effect would be if you had that lot rented at your normal rates. In this case we will assume that the normal lot rent is $200 per month.
Variable Cost of Renting one more Vacant Lot $600.00 per year
Normal Lot Rent of $2,400 per year
Net Income of renting an additional lot is $2,400 = $600 = $1,800 per year
Increase in equity by renting that extra lot at a 10% cap = $1,800 / .10 = $18,000
Now that we know this number, we can look at our options.
Random Thoughts:
With these numbers, you could realistically pay someone $1,800 to rent that lot and get that $1,800 back within one year. You could pay someone $3,600 to get that lot rented and get your $3,600 back within two years.
Also, you could reduce the lot rent as a move in special all the way down to $50 per month to break-even and if you reduced it to $100 per month you would have a $50 per month profit.
You could pay the dealer or mover or mobile home broker or your resident that refers someone to your park as well. People like to receive money for helping you out and you don't mind paying it if it gets you closer to your goals.
So here is a short list of ideas:
You can offer to pay the move and setup costs for people to move in
Offer incentives to dealers or movers or their customers as long as you abide with the laws
Maybe you become the mover and buy a truck if you have several lots to fill and by doing so you can save 50% of the moving and setup costs in some cases
Buy a big screen TV as a move in special
Give the resident money to make a down payment on a car
Set up a college savings account for the resident's children
Provide a nice storage shed or carport as a move-in special
And the list goes on…
You should not be doing one think 100 times but rather you should be doing 100 things one time. And for those 100 things that are working keep on doing them as often as possible. So to accomplish our goal, we should think outside the box and start trying some unconventional marketing strategies.
Going back to the increase in value of $18,000 each time you fill a lot. This opens up other opportunities. Using a simple concept that as long as you can buy a home, set it up, and rehab it for less than $18,000 and even if you sell it for only ONE DOLLAR, you are one dollar ahead. Of course, we do not want to trade dollars in this manner. However, as the park owner, you should not care about making money on buying and selling homes but rather on increasing occupancy and cutting costs. As long as you don't overpay for the homes and setup and rehab costs, you should have no problem getting those homes sold for a break-even or small profit. And if you lose 25% of what it costs you to fill that lot(in this case $18,000 x 25% = $4,500), you are still way ahead because you now have another rented lot and a net increase in equity of $13,500.
Back to reality… In my experience I will eventually get somewhere between 90-100% back over the long run on homes that I buy, setup and rehab. So, if I spend $10,000 I will get about $9,000 to $10,000 back plus the increased equity by renting that lot. I usually buy the home and sell it for about a 10% profit but when you account for people that do not follow through and for the cost to rehab and evict non-payers, that will cost me somewhere in the 10-20% range over time and this wipes out that 10% profit.
This small loss on buying and selling homes is acceptable as long as that loss is a small fraction of the ultimate value that I get when I sell the park (adjusted for the time value of money and the hassle and headaches that go along with finding, buying, selling and rehabbing the homes).
Here is a simple formula that I use when I am out there trying to figure out the maximum price that I would buy a new or used home for:
I use a factor of 7.5 in this formula and this is a factor that measures values, costs, and risks. It is an arbitrary number but is how I evaluate the maximum cost of the homes I buy to put in my parks. I multiply this factor by the sum of 10% as a loss factor (the amount I anticipate losing on the sale of the home) and 10% (the amount I figure for hassles of doing all this). So:
(7.5) x (20% of the value of a newly rented lot) = Maximum Price I will pay for a home to put on that lot.
So, in this case with the value of a newly rented lot of $18,000
10% Built in Loss: $ 1,800
10% Hassle Factor: $ 1,800
Total $3,600
7.5 x $3,600 = $27,000 where $27,000 is the most I would pay for a new or used home to fill a lot.
Based on this formula, I would not buy any new $45,000 double-wides, but I could buy new single-wide homes that cost less than $27,000 installed. In fact, I just purchased 7 new homes that came in around the $27,000 mark to put in my parks.
What about other options?
Back to the variable costs of a vacant lot and in this case we will assume that you have a huge number of vacant lots like 100 vacant lots out of 200 total lots. Using our number of $300 as the cost to maintain each of these vacant lots, we are paying about $30,000 per year just to keep them maintained. At a 10% cap rate, these vacant lots are bringing down the value of the park by $300,000!
In this case we will also assume that there is no way in your wildest dreams that you will ever rent more than of these vacant lots in this century or the next and you also know that unless you hit the lottery you will not have enough money to buy homes to fill these lots. What options do you have in this case?
Do Nothing - but remember you are spending $30,000 per year to maintain your nothing attitude
Alternate Uses - what about sticking some small storage units in these lots or renting them to RV's, or providing them for parking of oversize vehicles, or RV and Boat Storage, or… you name it?
Maybe you could move all the current units to one portion of the park and then try to sell the frontage or a certain parcel of the park off for alternate uses?
How about increasing the size of the current lots. Maybe you could offer the lot that is next door to an occupied lot for rent for a reduced rate? Assuming you can get $25 per month for this extra lot per month you just wiped out that $300 per year cost on that lot. However, you may be able to rent that lot for of the normal rate to the resident that wants a bigger yard, or wants to build a garage, or have extra parking, plant a garden, and so on. If you do choose to combine lots in this manner, you might want to consider preserving the utilities though in case the demand ever does turn around.
The key is to get the park stabilized and running at the best profit margins you can and at the same time provide your residents with an affordable place to live that they can call home. You want your residents to plant trees and flowers, build nice decks and carports and sheds and demonstrate a pride of ownership.
If you take a 400 space park that has 200 vacant lots with an average lot rent of $200 per month and combine those 400 lots into 200 lots and get just $50 more for those bigger combined lots, you have just increased your net income by $50 x 200 - 12 months = $120,000 per year. At a 10% cap rate, you have increased the value by $1,200,000. In addition, you now have 100% occupancy and it is much easier to get a loan on a park with 100% occupancy as compared to one with 50% occupancy.
I am not suggesting that you do this without considering other options but if you are able to pull this off and preserve the other 200 vacant lots for future use without losing the permit and right to use those lots, this can be a great solution.
Key to Remember: Don't focus on renting all of your vacant lots at one time but rather focus on renting 1 lot at a time without losing any of those that are rented. After you get 1 rented, then focus on renting one more and so on.
A Logical Approach to Seeing What Vacant and Occupied Lots Look Like on Paper:
Look at each lot separately and figure out how much that is costs you to own that lot and keep it maintained and functional (utilities protected, grass mowed, permit paid up, trash cleaned up, etc.). Let's say that it costs you $300 per year to keep it maintained. For you to break-even, you will need to bring in at least $300 or more per year on this lot. At a 10% capitalization rate, an extra expense of $300 per year equals a $3,000 decrease in the valuation based on the income approach.
Next figure out what this same lot will cost you if you have it rented for the full year. In this case, let's say that the additional expense to rent this lot would be $50 per month and this additional expense is due to water, sewer, trash and management of the resident. Note, this extra expense is a variable cost. By renting this lot, your other costs are not really going to increase in most cases (taxes, insurance, repairs, management, etc.). In many cases your management cost may go down especially if the manager is mowing the vacant lots and does not have to mow the rented lots. So this additional cost of $50 per month equated to $600 per year and as long as you bring in at least $600 per year in income from this lot you are over break-even.
Next figure out what the net effect would be if you had that lot rented at your normal rates. In this case we will assume that the normal lot rent is $200 per month.
Variable Cost of Renting one more Vacant Lot $600.00 per year
Normal Lot Rent of $2,400 per year
Net Income of renting an additional lot is $2,400 = $600 = $1,800 per year
Increase in equity by renting that extra lot at a 10% cap = $1,800 / .10 = $18,000
Now that we know this number, we can look at our options.
Random Thoughts:
With these numbers, you could realistically pay someone $1,800 to rent that lot and get that $1,800 back within one year. You could pay someone $3,600 to get that lot rented and get your $3,600 back within two years.
Also, you could reduce the lot rent as a move in special all the way down to $50 per month to break-even and if you reduced it to $100 per month you would have a $50 per month profit.
You could pay the dealer or mover or mobile home broker or your resident that refers someone to your park as well. People like to receive money for helping you out and you don't mind paying it if it gets you closer to your goals.
So here is a short list of ideas:
You can offer to pay the move and setup costs for people to move in
Offer incentives to dealers or movers or their customers as long as you abide with the laws
Maybe you become the mover and buy a truck if you have several lots to fill and by doing so you can save 50% of the moving and setup costs in some cases
Buy a big screen TV as a move in special
Give the resident money to make a down payment on a car
Set up a college savings account for the resident's children
Provide a nice storage shed or carport as a move-in special
And the list goes on…
You should not be doing one think 100 times but rather you should be doing 100 things one time. And for those 100 things that are working keep on doing them as often as possible. So to accomplish our goal, we should think outside the box and start trying some unconventional marketing strategies.
Going back to the increase in value of $18,000 each time you fill a lot. This opens up other opportunities. Using a simple concept that as long as you can buy a home, set it up, and rehab it for less than $18,000 and even if you sell it for only ONE DOLLAR, you are one dollar ahead. Of course, we do not want to trade dollars in this manner. However, as the park owner, you should not care about making money on buying and selling homes but rather on increasing occupancy and cutting costs. As long as you don't overpay for the homes and setup and rehab costs, you should have no problem getting those homes sold for a break-even or small profit. And if you lose 25% of what it costs you to fill that lot(in this case $18,000 x 25% = $4,500), you are still way ahead because you now have another rented lot and a net increase in equity of $13,500.
Back to reality… In my experience I will eventually get somewhere between 90-100% back over the long run on homes that I buy, setup and rehab. So, if I spend $10,000 I will get about $9,000 to $10,000 back plus the increased equity by renting that lot. I usually buy the home and sell it for about a 10% profit but when you account for people that do not follow through and for the cost to rehab and evict non-payers, that will cost me somewhere in the 10-20% range over time and this wipes out that 10% profit.
This small loss on buying and selling homes is acceptable as long as that loss is a small fraction of the ultimate value that I get when I sell the park (adjusted for the time value of money and the hassle and headaches that go along with finding, buying, selling and rehabbing the homes).
