August 2008
Newsletter
This issue of the MobileHomeParkStore.com and MHBay.com Newsletter includes:
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Mobile Home Notes……… Following are the basics, in outline form, of the most secure, saleable, seller financed mobile home notes. Please note this outline is specific for home only/chattel loans in land leased communities. While I understand some of the possible benefits of lease options, they are not sellable in the secondary market. First a Mobile Home Sale with seller financing:
Creative Financial Solutions www.CreativeFundingService.com has placed well over $50 million, in bulk chattel loans, in the secondary market. Marc Faulkner has over 20 years in retail sales and financing experience and has personally created and sold thousands of notes. We understand the process from being in the trenches on the sales side of the equation as well as the underwriting and investor’s side of the story. We have also been involved in a number of seller financed community sales and have placed these notes with our private investors. We work with an elite group of banks, hedge funds, trusts, private equity companies and a select few private individuals, and pride ourselves on staying on top of this complicated secondary market. We would be happy to discuss your seller financing needs or discuss an "in house" consultation. Creative Financial can be reached at (269)353-9238 or by e-mailing me personally at marc@creativefundingservice.com We recommend you consult your states Manufactured Housing Association and a competent attorney. CFS does not provide legal advice. |
| Joanne Stevens August Newsletter August 2008 From the Office of Joanne Stevens. Real Estate Broker and Consultant for parks and communities throughout the United States. OWNERS & BUYERS What each thinks is important: Do you want to manage your real estate asset for maximum value? Here are a few ideas to help you make more money when you sell, or to at least better understand the marketplace for parks and communities. BELOW MARKET RENT What Sellers Think: Owners sometimes think buyers want the rent to be below market so that the buyer can increase it. Likewise, owners oftentimes think their occupancy is stronger than the competition because their rent is less. The theory is that residents move their homes to different communities because of lower rent. The truth is, it is rare that a resident moves due to higher rent. And, a move by a resident to another community within the same market is very rare. There’s usually more to a move than just rent increases. Rather, it’s things like having difficult neighbors, poor relations with management and real or perceived crime on the premises. An example is one in which a very large portfolio owner of parks and communities, regardless of the local economy, occupancy or any other factors, raises the rent $10 to $20 annually. When that owner purchases a park or community, residents are told their rent will go up every year. Residents don’t move out. They are motivated to ‘stay put’ because they like their neighbors, like the location and feel good about calling the community “home”. This portfolio owner’s parks and communities are $80 to $100 per month higher than their competition. Some sellers think below market rents make a favorable impression on the buyer. It does, but read What Buyers Think. What Buyers Think: Buyers like parks and communities with below market rent because of the up-side potential. But, they won’t pay for the up-side potential. Buyers base what they’re willing to pay on actual income. FINANCING What Sellers Think: Sellers think financing is an easy, no-brainer proposition, that capital is plentiful, interest rates are low and terms are easy. What Buyers Think: “The only way you can get a loan is if you don’t need a loan,” said a very experienced, financially strong investor recently on obtaining financing in today’s market. This community owner has been investing in parks and communities for decades and said that he has never seen financing as difficult to obtain as it is today. Banks are nervous and the market that was awash in capital is no more. Buyers know that obtaining financing today is much harder and more expensive than even a year ago. Higher capital requirements are negatively impacting buyers’ yields. There is still capital and lenders wanting to make loans; it’s just that interest rates are higher, the amortization is shorter, and the down payments are in the range of 25% to 40%, not the 10% to 20% range of a year ago. All of these factors lower the yield so the buyer can’t pay as much. Additionally, banks are scrutinizing the actual property much more than in the recent past. For example: Fannie Mae (government-backed lender) now requires at least 50% of the park and community sites be large enough for sectional homes. VACANT SITES What Sellers Think: Vacant sites are a plus because of the upside potential profit from selling homes on vacant home sites as well as the upside potential for increased rental income from filling and renting vacant sites. What Buyers Think: Vacant sites are a minus because of the capital required to purchase and finance homes, as well as the talent and knowledge needed to market, show, sell, close, and warrant, not to mention the myriad of other details needed to sell homes. There are more buyers willing to sell homes in communities than in the past. The community business is trending toward a new business model (which is really the original business model of the1950’s to 1970’s) where the park or community owner is also the retailer for the homes, both new and pre-owned. There