Is this a good deal? - Posted by Bryan

Posted by Bryan on November 11, 2000 at 07:33:24:

David,

Thank you very much for your time and info. I have learned quite a bit since I wrote that letter only a few days ago. I also learned about an ordinance that will affect my price that was offered. In this MHP, all the homes would be owned by me - I just rent them out - about $85 - $90 a week.
It seems that the woman is mismanaging this park and she is having problems. From what I can tell, she really doesn’t even keep records. She pays the light bill for everyone because that is the way she bought the park 10 years ago (the realtor says that the owner didn’t want to “rock the boat”) - even though everyone has their own meter. Four trailers are vacant and have been vandalized.

I think I can turn things around - but as you said - am I ready to own a MHP? When it comes to my hard earned money on the table - I believe I can do it and be firm.

I’m going to find a good lawyer this week and educate myself as much as possible on running a MHP effectively.

Again, thanks for your time. If you know of any more tips or things I should consider - let me know

Is this a good deal? - Posted by Bryan

Posted by Bryan on November 08, 2000 at 22:12:57:

I’ve never invested in mobile homes before. I was looking through the “Real Estate Book” today which has many of the MLS listings. I saw a mobile home park for sale - it said some owner financing. The realtor read the income numbers to me over the phone - it just sounds too good to be true.
18 MH,4 empty lots, $6500/mo cash flow, $280,000. Some owner financing. 4.5 acres.

I made an offer of $245,000, $30,000 down - owner finance $215,000 @ 10%. The MHS are in rough shape. I could not believe they accepted - now I’m starting to get cold feet.
Is there something I missed? Is it harder to manage MH than I expect? or did I run into a good deal?

Cart before the horse…(Long) - Posted by Tony-VA

Posted by Tony-VA on November 11, 2000 at 10:08:51:

Please take this only as constructive criticism, not a personal comment.

From your short post, I assume that you have not engaged in much research on how to value a mobile home park. I could be wrong, after all, we know what happens when one assumes…

If however the assumption is true, let me suggest a few ideas. I hope that your offer allowed you some sort of escape clause if the numbers the agent gave you do not meet your criteria (or some other safety measure to get you out if the deal is not wise).

Asking price is no indication of value. So we can rule that out. “To good to be true” may very well be true. We won’t know until the due diligence is completed and the park is valued properly by the REAL numbers, not those quoted over the phone.

Based upon your follow up post, this is a transient park with short term rentals. Typically this is very high maintenance and should bring lower value. The more I have to work, the less I value anything.

You need to start with educating yourself. An attorney may be someone to contact, (but not necessarily about running a park unless they own one). I would have suggested speaking to an attorney before you made the offer so as to better protect yourself.

Ray Alcorn’s material is outstanding. He has a section on “due diligence” that is extremely detailed. Because of this, it will put you in the driver’s seat. His book will give you the education to buy parks as a player instead of a gambler. His material can be purchased on this site. If you have not already done so, post your question on the commercial forum here that he hosts.

Parks must be valued as commercial property. There is much more involved than simply estimating the income and expenses. As Ray will teach you, factors such as Zoning, Planning Commissions, Environmental Issues and liabilities etc. will come into play.

Ray breaks park valuation down to a math formula as well as an analytical investment vehicle. He can value a park now, value it after he works on it and see how to make a spread in between that covers his back side during the interm.

As Terry professes, make your money going into the deal. Limit your financial and legal exposure. Education and due diligence homework will protect both you and the deal.

Many people will look at Ray’s due diligence and think, “I don’t need to do all of that”. Well the truth is that that items on that list made the list for a reason. Why not put his many years of trial and error to work for you?

Make a sound, educated investment, not an emotional one. Emotion is gambling in my opinion. Don’t go into the deal thinking, “I can manage this park better”. We all think that. Guess what? The current owner said the same thing.

Value the park from it’s current numbers and condition. Value it from the position in which you intend to manage it. Buy it only after detailed investigation proves it to be a good deal. Don’t purchase someone else’s headache unless it makes you enough money to cure your headache.

Best Wishes,

Tony-VA

Re: Is this a good deal? - Posted by David Hayakawa

Posted by David Hayakawa on November 10, 2000 at 18:31:33:

Bryan,
How tough are you? Are you willing to throw an entire family out on the street? Do you still feel bad for people in tough situations? In an apartment its easier(subjectively speaking) to kick someone out of your complex than it is to move an entire home out of your park. If most of the homes in your park are run down then it means that pride of ownership is not there. I would guess that the majority of your tenants are young or low income. The low income part might sound strange but there are m.h.p with people that make a fair living and keep their homes looking nice. It’s harder to get people to buy a bad trailer unless their standards are low which means they’re poor which means they are probably going to have a hard time paying you. I have never owned a park but I made a living selling used mobile homes in parks for about 18 months. There is definately a strategy for getting better homes into your park, keeping the bad tenents out and keeping your empty lots full. If the numbers are correct and the cash flow is there, it’s a good deal financially. I would get numbers like, how many lots are typically empty and what was the average for the past few years? They could be full right now but it could be an unusual thing. I would look at the other parks in the area. Is yours the worst one? If it is it will be harder to get good tenents. I would also look at any up and coming ordinances that might mysteriously pop up in the future that would require you to spend your entire savings. ie. required public sewer, re-doing your septic, new filtration system for the well, requiring each home to have a water meter, stuff like that. My boss owned 6 mobile home parks that were scary to even drive into. He made money off of buying cheap homes, fixing them up and then reselling them. He made money off of just renting and not letting them own the trailer. The one thing he never did though is let anyone not pay him. He was as cold as ice when it came to throwing people out, it came from losing thousands of dollars he said. He made lots of money though.Good luck.

Where logic ends, emotion begins (nt) - Posted by Robert (Houston,TX)

Posted by Robert (Houston,TX) on November 11, 2000 at 10:47:39:

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