Here is a simple formula that I use when I am out there trying to figure out the maximum price that I would buy a new or used home for:
I use a factor of 7.5 in this formula and this is a factor that measures values, costs, and risks. It is an arbitrary number but is how I evaluate the maximum cost of the homes I buy to put in my parks. I multiply this factor by the sum of 10% as a loss factor (the amount I anticipate losing on the sale of the home) and 10% (the amount I figure for hassles of doing all this). So:
(7.5) x (20% of the value of a newly rented lot) = Maximum Price I will pay for a home to put on that lot.
So, in this case with the value of a newly rented lot of $18,000
10% Built in Loss: $ 1,800
10% Hassle Factor: $ 1,800
Total $3,600
7.5 x $3,600 = $27,000 where $27,000 is the most I would pay for a new or used home to fill a lot.
Based on this formula, I would not buy any new $45,000 double-wides, but I could buy new single-wide homes that cost less than $27,000 installed. In fact, I just purchased 7 new homes that came in around the $27,000 mark to put in my parks.
What about other options?
Back to the variable costs of a vacant lot and in this case we will assume that you have a huge number of vacant lots like 100 vacant lots out of 200 total lots. Using our number of $300 as the cost to maintain each of these vacant lots, we are paying about $30,000 per year just to keep them maintained. At a 10% cap rate, these vacant lots are bringing down the value of the park by $300,000!
In this case we will also assume that there is no way in your wildest dreams that you will ever rent more than of these vacant lots in this century or the next and you also know that unless you hit the lottery you will not have enough money to buy homes to fill these lots. What options do you have in this case?
Do Nothing - but remember you are spending $30,000 per year to maintain your nothing attitude
Alternate Uses - what about sticking some small storage units in these lots or renting them to RV's, or providing them for parking of oversize vehicles, or RV and Boat Storage, or… you name it?
Maybe you could move all the current units to one portion of the park and then try to sell the frontage or a certain parcel of the park off for alternate uses?
How about increasing the size of the current lots. Maybe you could offer the lot that is next door to an occupied lot for rent for a reduced rate? Assuming you can get $25 per month for this extra lot per month you just wiped out that $300 per year cost on that lot. However, you may be able to rent that lot for of the normal rate to the resident that wants a bigger yard, or wants to build a garage, or have extra parking, plant a garden, and so on. If you do choose to combine lots in this manner, you might want to consider preserving the utilities though in case the demand ever does turn around.
The key is to get the park stabilized and running at the best profit margins you can and at the same time provide your residents with an affordable place to live that they can call home. You want your residents to plant trees and flowers, build nice decks and carports and sheds and demonstrate a pride of ownership.
If you take a 400 space park that has 200 vacant lots with an average lot rent of $200 per month and combine those 400 lots into 200 lots and get just $50 more for those bigger combined lots, you have just increased your net income by $50 x 200 - 12 months = $120,000 per year. At a 10% cap rate, you have increased the value by $1,200,000. In addition, you now have 100% occupancy and it is much easier to get a loan on a park with 100% occupancy as compared to one with 50% occupancy.
I am not suggesting that you do this without considering other options but if you are able to pull this off and preserve the other 200 vacant lots for future use without losing the permit and right to use those lots, this can be a great solution.
The BEST Ways to Keep Your Mobile Home Park Full
We are heading into a new year and are still struggling to increase our occupancy level on our vacant lots. The homes that are there seem to stay there and can be sold or rented but most of the lots that are getting rented are when we buy the homes and bring them in ourselves. If we can't afford to buy the homes do we just sit around and wait for the economy to turn around and the banks to start financing new homes to go into parks again? Of course not, unless you don't care. So for us that do care lets come up with a plan to rent those vacant lots. After all, they are costing us money to sit vacant.
Key to Remember: Don't focus on renting all of your vacant lots at one time but rather focus on renting 1 lot at a time without losing any of those that are rented. After you get 1 rented, then focus on renting one more and so on.
A Logical Approach to Seeing What Vacant and Occupied Lots Look Like on Paper:
Look at each lot separately and figure out how much that is costs you to own that lot and keep it maintained and functional (utilities protected, grass mowed, permit paid up, trash cleaned up, etc.). Let's say that it costs you $300 per year to keep it maintained. For you to break-even, you will need to bring in at least $300 or more per year on this lot. At a 10% capitalization rate, an extra expense of $300 per year equals a $3,000 decrease in the valuation based on the income approach.
Next figure out what this same lot will cost you if you have it rented for the full year. In this case, let's say that the additional expense to rent this lot would be $50 per month and this additional expense is due to water, sewer, trash and management of the resident. Note, this extra expense is a variable cost. By renting this lot, your other costs are not really going to increase in most cases (taxes, insurance, repairs, management, etc.). In many cases your management cost may go down especially if the manager is mowing the vacant lots and does not have to mow the rented lots. So this additional cost of $50 per month equated to $600 per year and as long as you bring in at least $600 per year in income from this lot you are over break-even.
Next figure out what the net effect would be if you had that lot rented at your normal rates. In this case we will assume that the normal lot rent is $200 per month.
Variable Cost of Renting one more Vacant Lot $600.00 per year
Normal Lot Rent of $2,400 per year
Net Income of renting an additional lot is $2,400 = $600 = $1,800 per year
Increase in equity by renting that extra lot at a 10% cap = $1,800 / .10 = $18,000
Now that we know this number, we can look at our options.
Random Thoughts:
With these numbers, you could realistically pay someone $1,800 to rent that lot and get that $1,800 back within one year. You could pay someone $3,600 to get that lot rented and get your $3,600 back within two years.
Also, you could reduce the lot rent as a move in special all the way down to $50 per month to break-even and if you reduced it to $100 per month you would have a $50 per month profit.
You could pay the dealer or mover or mobile home broker or your resident that refers someone to your park as well. People like to receive money for helping you out and you don't mind paying it if it gets you closer to your goals.
So here is a short list of ideas:
You can offer to pay the move and setup costs for people to move in
Offer incentives to dealers or movers or their customers as long as you abide with the laws
Maybe you become the mover and buy a truck if you have several lots to fill and by doing so you can save 50% of the moving and setup costs in some cases
Buy a big screen TV as a move in special
Give the resident money to make a down payment on a car
Set up a college savings account for the resident's children
Provide a nice storage shed or carport as a move-in special
And the list goes on…
You should not be doing one think 100 times but rather you should be doing 100 things one time. And for those 100 things that are working keep on doing them as often as possible. So to accomplish our goal, we should think outside the box and start trying some unconventional marketing strategies.
Going back to the increase in value of $18,000 each time you fill a lot. This opens up other opportunities. Using a simple concept that as long as you can buy a home, set it up, and rehab it for less than $18,000 and even if you sell it for only ONE DOLLAR, you are one dollar ahead. Of course, we do not want to trade dollars in this manner. However, as the park owner, you should not care about making money on buying and selling homes but rather on increasing occupancy and cutting costs. As long as you don't overpay for the homes and setup and rehab costs, you should have no problem getting those homes sold for a break-even or small profit. And if you lose 25% of what it costs you to fill that lot(in this case $18,000 x 25% = $4,500), you are still way ahead because you now have another rented lot and a net increase in equity of $13,500.
Back to reality… In my experience I will eventually get somewhere between 90-100% back over the long run on homes that I buy, setup and rehab. So, if I spend $10,000 I will get about $9,000 to $10,000 back plus the increased equity by renting that lot. I usually buy the home and sell it for about a 10% profit but when you account for people that do not follow through and for the cost to rehab and evict non-payers, that will cost me somewhere in the 10-20% range over time and this wipes out that 10% profit.
This small loss on buying and selling homes is acceptable as long as that loss is a small fraction of the ultimate value that I get when I sell the park (adjusted for the time value of money and the hassle and headaches that go along with finding, buying, selling and rehabbing the homes).
Here is a simple formula that I use when I am out there trying to figure out the maximum price that I would buy a new or used home for:
I use a factor of 7.5 in this formula and this is a factor that measures values, costs, and risks. It is an arbitrary number but is how I evaluate the maximum cost of the homes I buy to put in my parks. I multiply this factor by the sum of 10% as a loss factor (the amount I anticipate losing on the sale of the home) and 10% (the amount I figure for hassles of doing all this). So:
(7.5) x (20% of the value of a newly rented lot) = Maximum Price I will pay for a home to put on that lot.
So, in this case with the value of a newly rented lot of $18,000
10% Built in Loss: $ 1,800
10% Hassle Factor: $ 1,800
Total $3,600
7.5 x $3,600 = $27,000 where $27,000 is the most I would pay for a new or used home to fill a lot.
Based on this formula, I would not buy any new $45,000 double-wides, but I could buy new single-wide homes that cost less than $27,000 installed. In fact, I just purchased 7 new homes that came in around the $27,000 mark to put in my parks.
What about other options?
Back to the variable costs of a vacant lot and in this case we will assume that you have a huge number of vacant lots like 100 vacant lots out of 200 total lots. Using our number of $300 as the cost to maintain each of these vacant lots, we are paying about $30,000 per year just to keep them maintained. At a 10% cap rate, these vacant lots are bringing down the value of the park by $300,000!
In this case we will also assume that there is no way in your wildest dreams that you will ever rent more than of these vacant lots in this century or the next and you also know that unless you hit the lottery you will not have enough money to buy homes to fill these lots. What options do you have in this case?
Do Nothing - but remember you are spending $30,000 per year to maintain your nothing attitude
Alternate Uses - what about sticking some small storage units in these lots or renting them to RV's, or providing them for parking of oversize vehicles, or RV and Boat Storage, or… you name it?
Maybe you could move all the current units to one portion of the park and then try to sell the frontage or a certain parcel of the park off for alternate uses?
How about increasing the size of the current lots. Maybe you could offer the lot that is next door to an occupied lot for rent for a reduced rate? Assuming you can get $25 per month for this extra lot per month you just wiped out that $300 per year cost on that lot. However, you may be able to rent that lot for of the normal rate to the resident that wants a bigger yard, or wants to build a garage, or have extra parking, plant a garden, and so on. If you do choose to combine lots in this manner, you might want to consider preserving the utilities though in case the demand ever does turn around.
