June 2008
Newsletter
This issue of the MobileHomeParkStore.com and MHBay.com Newsletter includes:
|
Potential New Service from MobileHomeParkStore.com In the back of my mind I have been contemplating a new service for out-of-state mobile home park owners that may have a full-time job and don't have the time and desire to visit their parks and do routine checks on management. Also, the service would include such things as oversight of projects and mobile home park turnarounds. This service would be performed by a select team of aggressive and experienced mobile home park investors under the guidance of Dave Reynolds. Here are a few potential scenarios: Park Owner needs someone to find good used mobile homes to purchase, setup in the park, and refurbish. Park Owner wants a routine check on the management - are things getting done - how does the park look - enforcing collections - etc Park Owner needs bids for paving, tree work, removal of homes, or other similar projects This would not be a property management service but more of a project management and reporting service. We are looking for feedback... Is this something that would be valuable to the out-of-state park owners? Have you been considering buying a park but have a full-time job and want to have this extra level of detachment? Send Dave an email at dave@mhps.com with any comments or thoughts. |
How to take Advantage of the Greatest Buying Opportunity in Mobile Home Parks in Decades Warren Buffet once said of Berkshire Hathaway “we only get greedy when others get fearful”. That statement has never been more accurate in describing the opportunities in the mobile home park business. We are approaching a time in the industry when the owners of parks for sale are fearful, and their fear is amplified by a struggling, nearly dead mobile home retail industry and a sudden reversal of fortune in lending. It appears to be the perfect storm for many owners. And that cyclical train wreck is going to lead to some really great buys – if park buyers are properly prepared to take advantage of this once-in-a-lifetime buying opportunity. The Causes The mobile home industry had its “subprime meltdown” all the way back in 2000. Just like today, lenders had been way too aggressive in their lending standards – if they used any at all. Repossessions went through the roof, and with every mobile home dragged to auction came a new low in collateral value. $35,000 homes were being sold for $5,000 at auction. In turn, this re-valuation of collateral led to continually more homeowners walking off and leaving their hugely overvalued mobile home. As the lenders put an end to making loans on mobile homes, dealers found they could not find any credit-worthy buyers to buy their inventory. If you had bought one share of each of the publicly-traded manufacturers in 1999, you would seen the value of this portfolio fall by 90% in 2008. With dealers not selling any homes, the ability to fill mobile home lots has become difficult. In addition, many park owners are faced with the daily risk of losing more customer homes to foreclosure. The other fundamental of the park business that has hit a brick wall is lending. A few years ago, many banks were aggressively approving loans for parks to be purchased. Unfortunately, several of these are no longer an active player as they once were. Indeed, many of the hard-core lenders from the last few years have virtually shut their doors to new loans. Much of this was the result of the extreme losses in lending that are occurring right now, although interestingly, most of the mobile home park loans are doing fine. Repossessions of mobile home parks are not very common. But the lending industry has limited mobile home parks along with all forms of real estate borrowing. As a result, if someone wants to buy a park, they must have great credit and plenty of cash for a down payment or the loan will never materialize. In addition, many park lenders are being harder on occupancy, criteria, and location. The Opportunities With no dealers selling homes, and little lending for park purchases, many park sellers are becoming truly desperate. Day after day passes without any offers and, when they get one, the deal falls through predictably during the financing contingency. Many sellers do not know how to get their parks sold. And the panic feeds on itself and on other similar parks. A lot of value is based on perception – and many sellers perceive their parks to be nearly valueless. Most notable are the parks that have less occupancy than is required for a bank loan (say 60%), yet show reasonable positive cash flow. Despite a lot of good, solid raw material, the seller may perceive that the park will never find a buyer despite the low asking price. And so the price just keeps dropping. The key buying opportunities in parks today are:
These opportunities allow a buyer to increase the park income almost immediately, and with little risk. And they circumvent the weakness in the market (dealer sales/occupancy/financing issues) and allow the buyer to obtain a winning deal from the start. Buyer Preparation To be able to take advantage of these opportunities, the buyer has to sharpen the weapons in his arsenal. The first of these weapons is his knowledge of the industry. The mobile home park business is extremely complicated. There are over 30 different items that much be checked and confirmed during due diligence, and some of these can cause you to lose your entire investment. In addition, having the knowledge to build a sample budget in line with industry standard cost ratios is essential to success. And once a good deal has been bought, the buyer must know the strategies to successfully manage the property and maximize its profitability. To prepare these skills, there are complete