Mobile Home ParksAnd the People Who Love Them

Etiquette

There will be Q&A at the end of the

session if time allows

Feel free to raise your hand and ask

questions during the presentation, but

keep them brief and relevant

If we run short of time, write your

questions down and I’ll talk to you

after the session or at the bar tonight

My background (briefly)

Grew up in Australia Studied media and communications at

college Went traveling through Asia for 2 years Somehow ended up working in an

investment bank in Singapore Quit 7 years ago and came to the US to

invest in real estate Syndicated 5 MHP deals, and went on to

acquire $50m+ in commercial property for an Australia REIT

My first trailer: The Beer Trailer

2br/1ba singlewide

Still not sure how old, but really quite old.

Bought for $2,400 at tax deed sale in August ’09 (including the land)

$7,000 rehab (less 6 months rent up front, $4,600 out of pocket)

Rented to Bob the Builder for $400 / month

Now earns $500 / month

Still pays my beer money each month

Before (!)

After

If one cash cow is good, then

why not buy a herd?

Mobile Home Parks are legally commercial

property if they have 5+ lots

The numbers work the same as apartment

buildings, but with lower expenses (for lot

rental parks)

There are a number of other advantages:

WHY ARE THEY BETTER?

PROS:

◦ No maintenance headaches aside from infrastructure (pipes, roads) and landscaping

◦ Lots of value-add opportunities

◦ Better depreciation benefits

◦ Captive tenants

◦ Lower expenses

CONS:

◦ Smaller resale market (but getting bigger)

◦ Harder to finance (but getting easier)

The theoretical case for buying

MHP’s: Real estate is about

supply and demand

Supply:◦ Can’t build any more

“cheap” MHP’s!!

◦ Cheap MHP’s disappearing as they get redeveloped

Demand:◦ More retirees with less

money

◦ More lower income earners

◦ Cheapest housing available, in good times and bad

The Paradise Mobile Home Park

My first Mobile Home Park, located in Zephyrhills, FL

Bought November 2010

Found via introduction (networking)

The Paradise Deal:

Purchase Price: $400,000

Down payment: $50,000

Financing: WRAP AROUND MORTGAGE FROM SELLER –

$350,000, 7.75% interest, 15yr amortization, 4 year balloon

2 resident-owned trailers

11 park-owned trailers

2 duplexes

Water well and septic tanks

Paradise income and expenses

(annual, proforma): INCOME:◦ Lot rent $6,000

◦ Duplexes: $12,000

◦ Rental mobiles: $66,000

◦ Total: $84,000

◦ Less 10% vacancy: $75,600

EXPENSES◦ Property Taxes $4,300

◦ Liability Insurance $1,000

◦ Property Insurance $1,200

◦ Trash Dumpster $850

◦ Maint/ repairs $15,000

◦ Lawn $750

◦ Solid waste $1,100

◦ Water (well pump) $400

◦ Pest control $1,200

◦ Management $1,200

◦ Total expenses(annual)$27,000

• Total:$75,600 - $27,000 =

$48,600 NOI

Less $38,400 mortgage payments = $10,200 cash flow

How I lost my a$$ on Paradise

Park-owned

homes

Septic tanks

3 hours

away

Overpriced

Over

leveraged

A better deal: Tranquil Acres

Price: $900,000

$200,000 rehab costs

154 lots, 100 occupied

NO RENTALS

City utilities

All cash, paid by money partners

Just appraised at $2,050,000, with 45 lots still to fill

When full should be worth $3.75m - $4m

FINDING DEALS

I’m now like the

cookie monster, but

with mobile home

parks – I can’t get

enough of them.

There are plenty

available, but they

are getting very

popular

FINDING DEALS

Mobilehome.com

◦ Few listings but growing fast. Quality of listings is pretty solid.

Mobilehomeparkstore.com

◦ Lots of listings, crap interface.

Loopnet

◦ You all know about this. Good site, best place to start.

CoStar

◦ Loopnet on steroids. Extremely expensive, but amazing resource for finding off-market deals

Tax deed / Foreclosure auctions

◦ Not as common because of their strong cash flows, but they do come along.

Networking

◦ This is kind of a personal thing, some people like it some don’t. I do.

Mailing campaign

◦ As per Monica’s Apartment Building system. Results vary.

FINDING DEALS

Rule No. 1: MAKE OFFERS.

◦ Parks don’t buy themselves, and nobody’s delivering one to your driveway.

◦ Sellers and brokers will not take you seriously until you put something in writing.

◦ It’s a numbers game –expect to make twenty offers or more to get one good deal

Rule No. 2: You don’t take a good deal, you MAKE a good deal

◦ Forget the asking price, offer what makes sense

◦ You’ve got no idea what’s going through the seller’s head until you make an offer.

◦ You’d be amazed what people will agree to if you catch them on a good day (or a bad day).

FINDING DEALS

Rule No. 3: Get close to the seller

◦ Don’t bother with buyer’s brokers, contact the listing broker directly.

◦ Better yet, try to get to the seller and cut out the middleman altogether.

◦ Learn how to write your own offers. Trust me.

Rule No. 4: Be patient

◦ This market moves slow. Real slow.