The key is to get the park stabilized and running at the best profit margins you can and at the same time provide your residents with an affordable place to live that they can call home. You want your residents to plant trees and flowers, build nice decks and carports and sheds and demonstrate a pride of ownership.
If you take a 400 space park that has 200 vacant lots with an average lot rent of $200 per month and combine those 400 lots into 200 lots and get just $50 more for those bigger combined lots, you have just increased your net income by $50 x 200 - 12 months = $120,000 per year. At a 10% cap rate, you have increased the value by $1,200,000. In addition, you now have 100% occupancy and it is much easier to get a loan on a park with 100% occupancy as compared to one with 50% occupancy.
I am not suggesting that you do this without considering other options but if you are able to pull this off and preserve the other 200 vacant lots for future use without losing the permit and right to use those lots, this can be a great solution.
Key to Remember: Don't focus on renting all of your vacant lots at one time but rather focus on renting 1 lot at a time without losing any of those that are rented. After you get 1 rented, then focus on renting one more and so on.
A Logical Approach to Seeing What Vacant and Occupied Lots Look Like on Paper:
Look at each lot separately and figure out how much that is costs you to own that lot and keep it maintained and functional (utilities protected, grass mowed, permit paid up, trash cleaned up, etc.). Let's say that it costs you $300 per year to keep it maintained. For you to break-even, you will need to bring in at least $300 or more per year on this lot. At a 10% capitalization rate, an extra expense of $300 per year equals a $3,000 decrease in the valuation based on the income approach.
Next figure out what this same lot will cost you if you have it rented for the full year. In this case, let's say that the additional expense to rent this lot would be $50 per month and this additional expense is due to water, sewer, trash and management of the resident. Note, this extra expense is a variable cost. By renting this lot, your other costs are not really going to increase in most cases (taxes, insurance, repairs, management, etc.). In many cases your management cost may go down especially if the manager is mowing the vacant lots and does not have to mow the rented lots. So this additional cost of $50 per month equated to $600 per year and as long as you bring in at least $600 per year in income from this lot you are over break-even.
Next figure out what the net effect would be if you had that lot rented at your normal rates. In this case we will assume that the normal lot rent is $200 per month.
Variable Cost of Renting one more Vacant Lot $600.00 per year
Normal Lot Rent of $2,400 per year
Net Income of renting an additional lot is $2,400 = $600 = $1,800 per year
Increase in equity by renting that extra lot at a 10% cap = $1,800 / .10 = $18,000
Now that we know this number, we can look at our options.
Random Thoughts:
With these numbers, you could realistically pay someone $1,800 to rent that lot and get that $1,800 back within one year. You could pay someone $3,600 to get that lot rented and get your $3,600 back within two years.
Also, you could reduce the lot rent as a move in special all the way down to $50 per month to break-even and if you reduced it to $100 per month you would have a $50 per month profit.
You could pay the dealer or mover or mobile home broker or your resident that refers someone to your park as well. People like to receive money for helping you out and you don't mind paying it if it gets you closer to your goals.
So here is a short list of ideas:
You can offer to pay the move and setup costs for people to move in
Offer incentives to dealers or movers or their customers as long as you abide with the laws
Maybe you become the mover and buy a truck if you have several lots to fill and by doing so you can save 50% of the moving and setup costs in some cases
Buy a big screen TV as a move in special
Give the resident money to make a down payment on a car
Set up a college savings account for the resident's children
Provide a nice storage shed or carport as a move-in special
And the list goes on…
You should not be doing one think 100 times but rather you should be doing 100 things one time. And for those 100 things that are working keep on doing them as often as possible. So to accomplish our goal, we should think outside the box and start trying some unconventional marketing strategies.
Going back to the increase in value of $18,000 each time you fill a lot. This opens up other opportunities. Using a simple concept that as long as you can buy a home, set it up, and rehab it for less than $18,000 and even if you sell it for only ONE DOLLAR, you are one dollar ahead. Of course, we do not want to trade dollars in this manner. However, as the park owner, you should not care about making money on buying and selling homes but rather on increasing occupancy and cutting costs. As long as you don't overpay for the homes and setup and rehab costs, you should have no problem getting those homes sold for a break-even or small profit. And if you lose 25% of what it costs you to fill that lot(in this case $18,000 x 25% = $4,500), you are still way ahead because you now have another rented lot and a net increase in equity of $13,500.
Back to reality… In my experience I will eventually get somewhere between 90-100% back over the long run on homes that I buy, setup and rehab. So, if I spend $10,000 I will get about $9,000 to $10,000 back plus the increased equity by renting that lot. I usually buy the home and sell it for about a 10% profit but when you account for people that do not follow through and for the cost to rehab and evict non-payers, that will cost me somewhere in the 10-20% range over time and this wipes out that 10% profit.
This small loss on buying and selling homes is acceptable as long as that loss is a small fraction of the ultimate value that I get when I sell the park (adjusted for the time value of money and the hassle and headaches that go along with finding, buying, selling and rehabbing the homes).
Here is a simple formula that I use when I am out there trying to figure out the maximum price that I would buy a new or used home for:
I use a factor of 7.5 in this formula and this is a factor that measures values, costs, and risks. It is an arbitrary number but is how I evaluate the maximum cost of the homes I buy to put in my parks. I multiply this factor by the sum of 10% as a loss factor (the amount I anticipate losing on the sale of the home) and 10% (the amount I figure for hassles of doing all this). So:
(7.5) x (20% of the value of a newly rented lot) = Maximum Price I will pay for a home to put on that lot.
So, in this case with the value of a newly rented lot of $18,000
10% Built in Loss: $ 1,800
10% Hassle Factor: $ 1,800
Total $3,600
7.5 x $3,600 = $27,000 where $27,000 is the most I would pay for a new or used home to fill a lot.
Based on this formula, I would not buy any new $45,000 double-wides, but I could buy new single-wide homes that cost less than $27,000 installed. In fact, I just purchased 7 new homes that came in around the $27,000 mark to put in my parks.
What about other options?
Back to the variable costs of a vacant lot and in this case we will assume that you have a huge number of vacant lots like 100 vacant lots out of 200 total lots. Using our number of $300 as the cost to maintain each of these vacant lots, we are paying about $30,000 per year just to keep them maintained. At a 10% cap rate, these vacant lots are bringing down the value of the park by $300,000!
In this case we will also assume that there is no way in your wildest dreams that you will ever rent more than of these vacant lots in this century or the next and you also know that unless you hit the lottery you will not have enough money to buy homes to fill these lots. What options do you have in this case?
Do Nothing - but remember you are spending $30,000 per year to maintain your nothing attitude
Alternate Uses - what about sticking some small storage units in these lots or renting them to RV's, or providing them for parking of oversize vehicles, or RV and Boat Storage, or… you name it?
Maybe you could move all the current units to one portion of the park and then try to sell the frontage or a certain parcel of the park off for alternate uses?
How about increasing the size of the current lots. Maybe you could offer the lot that is next door to an occupied lot for rent for a reduced rate? Assuming you can get $25 per month for this extra lot per month you just wiped out that $300 per year cost on that lot. However, you may be able to rent that lot for of the normal rate to the resident that wants a bigger yard, or wants to build a garage, or have extra parking, plant a garden, and so on. If you do choose to combine lots in this manner, you might want to consider preserving the utilities though in case the demand ever does turn around.
The key is to get the park stabilized and running at the best profit margins you can and at the same time provide your residents with an affordable place to live that they can call home. You want your residents to plant trees and flowers, build nice decks and carports and sheds and demonstrate a pride of ownership.
If you take a 400 space park that has 200 vacant lots with an average lot rent of $200 per month and combine those 400 lots into 200 lots and get just $50 more for those bigger combined lots, you have just increased your net income by $50 x 200 - 12 months = $120,000 per year. At a 10% cap rate, you have increased the value by $1,200,000. In addition, you now have 100% occupancy and it is much easier to get a loan on a park with 100% occupancy as compared to one with 50% occupancy.
I am not suggesting that you do this without considering other options but if you are able to pull this off and preserve the other 200 vacant lots for future use without losing the permit and right to use those lots, this can be a great solution.
Wednesday, January 12, 2011
Does Your Park Have Less Skirting than Men's Warehouse?
Nothing is uglier than a mobile home without skirting. Even a brand new, top-of-the-line mobile home with a shingles roof and vinyl siding looks like junk in the absence of nice vinyl skirting to hide all the tie-downs and concrete blocks and pipes.
So what do you do when the mobile home park you've bought has virtually no skirting on the homes? The first question to ask is what kind of finances do your tenants have? If you are like me, they live pretty much hand to mouth. So what do you do?
You don't have a lot of choices. You can't afford to kick all of your tenants out, and so threatening to kick them out if they don't skirt their house is a bad bluff. You also can't leave the skirts off since it will scare aware new residents and will keep you from getting a good loan or making a good sale down the road.
Here's the solution, send a letter stating that effective immediately every home must have a skirt, but that you will organize to have all of the work done and then bill it to the tenant, broken down into six installments of $________ per month. Then, bid the project against several different contractors and then start the project.
But what if you don't have the capital to install skirting for every home? Forty homes at $1,000 each require $40,000 capital. If you budget is more modest, you will need for the tenant to put in at least the required labor to install the skirts, and then you will need to think creatively. I would be more flexible than to demand only new, vinyl skirting. I have seen great skirting jobs done with metal or fiberglass (see through roof panels for sheds) or even plywood the important thing is that they paint it to match the house. Offer to donate the materials if they will install and paint it. Even if they are lousy carpenters, anything looks better than no skirting. And what if you have only a little money? Then start out with the most visible houses first or you can just do the skirting on the two sides of the home that are seen when driving though and pass on the rest for now. Those two sides are the front nearest the street (about 14' to 16') and the side seen most frequently from the street based on normal traffic flow. Or you can do just the front half of either or both sides. The point is to hide the ugly part of the home from the street, so that it does not turn off prospective tenants, banks or anyone else, while buying you time to complete the project.