courses on mobile home park diligence and management available, which are essential for the novice and even experienced investor who is crossing over from another asset type. The buyer must also have the capital necessary to make the down payment on a deal, and afford the additional capital expenditures necessary to put the park in good working order. The time to line up this capital is before you begin your search for parks, not after you have found one. Normally, parks are sold with a 30 day due diligence and a 30 day financing period – so there is really no time to raise capital after the property has been tied up. Capital can be obtained from your own liquidity, or family members or financial partners. Knowing the maximum amount of capital available to you will help shape the size of deals you will pursue. Having a lender who knows and trusts you is another essential ingredient. Often, particularly on deals which have a blemish which you will resolve upon purchase, having the trust of your banker is essential to getting the loan. Another way to achieve a head start in banking is to consult with a loan broker who has access to all of the current lenders on mobile home parks. It is always a good idea to have current financial statements on hand, and a resume on real estate experience. Conclusion Not since the Savings & Loan crisis of the 1980’s have so many great deals on mobile home parks been available. Since these cycles only come every couple of decades, this is one opportunity that may not come again in your lifetime. So it is important to “carpe diem” – “seize the day”. If you take the necessary steps to succeed, you may find yourself owning a profitable mobile home park in the near future. |
Why Pretty Mobile Home Parks often have Ugly Returns By Frank Rolfe Some mobile home park buyers have this erroneous idea that the goal is to buy a great looking asset. They even rate the parks they look at based on physical appearance. The star system is a good example. Most people think a five-star park is always superior to a one star park. However, the only real star system they should consider is which park is a superstar on cash flow. Because at the end of the day, all that really matters when you own a mobile home park is making money. Parks that make money are great, no matter how ugly they are, and parks that lose money are dogs, despite how cute their entry may be. And, as a general rule, the prettier the park, the uglier the cash flow. So why do pretty parks often not make money? They cost too much to buy. Pretty parks sell at the lowest cap rates. Normally one digit, and a low one digit at that. 5% , 6% and 7% cap rates are great for sellers, but can be complete failures for buyers. It is quite difficult to make any money buying parks at 6% returns. They are normally at full market rent, so you have no room to push rents. Pretty parks normally have lot rents that are at the top of the market. So the best a buyer can hope for is to gradually nudge the rents up a tiny bit each year or so. They are normally fully occupied, so you have no occupancy upside. Tenants are drawn to the park’s aesthetics, and the vacancy factor is normally 5% or less. So there is no way to significantly increase operating income through filling lots. They cost too much to maintain. The landscaping alone on one of these parks is higher than a one star park may spend on total management. It requires a constant outlay of cash to keep a park to the highest standard. When you feel you must re-pave instead of patch roads, and plant seasonal color at your entry, you are going down the path to lower margins. They have plenty of amenities, and they all cost money to run. Pools, clubhouses, jogging tracks, playgrounds – they all sound great, but cost a lot to maintain and insure. While they are staples of five-star parks, they are causes of poor cash flow. Are all pretty parks bad? No, not if you bought them cheaply twenty years ago. The only guy getting rich off these parks today are the current sellers. As for the buyers, that’s a lot of work for a CD style yield. Personally, I’d rather buy a down and dirty, ugly park that makes real money. But I wouldn’t want to live in one! |
Why the Mobile Home Business works and the Manufactured Home Business doesn't. By Frank Rolfe When I got in the mobile home park business, many of the sellers I bought from called the mobile homes “coaches” and “trailers”. Roger Miller even wrote a hit song with the lyrics “trailers for sale or rent”. But manufacturers and dealers thought the business needed an upgrade, so they changed the name to “mobile home”. Of course, the name was misleading, because mobile homes are far from mobile. Some can’t survive any movement at all, and moving one can cost $3,000 or more. And I guess they stuck the word “home” on there to make it sound reassuring or folksy (as opposed to saying “mobile unit”), or to give you greater direction on what you were supposed to do with the thing. But I embraced the new moniker, and so did everybody else. The mobile home is a fine symbol of affordable housing. It represents the collective efforts of manufacturers and the government to build the cheapest detached housing unit in the world. Although it is not always appealing to the eye, and has been a notorious incubator for some of the wildest living conditions in mankind, it is cheap. Sometimes, real cheap. I have seen used mobile homes sell for $1,000 – that’s 94 cents per square foot. That’s about 100 times cheaper than a comparable stick-built house. Mobile homes were inhabited by people who didn’t earn much – but they were at least inhabited. Nobody expected much besides four walls and a roof, and they were seldom disappointed. If you didn’t have much money, you always felt safe that there would be a