Is this true? - Posted by Dave Fl.

Posted by Mr. C on August 09, 2003 at 16:21:33:

Due primairly to the stock market and low interest rates, MHP’s have become the poor man’s Walgreen’s.

A year ago they (Walgreen’s) were selling for about $4MM (8.5% cap). Now it’s hard to find one for less than $6MM.

I saw a Home Depot ground lease listed yesterday for $9.2MM (5.8% cap)… saw one a year ago going for $7.5MM.

How about a Taco Bell at 4.5% cap? A year ago they were an 8%.

Does any of this relate to what you asked about? Yes.

It’s a seller’s market. The buyer’s have tossed all common sense to the wind and are snapping everything up as fast as it’s listed… D/D and price be dammed. Case in point… I called on 4 MH parks in the same market, the same week. All were tied up within an hour of their listing.

So if we take a clue from all this, we would be faxing LOI’s on these parks as quick as we find them… and worry about the D/D after you’ve tied it up.

That’s what’s going on with the Walgreen’s… it’s nothing but paper (there’s no money changing hands)… and the demand is exceeding the supply. They built 200 stores last year (and sold every one of them)… and they have another 200 planned for this year… and the year after.

The down side is that when these investors get ready to cash out of these properties, they’re going to loose their shirts, unless they 1031.

Why? Because they bought into these just like they did the stock market… on the upswing.

Is this true? - Posted by Dave Fl.

Posted by Dave Fl. on August 09, 2003 at 06:31:55:

Lately I have been looking for a MHP to buy. In every case I am too late. The park has a contract on it with 2-3 back-up contracts in place. I get this story from every park I contact. One broker told me that because you can borrow money for one (1) percent, buyers are coming out of the woodwork. Can this be true? She gets calls at 3AM from around the world. Seems that if you are not there when they pound the for sale sign into the ground, your’re too late. And unit prices vary from 14g’s per, to over 50g’s. If this is as much a sellers market as it appears to be here in Fl. and parks sell as fast as they do, how, exactly do you tie a park up so you can do D.D. without putting a huge downpayment at risk. This board has claimed in the past that a hundred dollar bill will tie a park up, but thats a day dream. With so many buyers pounding on the door and closing taking place just weeks after first contact, D.D. must be almost not even done. I cannot see how anyone can spend a couple million dollars on someone else’s numbers. I have to verify the numbers but things are happening so fast here that there is no time to. Is anyone else having this problem? Sorry for ramblin on like this but I need a view point from other investors.
Thanks Dave Fl.

One more thought - Posted by ray@lcorn

Posted by ray@lcorn on August 09, 2003 at 17:01:29:


I meant to add another thought to that last post…

One way to get in front of the line is to find the parks before the brokers do. As someone once said here… there is no database for properties NOT listed for sale.

Here’s an excerpt from my self-study manual “DealMakers Guide to Mobile Home Parks”, available in the bookstore.

Do the footwork
I know a broker who travels the southeast United States on no particular set route other than one state at the time. Ormond and his wife love to travel, and at seventy-five years young, they enjoy the thrill of the chase in finding mobile home parks for sale. Their method is deceptively simple: Upon arriving in whatever town their travels have brought them to, they check in a nice motel, and first get some rest. While his wife freshens up, Ormond picks up the yellow pages and looks for mobile home park listings. He then calls each park, asks for the owner, and then asks if they want to sell. He is very low-key, and brings no pressure to bear whatsoever. His listing agreement is not an exclusive, but simply provides for his commission should he locate a buyer. Any owner who has the slightest inclination to sell would not hesitate to deal with Ormond and his wife. (In fact when he came to my town I was disappointed that the deal that closed wasn?t his!) In a very short time, he had listing agreements for over fifty parks in several states!

So I ask the question… if Ormond came to your town would he beat you to the punch for your local parks? Don?t overlook the simple, common sense approach to your search.

end of excerpt


Re: Is this true? - Posted by ray@lcorn

Posted by ray@lcorn on August 09, 2003 at 16:55:36:


Mr. C has given you a great synopsis of the market.

The problem is one of tight supply due to restrictive zoning ordinances in most growing communities, and heightened demand due to the alternatives for investment dollars being sorely impacted by the slow economy of the last few years.

Bottom line, you can’t make big money standing in line to buy, competing with multiple offers. That said, there is a benefit in being ready to move quickly. If you want to join the fray, then send out a Letter of Intent subject to satisfactory due diligence immediately after seeing a promising listing. A good LOI provides that the parties agree to a contract within a certain time period on basic terms and conditions. Until the contract is signed, no deposits are required.

I use the time period in the LOI to get preliminary due diligence material, i.e. the financials, before going to contract. That way I don’t waste valuable time negotiating the contract in the blind. I know buyers that routinely make full price offers with an LOI, then use the due diligence to beat the seller down on price. Usually they wait until right before the deadline for DD acceptance to use the leverage of the time required to get a new deal going with another buyer.

Earnest money is negotiable, always. I’ve used notes due at closing, post dated checks, and agreements with brokers to hold checks. But it’s easiest just to have about $10,000 ready to go… you’re not “at risk” unless you miss the contract deadlines. There should be a clause in the contract (you are using your own contract, right?) that provides after the date for the acceptance of due diligence, financing, etc., the contract “goes hard”, and the earnest money is then at risk unless the seller defaults.

The alternative is to wait for the market to cool, and values to come back in line with historical returns. Or, do what I’ve been doing the last two years… sell!