One important point I can't emphasize enough is the enormous impact of paint. Even the ugliest skirting in the world, like a hybrid of old pieces of plywood, looks acceptable if it is painted to match the color of the trailer. Sure, new vinyl is your best option. But is it worth the extra cost? In many parks that have high density, you can't even see 75% of the skirting anyway.
The important thing is to get something up fast to block the ugly underside of the mobile home. This one action will make you thousands in immediate re-sale value and new move-ins.
So what do you do when the mobile home park you've bought has virtually no skirting on the homes? The first question to ask is what kind of finances do your tenants have? If you are like me, they live pretty much hand to mouth. So what do you do?
You don't have a lot of choices. You can't afford to kick all of your tenants out, and so threatening to kick them out if they don't skirt their house is a bad bluff. You also can't leave the skirts off since it will scare aware new residents and will keep you from getting a good loan or making a good sale down the road.
Here's the solution, send a letter stating that effective immediately every home must have a skirt, but that you will organize to have all of the work done and then bill it to the tenant, broken down into six installments of $________ per month. Then, bid the project against several different contractors and then start the project.
But what if you don't have the capital to install skirting for every home? Forty homes at $1,000 each require $40,000 capital. If you budget is more modest, you will need for the tenant to put in at least the required labor to install the skirts, and then you will need to think creatively. I would be more flexible than to demand only new, vinyl skirting. I have seen great skirting jobs done with metal or fiberglass (see through roof panels for sheds) or even plywood the important thing is that they paint it to match the house. Offer to donate the materials if they will install and paint it. Even if they are lousy carpenters, anything looks better than no skirting. And what if you have only a little money? Then start out with the most visible houses first or you can just do the skirting on the two sides of the home that are seen when driving though and pass on the rest for now. Those two sides are the front nearest the street (about 14' to 16') and the side seen most frequently from the street based on normal traffic flow. Or you can do just the front half of either or both sides. The point is to hide the ugly part of the home from the street, so that it does not turn off prospective tenants, banks or anyone else, while buying you time to complete the project.
One important point I can't emphasize enough is the enormous impact of paint. Even the ugliest skirting in the world, like a hybrid of old pieces of plywood, looks acceptable if it is painted to match the color of the trailer. Sure, new vinyl is your best option. But is it worth the extra cost? In many parks that have high density, you can't even see 75% of the skirting anyway.
The important thing is to get something up fast to block the ugly underside of the mobile home. This one action will make you thousands in immediate re-sale value and new move-ins.
Tuesday, January 11, 2011
A Great Entrace Sign is an Investment, Not a Cost
Most mobile home parks I have bought come with a standard sign design a 4' x8' sheet of plywood with a faded poorly written name on it and no phone number. This must be a popular design because I see it everywhere. There is also the design of metal or wood letters on a brick or masonry wall with some of the letters missing. My favorite was on where some kid had yanked off the letters and then spray painted some replacements so that the sign said proudly "F___ Y__ Estates". What was equally funny what that the owner cared so little about the sign that he did nothing about it -- I drove by several years later it was still that way.
You need to understand that your park sign is extremely important to making money. Your sign is a pretty busy employee:
* It offers a tenant and a prospective tenant the initial positive impression of you property.
* It gives the phone number of the park to anyone interested in renting a lot.
* It impresses city inspectors and officials
* It impresses bankers and appraisers
* It works for you 24/7, takes no vacation, and lives on nothing but sunshine.
I would propose that one of your substantial investments in fixing up your mobile home park be to buying and installing a professional quality sign.
I would empathetically recommend against signs of wooden construction. Exposed to outdoor conditions, wood just doesn't work well. It fades cracks and eventually rots. Even sandblasted signs don't seem to be built for longevity.
I prefer signs of metal or plastic construction with vinyl or molded letters nothing painted. Paint fades and flakes off over time.
I always put the name of the park and the address on the sign, and then attach the phone number with two hooks to hang under the sign. I do this so that if you change the phone number you can just change out this panel and not the entire sign. Also, when you sell a park, if needed, you can just detach the phone number and the new owner can attach his phone number.
I recommend that you pick a standard design that you can use at all you mobile home parks. It will really impress you banker, and you only have to come up with your dream design one time and then use it over and over again.
I choose a sign design that works well with white vinyl fencing, which I also always use at the entrance. It would be a great touch if you came up with a standard entry design that helped accentuate you attractive sign.
Sure, a professional quality sign is expensive but look at all the benefits. When you go to sell the park, that nice sign and the great first impression it gives the buyer, may make you 100 times what the sign cost. And that doesn't count all the income that the park derived from impressed drive-thru tenants.
Remember, a sign is not a cost it's an investment!
You need to understand that your park sign is extremely important to making money. Your sign is a pretty busy employee:
* It offers a tenant and a prospective tenant the initial positive impression of you property.
* It gives the phone number of the park to anyone interested in renting a lot.
* It impresses city inspectors and officials
* It impresses bankers and appraisers
* It works for you 24/7, takes no vacation, and lives on nothing but sunshine.
I would propose that one of your substantial investments in fixing up your mobile home park be to buying and installing a professional quality sign.
I would empathetically recommend against signs of wooden construction. Exposed to outdoor conditions, wood just doesn't work well. It fades cracks and eventually rots. Even sandblasted signs don't seem to be built for longevity.
I prefer signs of metal or plastic construction with vinyl or molded letters nothing painted. Paint fades and flakes off over time.
I always put the name of the park and the address on the sign, and then attach the phone number with two hooks to hang under the sign. I do this so that if you change the phone number you can just change out this panel and not the entire sign. Also, when you sell a park, if needed, you can just detach the phone number and the new owner can attach his phone number.
I recommend that you pick a standard design that you can use at all you mobile home parks. It will really impress you banker, and you only have to come up with your dream design one time and then use it over and over again.
I choose a sign design that works well with white vinyl fencing, which I also always use at the entrance. It would be a great touch if you came up with a standard entry design that helped accentuate you attractive sign.
Sure, a professional quality sign is expensive but look at all the benefits. When you go to sell the park, that nice sign and the great first impression it gives the buyer, may make you 100 times what the sign cost. And that doesn't count all the income that the park derived from impressed drive-thru tenants.
Remember, a sign is not a cost it's an investment!
Monday, January 10, 2011
Five Star Cash Flow
People often ask me how many stars my park has. I always tell them that I've got a five-star cash flow. That totally confuses them, and allows me to change the subject. I'm not shy about talking about the "mysterious" star system, only I'm confused as much as everyone else as to how to truly rank you park in such a subjective system, and why the heck anyone would care anyway. I've found that most of the people who ask me this question are total beginners. They think that the system really means something, and that a five star park is worth more (like a five star hotel room). Now I defiantly rank a Ritz Carlton over a Ramada Inn, but it's not that easy in the park business. The star system revolves around basic structural differences and amenities between parks. However, it leaves off the three most important comparison points: LOCATION, LOCATION AND LOCATION. I would rather have a one star park in a great location than a five star in a desert. I have seen five star parks in location only accessible by a burro, and I don't see much pride of ownership in such a property. Some of these parks have more amenities than customers. I propose that we re-think the star system to something tangible and objective CAP RATE. In that event, most of the old, 10 unit per acre parks will be fives all day long, and the empty five stars will plummet down to ones. Until that time, I suggest you answer the "how many stars is you r park?" question with "mines got five star cash flow!"
Thursday, January 6, 2011
Mobile Home Parks VS. RV Parks
When considering the purchase of a mobile home park as compared to an RV park there are many factors to consider. While mobile home parks and RV parks are often sold by the same brokers and are combined in one facility, they are not the same and both require different amounts and types of management. The following comparisons are for Overnight/Destination RV parks as compared to the typical mobile home park in which the lots are rented out on a monthly basis. In many cases, the seasonal or extended stay RV parks will have more of the qualities of the typical mobile home park rather than those of the Overnight/Destination type RV parks.
Length of Stay: Mobile Home owners are in the park permanently or at least until they sell their home and move somewhere else. RVer's are in the park for usually a week or less. The longer a home or resident stays in the park, the more likely it will have the qualities of a mobile home park and the less time a home or resident stays in the park, the more likely it will resemble the operations of an RV park.
Management: This is probably one of the most significant differences between RV and mobile home parks. In most cases, it takes less time and manpower to run a mobile home park than an RV park. There are several factors for this:
* With a mobile home park, the manager will typically see the residents of each space only once per month when the rent is paid and anytime there is a problem. However, with an RV Park you may have a new camper in the space every day or every few days. You may have to acquaint them with the park, the facilities, and in many cases the area. How to get here or there, where to eat, etc.
* In addition, many RV parks will have showers and restrooms that need to be cleaned several times during the day. Most mobile home owners have their own showers and toilets.
* In Mobile Home Parks, the manager usually only maintains the common areas and the residents maintain their own spaces, etc. However, in an RV Park, the manager will not only maintain the common areas, but should check each space to make sure it is clean before renting. As before, these spots may have a different RV'er each day and so it is ongoing.
Ease of Movement: While it will cost an owner of a mobile home 1-2 thousand dollars or more to move their mobile home out of the park and set it up somewhere else, the owner of an Recreational Vehicle can hook up, move and reset their RV up in another park in a couple of hours or less and for the cost of gas. Thus, you have to work much harder at keeping the RV'er satisfied with the park if you want to keep them there.
Eviction: In a mobile home park if you have someone that is not paying rent or causing other problems, you will have to go to court and deal with the judges and it may take several weeks to have them evicted out of the park. However, in an RV Park, the rent is usually paid in advance and if it is not paid, you should be able to have the RV removed immediately for lack of payment or other issues. These laws differ from state to state so make sure to check first to stay legal.
Rent Control: RV parks owners are not typically subject to rent control ordinances as are mobile home park owners.
Utilities: In a mobile home park the park owner will generally only pay the utilities for any common areas and buildings as well as for street lights. The individual mobile home owners will pay for their own gas, electric, water, sewer, cable, and internet. However, in an RV Park, this is all bundled up in a nightly or weekly rate and that rate should be adjusted to include all these utilities and amenities. You might shudder when a big 40' rig pulls in the middle of July and powers up a couple of a/c units after plugging into your electric pedestal.