was a time in the 1990’s when vacant sites actually had value because investors could easily connect with a multitude of local retailers, all vying for vacant sites for their home-buying customers. Although that day is gone, it is re-emerging because the sub prime housing problem is causing consumers to look at lower cost housing options that also offer liberal seller financing. Today, community owners will finance buyers that have been foreclosed on. The community owners view these buyers as good buyers that got some bad advice in the heady, no down payment days of the housing bubble. SELLING HOMES ON-SITE What Sellers Think: Selling homes on-site will be easy for the new owner. Park and community owners feel investors have more time, money and expertise to sell homes. Owners that don’t sell homes on-site think selling homes is “like shooting fish in a barrel”. (That’s a quote from an owner who never sold homes.) What Buyers Think: Selling homes on-site takes a lot of resources. Who will sell the homes? Is it realistic that a manager can manage a property as well as sell homes and still be affective at both? Where will the homes come from and what models will sell? Who will do the customer walk-through of new homes and provide service? If the buyer rents a home, who will do repairs and maintenance? Yes, there is profit potential, but the investor is going to weigh the upside against other alternative investments and buy the one with the least risk and the least drain on resources. For many investors there are easier ways to turn a buck than by selling homes. Still, some park and community investors have made it their business to not only become skilled at selling homes, but have also geared their organization to doing exactly that. They know full well the pitfalls and the costs of selling homes. They view the so-called upside of selling homes as strictly that - Upside. It is only through their own capital, time and talent that any homes will get sold. Therefore, selling homes doesn’t add value to the present owner. NEW SIGNAGE, NEW LANDSCAPING, STREET REPAIRS ANDCLEAN-UP ADD VALUE What Sellers Think: Sellers spruce-up their park or community when a sale of the property is being contemplated and often believe that new paint and shrubs will make them money. What Buyers Think: Buyers expect things to be in good repair and in working condition. They are not looking for perfection. Paint, landscaping and signage won’t register with buyers because they figure that’s how things should look anyway. But, if the property has a run-down appearance, the buyer is apt to think the property has problems that they cannot see. GREAT REASONS TO BE IN THE PARK AND COMMUNITY BUSINESS In our country, home ownership is promoted as the ‘American Dream’. Home ownership over time does add to the household’s net worth, and government policy favors home ownership, as the tradition in the U.S. has been that home ownership is the fastest, most efficient way to lift people into the middle class. Manufactured housing in communities counts as home ownership. With the housing sub prime debacle, now is a good time to examine housing needs. According to Nicholas Retsinas, Director of the Joint Center for Housing Studies at Harvard University, “in recent years we have been obsessed with creating new homeowners; we have been less concerned about sustaining home ownership. We are seeing an increasing number of foreclosures that are forcing people to vacate their homes and undermining the neighborhoods the homes are located in. The fastest growing populations are foreign-born households and people of color. Minority households will constitute two-thirds of the net new households over the next 20 years we’re going to have to revisit the role of high-density housing. We’ve got to find a way for the housing market to address the diverse needs of a very diverse population.” (from Developer Magazine, March/April, 2008). It looks like there will be some opportunities for community owners. In addition to the foreign-born and minority households are the blue collar baby boomers that will be retiring in droves (they started turning 60 in 2007) and are worried about their finances. They will be seeking less expensive housing in which to live out their golden years. RECORD KEEPING To make your property more valuable, keep good records and use good property management software. Today there is fabulous, user friendly software. (If you are having trouble finding software, give me a call at 319.378.6786). Good records and software will not only make your life as a manager and owner more efficient, but it will also make you money when you go to sell. When owners don’t have good, accurate financial information, the buyer and the lender will err on the conservative side, thus discounting income and/or bumping up expenses. This makes your property worth less. CEDAR RAPIDS & FLOODING Thank you to all that have contacted me about the recent flooding in Cedar Rapids. Your messages and thoughtfulness meant a great deal. Our downtown office location was flooded and it will be 6 months or more before we can move back in. We have set up shop in a temporary location. It’s estimated that 3,800 homes were lost to flooding. Cedar Rapids Mayor Kay Halloran, at a FEMA press conference, announced she didn’t want any ‘FEMA trailers’ in Cedar Rapids and that the citizens deserved better. At the next city council meeting, quite a few citizens who lost homes to the flood let the Mayor know they would be glad to have a FEMA trailer. FEMA mobile homes have begun arriving and are being sited in manufactured home communities in the area. They are late-model, 14’x64’ manufactured (HUD) code homes. Interestingly, they are not putting in foundations or piers in their sites. The local media, city and county officials, as well as flood victims have been very positive about the homes. And one more thing - no parks or communities were flooded. |