◦ Keep records of all the deals you look at and especially the offers you make.

◦ You’ll often get guys calling you back in 6 months or so. These are often the best deals.

FINDING DEALS – general

observations MHP’s are harder

to find than a few years ago

A lot of big investors are onto the asset class

You have an advantage as a smaller buyer – the sellers will trust you more

DUE DILIGENCE

Where’s my roof, yo?

DUE DILIGENCE

This is intimidating stuff, but you want to get it right.

I got it 90% right on Paradise, but the 10% I got wrong cost me $50k (and lost me the deal, ultimately)

Make sure you have a SYSTEM for doing due dilly in an intelligent and efficient manner. Create (or borrow) checklists.

DUE DILIGENCE

Prioritize steps in order of cost, time and difficulty

Pay attention to the infrastructure. This is the stuff that can really kill you.

Get ready to deal with sloppy record keeping from sellers

ADDING VALUE

MHP’s offer more

value-add

opportunities than

almost any other

commercial property

It can be hard work,

but the rewards are

enormous

There are a few key

strategies:

ADDING VALUE

Strategy 1: Raise rents

◦ MHP tenants cannot move as easily apartment

tenants, and will tolerate higher rent increases

Strategy 2: Submeter utilities

◦ For about $1000 per unit, and a prospectus

amendment, you can charge tenants for utilities

in a park where the owner used to pay. This can

add tens of thousands to your NOI overnight

ADDING VALUE

Strategy 3: Fill vacant lots

◦ Expect to spend $10,000 to buy, permit and

move a new home onto a lot.

◦ You will only recover $1000 - $4000 selling it for

cash, but will add about $30,000 to the value of

your park. Huge ROI.

◦ You can use Monica’s business credit strategies

to fund new homes for your park. When full, it

can be reappraised and refinanced to pay off the

BLOC.

ADDING VALUE

Strategy 4: Redevelopment

◦ If the park is well located, and has larger lots, a long term exit strategy is to redevelop it from a C-class family park into a B-Class retirement park by replacing the older homes with new double-wides

◦ This is capital intensive, but vastly cheaper and simpler than developing a new residential community

◦ If done correctly, you can double your lot rent or more, and the asset will be a target for a REIT and attract a 5-6 cap. You can make millions doing this.

FINANCING

(China’s foreign reserves)

FINANCING

Banks like

“Manufactured

Housing

Communities”, but

they don’t like

“Trailer Parks”.

Red flags:

◦ Old mobiles

◦ Park owned mobiles

◦ Well / Septic

◦ Small (sub $1m) parks

Overall, it’s getting

easier

You can still expect to

deal with less options

than with apartments

Therefore, GET

GOING EARLY WHEN

YOU HAVE A

BALLOON COMING

UP

FINANCING

Banks may dislike Trailer Parks, but they HATE non-resident aliens.

Hence, I have always gone direct to creative financing to get deals done, I don’t even bother asking for a bank loan, my ego can’t take it.

Your options for creative finance are many:

◦ Seller finance (my favourite)

Seller note

Lease option

Wrap around

LLC takeover

◦ Hard money (I don’t recommend this)

◦ Equity partnerships

◦ Private lenders

FINANCING

Seller Finance:◦ This is huge. It is

easier. It is cheaper (no origination fees). You can negotiate non-recourse very easily.

◦ No money down deals virtually never happen on listed deals. As long as you have 10%-20% to put down your offer will be taken seriously by most brokers/sellers

FINANCING How to pitch seller

finance◦ Old timers (often those

who developed the park) often have no debt

◦ Therefore, they can be in first position on a familiar asset – super secure

◦ They have probably depreciated the property to zero and are facing a huge tax bill

◦ Where else can they park their money and make 5% almost risk free today?

MANAGEMENT

MANAGEMENT

Management is the single MOST

overlooked aspect of owning

property

Buying a park is like getting married:

The hard part comes after the

honeymoon.

Mobile Home Parks have unique

management requirements you need

to understand

MANAGEMENT

If you’re serious about running a

professional management operation,

I cannot recommend RentManager

highly enough

◦ I am not affiliated with them in any way,

their product just rocks

MANAGEMENT

RentManager handles:◦ All bookkeeping and reports

◦ 1099’s

◦ Rent rolls

◦ Letters to tenants

◦ Note / rent-to-own agreements

◦ Scanned leases, receipts etc

◦ Cloud access from anywhere – great for investors to see their asset performing in real time

◦ And much more

MANAGEMENT

MHP specific management concerns:◦ Community culture is

vital – unlike apartments people see their home as, well, a home

◦ Feels more like running a village than a long-term motel

◦ 10% of tenants will be great. 10% will be terrible. The other 80% will raise (or lower) their game based on the example of the others around them

MANAGEMENT◦ You need to learn about

how to handle title work – especially on abandoned homes

◦ I recommend training your manager on how to do your own evictions and title work. This will save you a ton of money.

◦ Get ready for some licensing annoyances, ie. Needing to have a mobile home dealer’s license from the DMV.

CONCLUSION

Trailer parks are a great form of real estate to get started in

That said, I know experienced investors who moved from apartments to parks and never looked back

Parks are a much more respected asset class now. Buy yours before they all get snapped up.