Other Improvements: While both RV & MH parks will have the sites, utilities, roads, it is common for RV parks to also have a store, recreational hall, and restrooms and showers. In addition, a higher percentage of RV parks compared to MH parks will have a swimming pool and other recreational facilities such as shuffleboard, basketball, and video games. What this will equate to is once again, more management time and energy. An RV Park of 400 spaces will probably have two to three times more employees than a comparably sized mobile home park.
Taxes: Just like the taxes you pay when you stay at a motel, you will pay taxes to stay in an RV park. Usually the only way around the lodging/transient tax is to stay for 30 days or more. The residents in a mobile home park are not subject to this type of tax. They are just subject to the yearly mobile home taxes to the county treasurer. The park owner will pay the taxes on the land (dirt and improvements) for both MH & RV parks.
Capitalization Rate: Typically a mobile home park will sell at a lower cap rate than an RV park. There are always exceptions but this is the general rule. If a mobile home park is selling at a cap rate of 10% then an RV park in that same market area will typically be selling for a 11-13% cap rate. Smaller RV parks generally sell for higher cap rates than do larger ones. Destination and overnight style RV parks are generally priced at higher cap rates than the extended stay and seasonal type RV parks. Also, parks that are rated higher by Woodalls or any type of star ratings will generally sell for more $$$ (a smaller cap rate).
Finding a Park to Buy: In my experiences as a broker, investor and by running the Mobile Home Park Website as well as the RV Park Website for many years, I have noticed that there are usually five times or more buyers out there looking for Mobile Home Parks than there are for RV Parks. What this equates to for the RV Park Investor, is that there is a better inventory of potential RV Parks to purchase as well as less competition. I have seen some very good RV Parks sit on the website for a few months and wonder why they have not sold. There are Great Opportunities out there especially if you are not set on one particular area.
Long Distance Ownership: Mobile Home Parks are often owned by individuals or companies that do not live in the same city or state where the park is located. They hire an onsite manager and visit a couple of times per year. However, with an RV Park, most owners live at the park or nearby and are involved with the management of the park on a day to day basis. It is possible to run an RV Park from a distance but in order to do so you have to really trust your manager and other staff and have a good system in place.
Financing: It is usually harder to obtain a loan for an RV park than a mobile home park and that is one reason why a higher percentage of owners offer to seller finance RV Parks as compared to Mobile Home Parks. When seeking financing on an RV park, you will be typically obtaining a loan with interest rates a point or two higher than that of a mobile home park. For many types of investment properties, the loan is based on the property more so than the purchaser. However, with an RV Park, the loan is not only based on the property itself, but also the borrower's credit and experience in running similar types of businesses. It often helps to have a well drafted business plan when applying for financing.
Length of Stay: Mobile Home owners are in the park permanently or at least until they sell their home and move somewhere else. RVer's are in the park for usually a week or less. The longer a home or resident stays in the park, the more likely it will have the qualities of a mobile home park and the less time a home or resident stays in the park, the more likely it will resemble the operations of an RV park.
Management: This is probably one of the most significant differences between RV and mobile home parks. In most cases, it takes less time and manpower to run a mobile home park than an RV park. There are several factors for this:
* With a mobile home park, the manager will typically see the residents of each space only once per month when the rent is paid and anytime there is a problem. However, with an RV Park you may have a new camper in the space every day or every few days. You may have to acquaint them with the park, the facilities, and in many cases the area. How to get here or there, where to eat, etc.
* In addition, many RV parks will have showers and restrooms that need to be cleaned several times during the day. Most mobile home owners have their own showers and toilets.
* In Mobile Home Parks, the manager usually only maintains the common areas and the residents maintain their own spaces, etc. However, in an RV Park, the manager will not only maintain the common areas, but should check each space to make sure it is clean before renting. As before, these spots may have a different RV'er each day and so it is ongoing.
Ease of Movement: While it will cost an owner of a mobile home 1-2 thousand dollars or more to move their mobile home out of the park and set it up somewhere else, the owner of an Recreational Vehicle can hook up, move and reset their RV up in another park in a couple of hours or less and for the cost of gas. Thus, you have to work much harder at keeping the RV'er satisfied with the park if you want to keep them there.
Eviction: In a mobile home park if you have someone that is not paying rent or causing other problems, you will have to go to court and deal with the judges and it may take several weeks to have them evicted out of the park. However, in an RV Park, the rent is usually paid in advance and if it is not paid, you should be able to have the RV removed immediately for lack of payment or other issues. These laws differ from state to state so make sure to check first to stay legal.
Rent Control: RV parks owners are not typically subject to rent control ordinances as are mobile home park owners.
Utilities: In a mobile home park the park owner will generally only pay the utilities for any common areas and buildings as well as for street lights. The individual mobile home owners will pay for their own gas, electric, water, sewer, cable, and internet. However, in an RV Park, this is all bundled up in a nightly or weekly rate and that rate should be adjusted to include all these utilities and amenities. You might shudder when a big 40' rig pulls in the middle of July and powers up a couple of a/c units after plugging into your electric pedestal.
Other Improvements: While both RV & MH parks will have the sites, utilities, roads, it is common for RV parks to also have a store, recreational hall, and restrooms and showers. In addition, a higher percentage of RV parks compared to MH parks will have a swimming pool and other recreational facilities such as shuffleboard, basketball, and video games. What this will equate to is once again, more management time and energy. An RV Park of 400 spaces will probably have two to three times more employees than a comparably sized mobile home park.
Taxes: Just like the taxes you pay when you stay at a motel, you will pay taxes to stay in an RV park. Usually the only way around the lodging/transient tax is to stay for 30 days or more. The residents in a mobile home park are not subject to this type of tax. They are just subject to the yearly mobile home taxes to the county treasurer. The park owner will pay the taxes on the land (dirt and improvements) for both MH & RV parks.
Capitalization Rate: Typically a mobile home park will sell at a lower cap rate than an RV park. There are always exceptions but this is the general rule. If a mobile home park is selling at a cap rate of 10% then an RV park in that same market area will typically be selling for a 11-13% cap rate. Smaller RV parks generally sell for higher cap rates than do larger ones. Destination and overnight style RV parks are generally priced at higher cap rates than the extended stay and seasonal type RV parks. Also, parks that are rated higher by Woodalls or any type of star ratings will generally sell for more $$$ (a smaller cap rate).
Finding a Park to Buy: In my experiences as a broker, investor and by running the Mobile Home Park Website as well as the RV Park Website for many years, I have noticed that there are usually five times or more buyers out there looking for Mobile Home Parks than there are for RV Parks. What this equates to for the RV Park Investor, is that there is a better inventory of potential RV Parks to purchase as well as less competition. I have seen some very good RV Parks sit on the website for a few months and wonder why they have not sold. There are Great Opportunities out there especially if you are not set on one particular area.
Long Distance Ownership: Mobile Home Parks are often owned by individuals or companies that do not live in the same city or state where the park is located. They hire an onsite manager and visit a couple of times per year. However, with an RV Park, most owners live at the park or nearby and are involved with the management of the park on a day to day basis. It is possible to run an RV Park from a distance but in order to do so you have to really trust your manager and other staff and have a good system in place.
Financing: It is usually harder to obtain a loan for an RV park than a mobile home park and that is one reason why a higher percentage of owners offer to seller finance RV Parks as compared to Mobile Home Parks. When seeking financing on an RV park, you will be typically obtaining a loan with interest rates a point or two higher than that of a mobile home park. For many types of investment properties, the loan is based on the property more so than the purchaser. However, with an RV Park, the loan is not only based on the property itself, but also the borrower's credit and experience in running similar types of businesses. It often helps to have a well drafted business plan when applying for financing.
Wednesday, January 5, 2011
Mobile Home Parks VS. Apartments
1. There has always been and will always be a need for affordable housing. The typical mobile home park is just that affordable housing.
2. It is typically accepted that the average operating expenses for a mobile home park are usually around 35-40% of the gross income as compared to apartments which have in the 50-60% expense ratio. One of the biggest advantages of mobile home park ownership is not only this decreased operating expense margin but the reasoning behind it.
Mobile Home Parks in which you rent the land to the home owners have a much lower turnover ratio as compared to apartments. In most cases, once the home is moved into your park, that home will stay in there for 25+ years and when people are ready to move they will just resell the home in the park and you will have a new homeowner.
The biggest reason for the low home turnover is that it costs so much to break down, move, and set up a home. In most cases this is going to cost at a minimum of $2,000 for a singlewide and $4,000 for a doublewide. In an apartment, your renters can pack up and leave in the middle of the night.
In most cases a mobile home will not move out in the middle of the night (especially legally). There are those cases where someone will hire someone to come in and move a home in the middle of the night but it is rare.
I actually had someone who was a few months late on rent, decide to hook up to their 14 x 70 home with their ton pickup in an attempt to move it down the road a few miles to a different park. They made it out of the park with the home but about a mile down the road the mobile home separated from the truck and they not only flipped the home but destroyed a truck. All of this to avoid about $800 in lot rent.
3. When you raise the rent by $10, $15, $20 or more in a mobile home park, it is less justifiable for a renter to spend several thousand dollars to move their home to save $10 or $20 per month. In addition there is no guarantee that the mobile home park that they move their home to will not follow suit with a rent increase of their own.
4. Another reason for the lower operating expense ratio for mobile home parks is that you are not responsible for painting, cleaning carpets, fixing windows, and all the fun jobs of the apartment maintenance personnel. You are typically only responsible up to where the home connects to your utilities and the maintenance of the common areas.
5. As far as depreciation, apartments have a large value attributable to the building itself and the building portion is generally required to be depreciated over 27.5 years However, for mobile home parks, the depreciable costs are typically the roads, water lines, sewer lines, electric poles and so on. These are considered land improvements and are typically depreciated over a period of 15 years. This increased depreciation over the first 15 years is a major tax benefit for many investors.