| Mobile Home Park Due Diligence Manual - Every Park Investor should Have a Copy! |
WHAT WILL YOU TELL YOUR GRANDCHILDREN IF YOU MISS THIS OPPORTUNITY TO BUY MOBILE HOME PARKS? You only need one mobile home park. That’s all you need to create a sizable asset and a consistent source of income. That’s assuming you buy it and operate it correctly. There has not been a better time to buy that one park in the last decade. Due to problems in the commercial real estate lending market, prices for parks have plummeted over the last six months. Desperate sellers are dumping their parks at prices far less than construction cost. Just look at the prices on the site. Notice how many sellers have written on their price “must sell”, “desperate”, and “all reasonable offers accepted”. And they are also advertising “seller financing available”. It is, without question, a buyers market. It wasn’t always that way. Just twelve months ago, people would complain that there were no good deals out there. For sure, there weren’t many. Sellers were trying to get 6% to 7% cap rates. And many were including in their numbers rent raises and increased occupancy that didn’t even exist. Going through the list of parks for sale on the site was frequently depressing – where were the good deals? Well, they’re here now. So how can just one park change you and your family’s life? Here’s the economics based on a 30 space park that you buy for $270,000 from an anxious seller. Let’s assume that the park is 80% occupied (24 lots) and the lot rent is $150 per month and the expense ratio is 30%. Then that gives you the following net income: [ 24 x $150 x .7 x 12] = $30,240. Based on a sales price of $270,000, that’s an 11% cap rate. Let’s say you can increase the lot rent by $10 per month each year, so that in year five the rent is $200 per month net of utilities. That’s pretty plausible, right? Let’s also assume that you are able to fill just 3 more lots over that five year period, through aggressive marketing and thinking outside the box. That’s not much, right? Well, let’s look at the net income now: [27 x $200 x .7 x 12] = $45,360. That’s a cap rate of 17% based on your purchase price. Pretty good, huh? So what can you do with that 17% cap rate. Well, you could sell the park at a 10% cap, and put $183,600 in your pocket before tax. Or you could hold the park until the mortgage is paid off and put $45,360 in your pocket annually (assuming you never rent another lot or raise the rent another dollar, ever). And don’t forget that you only put $54,000 [20% of purchase price] down on the park. That’s a 300% return on your investment within 5 years, on pretty conservative assumptions. Try and make that kind of return on any other form of real estate, especially now. Interested? To learn more about the mobile home park industry, you will find ample books, CDs and courses on the industry on MobileHomeParkStore.com. These products are produced by Frank Rolfe and Dave Reynolds, who have over $100,000,000 in park deals under their belts, and who are real people with real experiences and real facts to convey. Although the materials are lengthy [some are up to 700 pages long], they are easy to read and completely essential to not make a mistake buying or operating your park. So there’s a road map for you to improve the lives of you, your kids, and your grandchildren. And the opportunity is right now. |
| Mobile Home Park Books & Resources |
| Mobile Home Park Bootcamp - Don't Miss your Spot at our September Bootcamp |
Comments from our 1st Bootcamp - June 20, 2008Dave and Frank, We wanted to drop you a note thanking you again for an outstanding Boot Camp. Given the high-quality of your other materials, we had very high expectations for the course, and you greatly exceeded our expectations. It was obvious that you had invested an immense amount of time preparing for the course, and the selection of topics and quality of the materials, which were filled with much new information, was outstanding. At the start of the course, you mentioned that you both operate this business by the “golden rule”, only selling products that you would buy yourself. We feel that you have easily achieved this goal. Thanks again Again, we have been so impressed and grateful for the quality of your information and your generosity. It is not surprising to us that you both have been so successful in your business endeavors. If there is anything that we can do for you (e.g., act as a references), please do not hesitate to ask. Thanks again for a great seminar, Steve and Rebecca -------------------- Dave and Frank, I wanted to personally thank you for the excellent job you did on your first bootcamp. Having attended and organized similar events, I can say without a doubt that you did your homework by going above and beyond what was expected of the attendees. From the materials, which included cds, handouts, spreadsheets, forms, guest speakers, binders to writing equipment, you did a first-class job. Even the vans were new! The fact that great meals were included was also impressive. Doug M. |
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MobileHomeParkStore.com Comments from our Customers! 8-22-08 Thank you! Your site is doing it's job - we have had multiple hits on our website via yours so I know you have a good site. Appreciate your help, Stephanie Pigg Advantage Auction & Realty, Inc. |