mobile home in a park to fit any budget. But then in the 1990s they decided to re-invent the industry again, this time under the moniker “manufactured home”. Out with the concept of “mobile” and in with the concept of building a thing in a factory. First off, I’m not so sure that you want to beat the customer over the head with the idea that their housing unit was built in a factory. That’s not exactly a crowd-pleaser or reason to boast at a cocktail party “my house was built just like my car”. Most things built in a factory are impersonal, cheaply made and often prone to breaking. Wait a minute – maybe that is a pretty accurate impression. With the new “classy” name came new pricing for the homes – about two to three times what mobile homes cost. But they still sold O.K. due to impossibly low standards by lenders such as Greentree. Suddenly, mobile homes that cost $10,000 now cost $40,000 as manufactured homes. And therein lies the problem. Manufactured housing has lost its roots as affordable housing. Now it wants to pretend that it is something more than it is – and make the consumer join in the fun. I think the American public has voted with its pocketbook. Sales of manufactured homes have fallen about 75% since 2000. The sad truth is that nobody wants an expensive manufactured home. They want cheap mobile homes. There is talk that the industry wants to change the name again. Perhaps “executive mansions on the go” is on the table. I would urge the industry, instead, to go back to the “mobile home business”. Everyone knew what it meant – affordable housing – and they could afford it. Homes sold briskly and parks were full. That demand has not gone anywhere, but nobody can afford, or wants to buy, affordable housing for $40,000. Instead of straining to find out how to build and sell the most expensive manufactured home, let’s refocus the industry on how to build the least expensive. I know it’s not as profitable, but you can make it up in volume. “Coaches”, “trailers” and “mobile homes” are where the demand is. “Manufactured homes”? Nobody’s interested. And forget any new names – you’ve already embarrassed yourselves enough. |
Comments from our Customers! 6-26-08 Diane, The site performed well, I think it at least was on par if not a higher lead generator than loopnet. James Cook Westfield Realty Group -------------------- 6-20-08 What a great site you have. You could charge just to be able to access this site and read all the free information. We are looking to buy parks in the Florida, and possibly, the Southwest areas and your site is what we needed to learn what works, what does not work and most everything else in between. Thank you, William -------------------- 6-18-08 PLEASE REMOVE THIS AD, THE PROPERTY HAS BEEN SOLD, THANKS FOR YOUR HELP, WILL USE YOUR SERVICE AGAIN IF NEEDED. HENRY -------------------- 6-13-08 This has turned into a bidding war already. Thanks for everything. You guys are the single best resource for this entire industry. Best regards, JP -------------------- 6-13-08 Need to delete park I have listed in Fayetteville, NC. Listing has expired. Have had plenty of contacts, so I appreciate what you've sent. Failure to sell has not been due to lack of visibility. Bill Stokes If you need Real Estate Assistance in North Carolina Call: Bill Stokes Franklin Johnson Commercial Real Estate 231 Fairway Dr. Fayetteville, NC 28305 Office: 910-864-2626 Fax: 910-221-4500 Mobile: 919-451-2249 EM: stokescbc@aol.com -------------------- 6-9-08 Park was sold for full listing price. Closed today. Source of buyer was MobileHomeParkStore.com R. Jones -------------------- 5-31-08 SOLD !!! PARK IN 4 WEEKS...PLEASE REMOVE THIS ADD......THANKS ALOT, YOU GUYS ARE GREAT... BEST REGARDS, CARL -------------------- 5-30-08 We sold our park b/c of mobile home park store. Thank you! Karen P. Missouri |
| 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 DaveQuestion: Hello Dave, I have been interested in investing in mobiles for years now, but still have not purchased anything. I've read the Deals on Wheels material and more recently your four book set. I would like to apply your strategies to properties within a 50 mile radius of my home, but here's what I'm up against. I live in an area (location removed) where most of the mobiles are weekly or monthly rentals. I haven't really heard of any that operate simply off of lot rent. So when they value the property, they base the ROI on the monthly rent of the homes which jacks the price of the property way up. I would like to purchase several smaller properties (3 to 6 or so homes each), but even the price on these is what you might buy a park with 40 to 50 lots for. I see how the homes would cost too much to make any money off of due to constant repairs, so I really just want to purchase the land. Do you have any advice on how to approach sellers like this in a way that would encourage them to sell at a price that could be supported by lot rent alone? One example is a very clean property with a nice pasture view and 3 1996 single wide trailers. It has 2 to 3 acres. The asking price is $135,000. If you had them all rented at about $500 each, they would barely make the payments if you could even find a loan on this deal. They even advertise it below market value. I'm thinking, for this nice piece of land, I'd give about $80,000. Even at that with lot rent at $250, it would probably not yield much of a profit. What's your opinion? Thanks for you help! Chad Answer: Chad, I agree that that market is tough and when you are targeting these smaller parks you are up against most owners that have the homes and land. My suggestion is to keep looking and if you are looking to buy a lot rent only park or convert to this I believe you can expand the target market. Management is not too intensive