6. Another hidden benefit of mobile home parks are the barriers to entry for competition. In most areas of the country, it is difficult to get the proper zoning, meet all the requirements to build a new community and actually make a profit. Face it, once you get all the permits and licenses and have the curbs, roads, driveways, utilities, pads and everything else built out, you will have a carrying cost until you actually get enough homes into the project to break even, let alone start making a profit.
Mobile Home Parks are in limited supply and the barriers to entry as far as costs, regulations and government restrictions make developing new parks unfeasible in most areas. State and local governments restrict new mobile home park developments for many reasons, including: bad reputation, existing owners allowing parks to deteriorate, less property tax base to fund schools, police, fire, and other government services.
7. Another benefit of mobile home parks is that in most cases you have individuals that own their own homes and will tend to take care of the home as well as their lot. Since you are renting basically the land and the utility connections, there is not near as many things that your renters can do to cost you major repairs. Sure they may flush things down the sewer and let the water run, but they will not be putting holes in the walls and floors or spilling things on the carpet as they will in your apartment rentals. You rent the land and do not have to fix leaky kitchen faucets or toilets. Another benefit of owning mobile home parks is that you are often in a good position to buy and sell new and used mobile homes. You can often buy homes that people sell in your park, in nearby parks, repos, or even new homes from the manufacturers and place them in your park and sell them at a profit.
8. Depending on the situation, you may be able to sell them for cash, on terms, or with new financing. As the park owner, every time you sell a home and fill a vacant lot in your park you have just increased the monthly lot rent income as well as the value of the park.
If each occupied lot is worth an additional $10,000 then in addition to the profit from the home sale itself you have just made an extra 10k in equity.
A mobile home dealer makes money on the spread between the purchase and sale price and thus needs to have good profit margin to stay in business. As the park owner you can live on a much smaller or even a break even on the home sales and thus save your buyers thousands of dollars.
2. It is typically accepted that the average operating expenses for a mobile home park are usually around 35-40% of the gross income as compared to apartments which have in the 50-60% expense ratio. One of the biggest advantages of mobile home park ownership is not only this decreased operating expense margin but the reasoning behind it.
Mobile Home Parks in which you rent the land to the home owners have a much lower turnover ratio as compared to apartments. In most cases, once the home is moved into your park, that home will stay in there for 25+ years and when people are ready to move they will just resell the home in the park and you will have a new homeowner.
The biggest reason for the low home turnover is that it costs so much to break down, move, and set up a home. In most cases this is going to cost at a minimum of $2,000 for a singlewide and $4,000 for a doublewide. In an apartment, your renters can pack up and leave in the middle of the night.
In most cases a mobile home will not move out in the middle of the night (especially legally). There are those cases where someone will hire someone to come in and move a home in the middle of the night but it is rare.
I actually had someone who was a few months late on rent, decide to hook up to their 14 x 70 home with their ton pickup in an attempt to move it down the road a few miles to a different park. They made it out of the park with the home but about a mile down the road the mobile home separated from the truck and they not only flipped the home but destroyed a truck. All of this to avoid about $800 in lot rent.
3. When you raise the rent by $10, $15, $20 or more in a mobile home park, it is less justifiable for a renter to spend several thousand dollars to move their home to save $10 or $20 per month. In addition there is no guarantee that the mobile home park that they move their home to will not follow suit with a rent increase of their own.
4. Another reason for the lower operating expense ratio for mobile home parks is that you are not responsible for painting, cleaning carpets, fixing windows, and all the fun jobs of the apartment maintenance personnel. You are typically only responsible up to where the home connects to your utilities and the maintenance of the common areas.
5. As far as depreciation, apartments have a large value attributable to the building itself and the building portion is generally required to be depreciated over 27.5 years However, for mobile home parks, the depreciable costs are typically the roads, water lines, sewer lines, electric poles and so on. These are considered land improvements and are typically depreciated over a period of 15 years. This increased depreciation over the first 15 years is a major tax benefit for many investors.
6. Another hidden benefit of mobile home parks are the barriers to entry for competition. In most areas of the country, it is difficult to get the proper zoning, meet all the requirements to build a new community and actually make a profit. Face it, once you get all the permits and licenses and have the curbs, roads, driveways, utilities, pads and everything else built out, you will have a carrying cost until you actually get enough homes into the project to break even, let alone start making a profit.
Mobile Home Parks are in limited supply and the barriers to entry as far as costs, regulations and government restrictions make developing new parks unfeasible in most areas. State and local governments restrict new mobile home park developments for many reasons, including: bad reputation, existing owners allowing parks to deteriorate, less property tax base to fund schools, police, fire, and other government services.
7. Another benefit of mobile home parks is that in most cases you have individuals that own their own homes and will tend to take care of the home as well as their lot. Since you are renting basically the land and the utility connections, there is not near as many things that your renters can do to cost you major repairs. Sure they may flush things down the sewer and let the water run, but they will not be putting holes in the walls and floors or spilling things on the carpet as they will in your apartment rentals. You rent the land and do not have to fix leaky kitchen faucets or toilets. Another benefit of owning mobile home parks is that you are often in a good position to buy and sell new and used mobile homes. You can often buy homes that people sell in your park, in nearby parks, repos, or even new homes from the manufacturers and place them in your park and sell them at a profit.
8. Depending on the situation, you may be able to sell them for cash, on terms, or with new financing. As the park owner, every time you sell a home and fill a vacant lot in your park you have just increased the monthly lot rent income as well as the value of the park.
If each occupied lot is worth an additional $10,000 then in addition to the profit from the home sale itself you have just made an extra 10k in equity.
A mobile home dealer makes money on the spread between the purchase and sale price and thus needs to have good profit margin to stay in business. As the park owner you can live on a much smaller or even a break even on the home sales and thus save your buyers thousands of dollars.
Tuesday, January 4, 2011
Mobile Home Park Leasing Options
Why leases with an option to buy may be a better way to go for sellers and buyers. Instead of an outright purchase of a Mobile Home or RV Park, a lease with the option to buy can make more deals happen. Here are some benefits that often occur in these type transactions:
Seller Benefits:
1. Instead of selling a property with seller financing, when a seller does a lease option they still have the title to the property. If the buyer does default for whatever reason, then the seller can usually evict the lessee in a much more timely manner than going through the foreclosure process. The lessee is not the owner.
2. Instead of receiving a down payment on the sale, the seller/lessor will receive an option deposit. Whether this option deposit is $5,000 or $500,000 it is typically treated just like a security deposit. It is not reported on the sellers tax return until the option either expires or is exercised. This can in effect postpone the capital gain taxes on the sale for several years depending on when the option expires or is exercised.
3. The seller/lessor will still be allowed to depreciate the mobile home park improvements until the option is exercised. This depreciation can shield some of the income that the seller/lessor receives from the lessee during the option period.
4. The seller/lessor is relieved of the day to day management duties and can be freed of that responsibility. Instead of running the park themselves, they step aside and collect a monthly rental payment from the lessee until the option is exercised.
5. By using a lease/option an owner that may have only owned the property for a few months may be able to convert a short term capital gain into a long term capital gain. This would happen as long as the option is not exercised for at least 1 year from the date the owner acquired the property.
6. By doing a lease/option instead of a purchase/sale/owner finance, the current financing can be left in place until the option is exercised without triggering a due on sale clause. If the property is in need of being turned around and it would be hard to get a new loan this may be the best option for the buyer and seller.
7. The seller/lessor can continue to make the mortgage payments and not be in default. If the buyer does default it should not be a difficult process to get rid of the buyer.
Buyer Benefits:
1. For a buyer with less than perfect credit, this may allow them to get into a property while their credit is being built up and then complete the purchase when they can qualify.
2. During the option period, the buyer can build equity so long as the property increases in value. This is the usual case.
3. If the property declines in value, then the lessee is not required to exercise the option. As long as the option deposit is not more than the decline in value, it shifts some of the risk.
4. The seller/lessor is usually more readily available to help in the case of problems with a lease option than an outright sale. They don't usually want the property back so they will be available to answer questions and give other advice.
5. Instead of the depreciation deductions, the lessee will be able to deduct the monthly rent payment to the owner. While this is amount will probably be less than the mortgage interest and depreciation, if the lease payments are structured that a portion of them reduce the option price, this can be a benefit as well.
6. The lessee is able to work the property as if it were their own and if done right will be able to increase the value of the property above the option price. Then when the option is exercised it will be much easier to obtain financing.
7. The lessee may be able to sell the option rights to another purchaser which is often easier than buying a property and selling a property. They are just selling the right to buy the property at a predetermined price.
These are some of the benefits of the lease/option. I am sure that there are a few more that I have not thought about but this should get you started.
Seller Benefits:
1. Instead of selling a property with seller financing, when a seller does a lease option they still have the title to the property. If the buyer does default for whatever reason, then the seller can usually evict the lessee in a much more timely manner than going through the foreclosure process. The lessee is not the owner.
2. Instead of receiving a down payment on the sale, the seller/lessor will receive an option deposit. Whether this option deposit is $5,000 or $500,000 it is typically treated just like a security deposit. It is not reported on the sellers tax return until the option either expires or is exercised. This can in effect postpone the capital gain taxes on the sale for several years depending on when the option expires or is exercised.
3. The seller/lessor will still be allowed to depreciate the mobile home park improvements until the option is exercised. This depreciation can shield some of the income that the seller/lessor receives from the lessee during the option period.
4. The seller/lessor is relieved of the day to day management duties and can be freed of that responsibility. Instead of running the park themselves, they step aside and collect a monthly rental payment from the lessee until the option is exercised.
5. By using a lease/option an owner that may have only owned the property for a few months may be able to convert a short term capital gain into a long term capital gain. This would happen as long as the option is not exercised for at least 1 year from the date the owner acquired the property.
6. By doing a lease/option instead of a purchase/sale/owner finance, the current financing can be left in place until the option is exercised without triggering a due on sale clause. If the property is in need of being turned around and it would be hard to get a new loan this may be the best option for the buyer and seller.
7. The seller/lessor can continue to make the mortgage payments and not be in default. If the buyer does default it should not be a difficult process to get rid of the buyer.
Buyer Benefits:
1. For a buyer with less than perfect credit, this may allow them to get into a property while their credit is being built up and then complete the purchase when they can qualify.