| Find out more about selling your mobile home park! |
Are you a manufactured home owner or community owner with homes or lots for sale or rent?If so, then you can list your new and used mobile homes for sale or rent and lots for sale or rent for FREE at MHBay.com Q&A with Dave Question: Dear Dave, Thank you for your quick response to my question. I still am a little uncertain about what exactly to do, now that I have the tenant out. Is there a multi-step legal procedure to clear away the potential claim of ownership interest on the MH, in order to get it back free and clear? If there is , can you walk me through it? Another question..... is it normal to not require a securiy deposit from tenants that are just paying pad-site rent? If it is usually required, how much deposit ? Respectfully, Eric Answer: Eric, I have never had a tenant get evicted under the lot lease agreement and then come back and claim any ownership interest in the home. I use a rent-to-own agreement or a lease / option agreement and since they default on the lease they assume they have defaulted on the other. I am sure that there are people out there that would like nothing better than to assert a claim such as this, but it is very rare and as long as your agreement is well written I don't see them having a chance anyway. As far as the legal procedure, I don't know of any unless you sell the home and then carry the paper and in doing so transfer the title and hold a lien on it. Then you would have to go through repossession procedures. For a RTO or Lease/Option, I would provide them with notice that they are in default. If they will sign something to agree with you then all the better. However, as I said before this has never been an issue for me. As to your other question, it is normal to require a security deposit. I usually require $100 or $200. I would guess about 50% of the park owners require a security deposit. Thanks, Dave -------------------- Question: Dave, I have been in the trailer court game for 11 years even though I am only 34. My question “Is there an industry standard for calculating the worth or sale price of a trailer court?” I realize courts can be as different as grains of sand and the location makes all the difference. But, is there a base type calculation by lot or income or something? Thanks for your time. Andy Answer: Andy, I have a couple of formula's I use to get an idea of the park value but they are just for a quick evaluation. Average Lot Rent x Number of Occupied Lots x 60 (where park pays water & sewer) Average Lot Rent x Number of Occupied Lots x 70 (where residents pay water & sewer). However the best way to come up with the value is by using a Net Operating Income and Cap Rate Approach Net Operating Income divided by Cap Rater = Value Net Operating Income includes operating expense only (don't deduct for depreciation or mortgage payments). Those are the basic formula's I use but as you say location is key in most cases. Thanks, Dave -------------------- Question: Dave Read most the book last night. Great stuff. I bought my first park this past year. Sounds alot like your example number 2. Bought my second 2 months ago that one is pad only and doing well and have my 3rd under contract. (pad only also) Here is my question. I get the 10/20 rule. But with a 10% cap rate are you doing that off of current pad rentals or market pad rentals? For example, one park I am looking at now, the monthly pad rent is $120 per month. The market rent for that area is $160 per month. The second question is on expenses, if you are looking at a park, and know you are going to RTO the homes, do you put the expenses currently it takes to repairs homes or in the analysis do you anticipate that those are going to come down. Also, what % of income do you see on average for pad only parks versus parks that have greater than 25% park owned homes in them? Thanks so much. I have to go now and do a lot more work on due dilligence and look at my numbers again. Dave Answer: Dave, Thanks for the comments on the book and I wish you success as you continue to buy and operate more parks. As for your question. When we talk about the 10/20 method it can really be the 8/16 or the 7/14 method depending on the area and market you are in. You need to base the first number in that formula on current rents. So in your example, you would want to buy the park based on a 10% cap at the current rents. Then as you increase the rents to market and then on an annual basis you would start approaching the 20% cap. Also, reducing your expenses will aid in that. However, if you are buying it at an 8% cap on current rents then you may target a 16% cap. 8/16. The first number is the current situation and the second is where you want to get the park to. As for the second question, I will take out of the formula both the income over pad rent for the homes you are renting or are going to RTO and also the expenses that are attributed to the rental homes (insurance, maintenance, extra management, higher collection loss, taxes, etc). I want to get to the point where we can anticipate the income and expense as only a pad rental park in coming up with the value. After that I will add in an amount for the rental homes based on what I could sell them for cash or what it would cost me to buy a home down the street in similar condition and then move it into the park and have it setup and ready to go. And for the expense ratios on parks with and without rental homes (over 25% rentals). This can vary quite a bit but I would say an average pad rental only park will have an expense ratio in the 35-40% range. A