on mobile home parks and if you just have someone that is getting a discount and looking after emergencies you can expand. As far as approaching the sellers, you need to make it clear that you will not be able to get a loan on a park where the price is supported by income from mobile homes. Banks and appraisers will not give you the valuation and funding needed. Also, if they are proud of the homes, offer to buy just the land for a fraction of the price and let them keep the rental income. Most of the time they won't go for this and you are looking for the times when they either consider it or realize they can't sell unless they get reasonable. Also, you can approach the sellers with the following scenario: The lots are worth X dollars. The homes are worth $10,000 dollars because... I can go down the street and buy similar homes from so and so and the cost will be $8,000. Add the moving and setup costs and the total cost would be $10,000. You are wanting $20,000 per home and I can buy the same home setup and ready to go for $10,000. Stress the financing and this scenario and you will be able to sift through the real sellers quickly. Also make sure not to buy into parks and place a high value on vacant lots. On the 3 lot deal, I would estimate the value of the lots to be about $50K and the homes at $10K each. So $80K seems in line. $135K is too much. Hope this helps and let me know if you have any other questions. Dave -------------------- Question: Hi Dave, We've just purchased a bunch of your e-books - Love them by the way... Because you've done a lot of deals in Texas - and you mention 2 hurricanes that damaged your San Antonio parks - can you tell us those areas so that we can avoid looking for a park there? Also, If there's certain counties or areas to avoid (difficult to work with, taxes, natural disasters, the people) or not in Texas we would appreciate any insight you can offer. It's our first time looking for a park to buy and Texas is on our target list and we want to get as much insight as we can. Appreciate your response and time. Thank you, Brenda Answer: Brenda, I am glad you are enjoying the books. The parks we had problems with in TX were in Hondo, TX - Tornado Nederland, TX - Hurricane San Antonio - Flood I wouldn't avoid those areas just because of that as there is always a chance wherever you are that a disaster can strike. The key is watch out for the ones in which you can avoid - for example, we couldn't predict the tornado, but the hurricane can happen on the coast and the flood can happen when you buy in a flood plain. I will buy almost any deal if the numbers work and there are not other problems. I am not keen on the coastlines though. Hope this helps. Dave -------------------- Question: Hi Dave, I own a 4 unit mobile home park in Texas that, despite making every possible mistake, makes good money. I'm working my way through the CD's and planning big changes! At the very least, I can reduce my risks and stabilize my cash flow. Clearly both you and Frank are leveraging a lot. Why? Does it reduce risk to keep a park under a note, preferably from the seller? Is it better to pay the interest on a loan and reduce your risk or own a park outright? Is it just so you can do more and bigger deals? Why are you choosing debt over cash? Don't pick up the phone and call me; I don't have enough money to buy a park outright... yet! How are you handling the current market? How much competition is there for these Mom and Pop parks with lower than market rents? It sounds like Frank holds onto his parks for cash flow more than you do - true? I'm thinking of having 2 parks at any given time - one for cash flow and one to flip to increase capital. Does this make sense? How do you handle cash flow vs capital gains? The CD's are full of gems of information! Thank you! I listened to the "Due Diligence" CD last night. Thank you, Margie Answer: Margie, The main reason that I leverage is so that I can buy more parks. I would rather have $100K in 5 deals than $500K in 1 deal. It reduces risk and also allows to have a higher cash on cash return. For example $100 K down will usually net me $20K per year. If I put $500K down I would estimate I would only generate about $75K per year. As far as the current market, I am comfortable with it and actually am buying several more parks. I am doing so cautiously and I am seeing better deals of late. As far as Mom & Pop parks with low rent, the competition is tight. If you find one of these jump on it quickly. I am always looking for these type of deals. I think your idea of buying 2 parks and hold one and sell the other to generate profits is a good idea. I do this as well but usually hold 4 or 5 and am looking to flip another 2 or 3 at any given time. Thanks for the comments on the CD's. Dave -------------------- Question: Hi Dave, Would you take a MHP which is in a 100/500 year flood zone if the deal is great in number? I was told the park has been flooded for several times but never got into a very serious situation for the past decades. How much price discount in cap rate increase you would apply in order to offset this flood plain drawback? Thanks a lot for your time in advance! Best, Nicole Answer: Nicole, I have purchased several in the 100/500 year flood zone. However, I always check on the recent flooding and consider the area. For example, in Kansas or Nebraska I am less concerned of floods because there are very few big rivers. However, in states that are notorious for big rivers and heavy ongoing rain I usually avoid these. It is a tough call but I would look at it. The discount could be very little to several hundred thousand. These are generalities but since I don't know the city of the park I can't be more specific. 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 |