2. During the option period, the buyer can build equity so long as the property increases in value. This is the usual case.
3. If the property declines in value, then the lessee is not required to exercise the option. As long as the option deposit is not more than the decline in value, it shifts some of the risk.
4. The seller/lessor is usually more readily available to help in the case of problems with a lease option than an outright sale. They don't usually want the property back so they will be available to answer questions and give other advice.
5. Instead of the depreciation deductions, the lessee will be able to deduct the monthly rent payment to the owner. While this is amount will probably be less than the mortgage interest and depreciation, if the lease payments are structured that a portion of them reduce the option price, this can be a benefit as well.
6. The lessee is able to work the property as if it were their own and if done right will be able to increase the value of the property above the option price. Then when the option is exercised it will be much easier to obtain financing.
7. The lessee may be able to sell the option rights to another purchaser which is often easier than buying a property and selling a property. They are just selling the right to buy the property at a predetermined price.
These are some of the benefits of the lease/option. I am sure that there are a few more that I have not thought about but this should get you started.
Monday, January 3, 2011
Valuing a Mobile Home Park
I want to know how many lots there are, how many are occupied and paying, what the lot rent is, what expenses the owner is paying, and who is responsible for the water lines, sewer lines, and roads.
A good rule of thumb that I use to start with is that I take the number of occupied spaces and multiply this by the average monthly space rent and multiply this by 70.
For example if the park has 110 spaces with 10 vacancies, a monthly average space rent of $200.
Then my initial value calculation is 100 x $200 x 70 = $1,400,000.
If the park is on the market for $3 million I will probably pass. If the park is on the market for $1,800,000 or less than I will probably look into it further. Remember this simple calculation is very generic and may or may not be the true indication of the value of a mobile home park.
In looking at the park in more detail, I will ask for actual operating income as well as actual operating expenses.
The operating expense ratio can vary significantly from one park to another in the same city even if located adjacent to one another. One of the largest expenses in a park is the water and sewer expense. If the residents of the park are paying this expense then you can expect the operating expense ratio to be as much as 15% less than the average.
The value a mobile home park may be $2 million for one person and $1.5 million to someone else. The key is really deciding what you are willing to pay based on your expectations of what type of return you want on your investment. This return on investment will come in several different forms:
Monthly/Yearly Cash Flow
Tax Savings
Equity Buildup
Appreciation
Rent Increases and Expense Reductions
In analyzing the financial statements and tax returns, they are often different. The financial statements usually have more income and less expenses and the tax returns usually have less income and more expenses.(however, I have seen in some cases that the tax returns are also overstated in order to show a better net income when it comes time to sell or refinance a park. If by paying taxes on an additional 20k in taxes for a couple of years increases the value of the park by 200k then a real sophisticated and dishonest seller may be trying to pull a fast one. So be careful.
The key then is to reconcile the tax return with the profit and loss statement and then interject reality into the whole process.
Figuring out the actual income is usually not too difficult. You can take the actual number of spaces in the park and multiply this by the actual rents being charged and subtract out a reasonable allowance for collections and you should be able to come up with a good estimate of the income. I usually use 3% as the collections expense.
The next thing to do is to come up with the anticipated expenses based not only on how the park is currently operating but also based on how the park will operate with you as the new owner. For example, if the current owner is managing the park, then you need to plug in an amount for management and payroll taxes and workers comp. If the park has vacancies and there is no advertising expense, then you need to plug in an amount for advertising. And so on.
Common expenses for Mobile Home Parks. Not every park has all of these expenses and some have additional expenses but this is a good starting point.
Advertising
Bank Service Charges
Depreciation
Insurance: Liability
Insurance: Property
Insurance: Workers Comp
Interest: Mortgage
Legal and Accounting
Licenses and Permits
Maintenance Labor
Management Offsite
Management Onsite
Mowing & Landscaping
Postage
Rent Discounts & Incentives
Repairs: Equipment
Repairs: Property
Reserve for Capital Improvements
Supplies: Maintenance
Supplies: Office
Taxes: Payroll
Taxes: Property
Telephone
Travel
Utilities: Electric
Utilities: Gas
Utilities: Trash
Utilities: Water & Sewer
In most cases when you review a sales package for a mobile home park for sale it will not mention any reserve for capital expenditures. This really should be addressed in your evaluation of the park and in the due diligence phase. Items like replacing all the water lines or sewer lines for older parks, resurfacing the roads, topping all the trees, are large expenses that can occur in the future and they should be budgeted for. While they are not expensed for income tax purposes they are capitalized and depreciated over 15 years or so, and are therefore real costs. I would include at least 2-3% of gross income as a Reserve for Capital Improvements in your numbers when determining the value.
You will find some sellers that expense everything and then find the opposite where owners capitalize as much as possible to make the bottom line look better. Spend some time going through all the expenses and estimating future capital improvements.
After coming up with the income that the park is currently generating and deducting from that all the anticipated operating expenses including the reserve for capital expenditures you will have what is called the Net Operating Income.
If you take the Net Operating Income and divide this by the price you come up with the Capitalization Rate (Cap Rate). Also, if you divide the Net Operating Income by the Cap Rate you come up with the price and so on.
Now this is where subjectivity comes into play. I remember not too many years ago you could buy 50 -100 unit mobile home parks valued in the 12 14% cap rate range. It is hard to find these deals anymore. Add into that the fact that the interest rates were so low for the last few years and the 12-14 caps are now 7-10 caps. The demand for good quality mobile home parks is and has been much greater than the supply. There are even stabilized parks that I have seen purchased for 5 & 6 percent caps. These were not just for redevelopment purposes either.
What is a good cap rate? The answer is really up to the buyer. Some buyers tell me they want at least a 7 cap, some say 10 cap, some say 15 cap(I say good luck to these people).
So in reality, a certain mobile home park will have a different value to each and every person. The idea is to decide what you want or will require in terms of your investment and then work to make the deal fit these requirements.
If you want a 10 cap on a property priced at a 7 cap, it does not necessarily mean you should pass on the deal. For instance, what if the park has rents that are $50 under market and through your inspections and due diligence you know you could raise the rent to market rates in 2 months. What if this would make it a 10 Cap? Another possibility would be to put it under contract and then in your due diligence you tell the seller that you want to move forward with the purchase but in order to do so and to satisfy your lenders requirements, obtain an adequate appraisal, and/or make the required return on your investment, you need to have him send a rent increase notice out right away so the rates are where you want them at closing.
In another example, suppose the park has an NOI of $80,000 and is priced at 1 million. Also, suppose that the park is currently paying for water and sewer and this expense is running approximately $30,000 per year. You know that you could install water meters and pass this expense on to the residents. You want a 10 cap on your purchase. You could very well purchase this park and realize the return you want very quickly in situations such as this. If the rents are under market or there are expenses that can be reduced or other ways to increase the net income with minimal work and cash outlay you might pay extra for a park if it otherwise meets your investment criteria.
As my general rule when dealing with parks that are borderline but have the potential to increase in value and offer an acceptable return on investment by raising rents or reducing expense: I generally will add up to 50% of the value from these quick fixes to my offer on a park. So if I can increase the rates to market and reduce expenses and this increases the value of the park by $100,000, then I would consider adding $50,000 to my offer price if necessary. After all, we should earn something from our expertise and doing what the owner could have done already.
Other considerations on the value of the park will be the entrances, streets, landscaping, utilities, parking, lights, storage sheds, number of singles versus doubles, swimming pools, clubhouses, etc. The nicer the park typically the lower the cap rate and the easier it will to tap into better financing programs.
Other Value Considerations:
Vacant Lots:
When purchasing a mobile home park that has vacant lots which are ready to be occupied, what value, if any should you place on these lots? We just came up with the value we are willing to pay based on the NOI and the cap rate we are looking for. So, unless these homesites will fill up with minimal effort and investment, I would not place much of a value on them at all. In fact, having empty homesites that are hard to rent out will end up costing you money in terms of monthly maintenance and time. I would definitely point this out to the seller as a negotiating point. Many sellers like to say there is upside on all the vacant spaces. However, if this upside was easy to obtain, then the seller would have most likely realized it before selling.
In some cases, you will be able to fill up the homesites with minimal investment and effort so you may place a value of 25-50% depending on your comfort level. I would definitely lean toward the 25%.
Park Owned Homes & Notes:
When purchasing a mobile home park where there are park owned rentals, rent-to-own homes, and mobile home notes it is important to break out the income and expenses from this portion of the business from the lot/space rental portion.
Many times the income and expenses from the entire operations are lumped together and the seller or broker says the property is priced at say a 10 cap.
Here is the problem with this approach of lumping it all together:
Suppose you have 10 mobile homes that are renting for $350 above the normal lot rent per month and that there is an additional expense of $100 per mobile home each month. You basically have a net of $250 per month for each home or $3,000 per year. If you are capping this income at a 10 cap, you are placing a value of $30,000 per mobile home. Now there may be some nice doublewides that are being rented in some parks that are worth $30,000 but it is not the norm. Most of the time, these homes are older singlewide homes that may have a value from $3,000 to $10,000. So if you are valuing them at $30,000 you are paying too much!
Another situation occurs when you have mobile home notes or rent to own homes. Lets say you have a note payment of $200 per month in addition to the lot rent and that the balance left is $8,000 on the note. The monthly payments of $200 per month will add up to $2,400 per year and if you cap that at 10% then you are paying $24,000 for an $8,000 note. Not a great investment move!
So what do you pay for these types of additional income sources?
Mobile Homes Rented Out: Many people will say that you should pay what the home is worth on the market if sold for cash or for cash with outside financing. My formula is that I will pay about 75% of what I feel I can sell the home to the current renter for on a rent-to-own agreement with a term of 3-5 years and also increase the lot rent in the process.. Here is an example:
A home is being rented for $425 per month and the lot rent is $200 per month. I will approach the current renter and tell them if they continue paying rent for 3 more years, then I will assign the title over to them and the home will be theirs. In the rent-to-own agreement, I specify that the lot rent is $225 per month(not $200) and after 36 monthly payments of $200 plus lot rent, the home title will be transferred to them.