park with a significant amount of rentals will be in the 50% range. Good luck with the diligence and thanks again, Dave -------------------- Question: You know Dave. You really have helped me. I hope to meet you at some point in the futures and a seminar etc. Will go ahead and buy your other books this week. Small investment for the return. After reading your book and each example trade. In less than 3 hours, I completely rethought my strategy in our parks. My first park I bought was for $660k. 41 pads, with 37 Park owned homes. I did a walk through but not knowing what I was doing just assumed that most MH's were in this bad of shape. What I have noticed is that when we have an eviction, the home needs a complete rehab. So we are finding out now what you expressed. Owning homes is a money pit. The quandry is that I have multiple people in the buziness that say owning the homes is a great way to double cash flow. Some months are very good and some are marginal. However the problems are many. Thank heavens that the other 3 parks are mainly pad only. Last question: I want to sell of the homes "assets", believe I could get around $2500-$5000k "as is", but the bank has possession of 17 of the titles as collateral. Just wondering how I work around that? dp Answer: Dave, You are welcome and I am glad someone else agrees with us on the homes being money pits (we add people to that list constantly). Anyway, my suggestion is to go talk with your bank about releasing the titles to the homes. Explain to them that by selling the homes you will decrease the expenses of operating the park, decrease the turnover, and by converting the renters to owners you will be creating a sense of pride of ownership. Feel free to have them read our articles or even give us a call to confirm this. You may have to pay them a grand or two to get the releases in some cases but most banks will work with you if you present it right. If they won't release the titles then your only choice is to keep going as is or sell them to the residents with the understanding that they won't get title until the bank releases them. I have done this but it is probably not the best option. This would be your call. Thanks, Dave -------------------- Question: Dear Dave, I want you to know how impressed I am with your whole operation. I consider you guys to be a jack pot of knowledge and helpfulness for for beginners like myself. Thank you. I do have more questions now, if you would be so kind to indulge me once again: In the case where I sell a MH to someone in my Park and he pays lot rent separately and makes payments on the purchase of his MH using the Lease/option-2 part contract that I got from your site,....if he suddenly stops making all payments .....as I understand it, I can evict him on the basis of his lot rent violation... but what happens to the Mobile Home??... I want to get it back.. how do I do that?...What are the steps? I am also interested in finding out more about the Due Diligence Service that you provide. Should I call you about that? Respectfully, Eric Answer: Eric, Thank you for your comments and you are welcome. As for the mobile home sales on a lease/option or rent to own. Typically you will have them sign a lot lease agreement as well as the option or rent-to-own agreement. If you do have to evict them, you will do so on the lot lease agreement and don't even bring up the RTO. Once they are evicted under the lot lease I have never had someone try to take the home with them. If they can't pay the rent then they can't afford to move the home. Plus they are in default with the option or RTO agreement as well and don't have a leg to stand on. Sometimes I will offer them a few hundred dollars to move out before going to court under the condition that they clean up the home and it is not left full of trash and with a bunch of holes in the wall. This incentive often helps them to move and under better terms (less house destruction goes on). As for the due diligence you can call myself or Frank. Dave - 800-950-1364 Frank - 573-535-0206 Thanks again, Dave -------------------- Question: Dear Dave, I am having a heck of time getting bad people that don't want to pay rent out of my park. we just purchased 30 days ago but no cooperation from several tenants. I am a hard time with Rules & regulations... on what is right or wrong... which way would be the best.... PLEASE DON'T or NOT TO BE TOLERATED or I am just not sure right now. please some insight would be very very appreciated. Marisela Answer: Marisela, My thought is that you need to start setting precedents. That is, take the 2 or 3 worst tenants and then file for eviction (if you or your manager don't have the knowledge on how to do that, then use an attorney). You have to take control and then every time someone does not pay, you file and before you stop the eviction they have to pay all the rent, the attorney costs, and any filing fees. In most cases, people will figure out you mean business and will find the money to pay. Otherwise, you don't want them there anyway. Thanks, Dave
Tell us what you think! We'd love to hear what you think of this issue! We need your articles and press releases - send your articles to dave@mhps.com to be included in upcoming newsletters. Where else can you put your press releases and articles in front of thousands of people for FREE! Please send your comments, questions, articles, and ideas for upcoming issues to us at: dave@mhps.com Your feedback matters to us! Visit us at www.mhps.com or www.mhbay.com Until Next Time! Dave Reynolds MobileHomeParkStore.com 18923 Highway 65 Cedaredge, CO 81413 PH: 800-950-1364 FX: 970-856-4883 |