In this case, I would not only be receiving 36 x $200 or $7,200 for the home, but I have also increased the lot rent for that home in the process. When I get ready to raise rents for other residents in the park, I can always say that there are other people already paying the higher rates. So, in this case I would pay somewhere in the $5,000 to $6,000 range for this home. ($7,200 x 75% = $5,400)
Mobile Home Notes and Rent-to-Own Agreements: When I am purchasing notes and agreements that have already been created by the current seller, I will typically use the lower of the value of:
75% of the value of what I can resell the home to a new renter in case of default as calculated above; or
65% of the future note or rent-to-own payments.
A good rule of thumb that I use to start with is that I take the number of occupied spaces and multiply this by the average monthly space rent and multiply this by 70.
For example if the park has 110 spaces with 10 vacancies, a monthly average space rent of $200.
Then my initial value calculation is 100 x $200 x 70 = $1,400,000.
If the park is on the market for $3 million I will probably pass. If the park is on the market for $1,800,000 or less than I will probably look into it further. Remember this simple calculation is very generic and may or may not be the true indication of the value of a mobile home park.
In looking at the park in more detail, I will ask for actual operating income as well as actual operating expenses.
The operating expense ratio can vary significantly from one park to another in the same city even if located adjacent to one another. One of the largest expenses in a park is the water and sewer expense. If the residents of the park are paying this expense then you can expect the operating expense ratio to be as much as 15% less than the average.
The value a mobile home park may be $2 million for one person and $1.5 million to someone else. The key is really deciding what you are willing to pay based on your expectations of what type of return you want on your investment. This return on investment will come in several different forms:
Monthly/Yearly Cash Flow
Tax Savings
Equity Buildup
Appreciation
Rent Increases and Expense Reductions
In analyzing the financial statements and tax returns, they are often different. The financial statements usually have more income and less expenses and the tax returns usually have less income and more expenses.(however, I have seen in some cases that the tax returns are also overstated in order to show a better net income when it comes time to sell or refinance a park. If by paying taxes on an additional 20k in taxes for a couple of years increases the value of the park by 200k then a real sophisticated and dishonest seller may be trying to pull a fast one. So be careful.
The key then is to reconcile the tax return with the profit and loss statement and then interject reality into the whole process.
Figuring out the actual income is usually not too difficult. You can take the actual number of spaces in the park and multiply this by the actual rents being charged and subtract out a reasonable allowance for collections and you should be able to come up with a good estimate of the income. I usually use 3% as the collections expense.
The next thing to do is to come up with the anticipated expenses based not only on how the park is currently operating but also based on how the park will operate with you as the new owner. For example, if the current owner is managing the park, then you need to plug in an amount for management and payroll taxes and workers comp. If the park has vacancies and there is no advertising expense, then you need to plug in an amount for advertising. And so on.
Common expenses for Mobile Home Parks. Not every park has all of these expenses and some have additional expenses but this is a good starting point.
Advertising
Bank Service Charges
Depreciation
Insurance: Liability
Insurance: Property
Insurance: Workers Comp
Interest: Mortgage
Legal and Accounting
Licenses and Permits
Maintenance Labor
Management Offsite
Management Onsite
Mowing & Landscaping
Postage
Rent Discounts & Incentives
Repairs: Equipment
Repairs: Property
Reserve for Capital Improvements
Supplies: Maintenance
Supplies: Office
Taxes: Payroll
Taxes: Property
Telephone
Travel
Utilities: Electric
Utilities: Gas
Utilities: Trash
Utilities: Water & Sewer
In most cases when you review a sales package for a mobile home park for sale it will not mention any reserve for capital expenditures. This really should be addressed in your evaluation of the park and in the due diligence phase. Items like replacing all the water lines or sewer lines for older parks, resurfacing the roads, topping all the trees, are large expenses that can occur in the future and they should be budgeted for. While they are not expensed for income tax purposes they are capitalized and depreciated over 15 years or so, and are therefore real costs. I would include at least 2-3% of gross income as a Reserve for Capital Improvements in your numbers when determining the value.
You will find some sellers that expense everything and then find the opposite where owners capitalize as much as possible to make the bottom line look better. Spend some time going through all the expenses and estimating future capital improvements.
After coming up with the income that the park is currently generating and deducting from that all the anticipated operating expenses including the reserve for capital expenditures you will have what is called the Net Operating Income.
If you take the Net Operating Income and divide this by the price you come up with the Capitalization Rate (Cap Rate). Also, if you divide the Net Operating Income by the Cap Rate you come up with the price and so on.
Now this is where subjectivity comes into play. I remember not too many years ago you could buy 50 -100 unit mobile home parks valued in the 12 14% cap rate range. It is hard to find these deals anymore. Add into that the fact that the interest rates were so low for the last few years and the 12-14 caps are now 7-10 caps. The demand for good quality mobile home parks is and has been much greater than the supply. There are even stabilized parks that I have seen purchased for 5 & 6 percent caps. These were not just for redevelopment purposes either.
What is a good cap rate? The answer is really up to the buyer. Some buyers tell me they want at least a 7 cap, some say 10 cap, some say 15 cap(I say good luck to these people).
So in reality, a certain mobile home park will have a different value to each and every person. The idea is to decide what you want or will require in terms of your investment and then work to make the deal fit these requirements.
If you want a 10 cap on a property priced at a 7 cap, it does not necessarily mean you should pass on the deal. For instance, what if the park has rents that are $50 under market and through your inspections and due diligence you know you could raise the rent to market rates in 2 months. What if this would make it a 10 Cap? Another possibility would be to put it under contract and then in your due diligence you tell the seller that you want to move forward with the purchase but in order to do so and to satisfy your lenders requirements, obtain an adequate appraisal, and/or make the required return on your investment, you need to have him send a rent increase notice out right away so the rates are where you want them at closing.
In another example, suppose the park has an NOI of $80,000 and is priced at 1 million. Also, suppose that the park is currently paying for water and sewer and this expense is running approximately $30,000 per year. You know that you could install water meters and pass this expense on to the residents. You want a 10 cap on your purchase. You could very well purchase this park and realize the return you want very quickly in situations such as this. If the rents are under market or there are expenses that can be reduced or other ways to increase the net income with minimal work and cash outlay you might pay extra for a park if it otherwise meets your investment criteria.
As my general rule when dealing with parks that are borderline but have the potential to increase in value and offer an acceptable return on investment by raising rents or reducing expense: I generally will add up to 50% of the value from these quick fixes to my offer on a park. So if I can increase the rates to market and reduce expenses and this increases the value of the park by $100,000, then I would consider adding $50,000 to my offer price if necessary. After all, we should earn something from our expertise and doing what the owner could have done already.
Other considerations on the value of the park will be the entrances, streets, landscaping, utilities, parking, lights, storage sheds, number of singles versus doubles, swimming pools, clubhouses, etc. The nicer the park typically the lower the cap rate and the easier it will to tap into better financing programs.
Other Value Considerations:
Vacant Lots:
When purchasing a mobile home park that has vacant lots which are ready to be occupied, what value, if any should you place on these lots? We just came up with the value we are willing to pay based on the NOI and the cap rate we are looking for. So, unless these homesites will fill up with minimal effort and investment, I would not place much of a value on them at all. In fact, having empty homesites that are hard to rent out will end up costing you money in terms of monthly maintenance and time. I would definitely point this out to the seller as a negotiating point. Many sellers like to say there is upside on all the vacant spaces. However, if this upside was easy to obtain, then the seller would have most likely realized it before selling.
In some cases, you will be able to fill up the homesites with minimal investment and effort so you may place a value of 25-50% depending on your comfort level. I would definitely lean toward the 25%.
Park Owned Homes & Notes:
When purchasing a mobile home park where there are park owned rentals, rent-to-own homes, and mobile home notes it is important to break out the income and expenses from this portion of the business from the lot/space rental portion.
Many times the income and expenses from the entire operations are lumped together and the seller or broker says the property is priced at say a 10 cap.
Here is the problem with this approach of lumping it all together:
Suppose you have 10 mobile homes that are renting for $350 above the normal lot rent per month and that there is an additional expense of $100 per mobile home each month. You basically have a net of $250 per month for each home or $3,000 per year. If you are capping this income at a 10 cap, you are placing a value of $30,000 per mobile home. Now there may be some nice doublewides that are being rented in some parks that are worth $30,000 but it is not the norm. Most of the time, these homes are older singlewide homes that may have a value from $3,000 to $10,000. So if you are valuing them at $30,000 you are paying too much!
Another situation occurs when you have mobile home notes or rent to own homes. Lets say you have a note payment of $200 per month in addition to the lot rent and that the balance left is $8,000 on the note. The monthly payments of $200 per month will add up to $2,400 per year and if you cap that at 10% then you are paying $24,000 for an $8,000 note. Not a great investment move!
So what do you pay for these types of additional income sources?
Mobile Homes Rented Out: Many people will say that you should pay what the home is worth on the market if sold for cash or for cash with outside financing. My formula is that I will pay about 75% of what I feel I can sell the home to the current renter for on a rent-to-own agreement with a term of 3-5 years and also increase the lot rent in the process.. Here is an example:
A home is being rented for $425 per month and the lot rent is $200 per month. I will approach the current renter and tell them if they continue paying rent for 3 more years, then I will assign the title over to them and the home will be theirs. In the rent-to-own agreement, I specify that the lot rent is $225 per month(not $200) and after 36 monthly payments of $200 plus lot rent, the home title will be transferred to them.
In this case, I would not only be receiving 36 x $200 or $7,200 for the home, but I have also increased the lot rent for that home in the process. When I get ready to raise rents for other residents in the park, I can always say that there are other people already paying the higher rates. So, in this case I would pay somewhere in the $5,000 to $6,000 range for this home. ($7,200 x 75% = $5,400)
Mobile Home Notes and Rent-to-Own Agreements: When I am purchasing notes and agreements that have already been created by the current seller, I will typically use the lower of the value of:
75% of the value of what I can resell the home to a new renter in case of default as calculated above; or
65% of the future note or rent-to-own payments.
Subscribe to:
Posts (Atom)