Mobile Home Investing-NJ/FL-for Mr. Alcorn - Posted by Michelle

import · December 19, 2003, 10:04pm

Posted by ray@lcorn on December 21, 2003 at 14:38:10:

Hi Eddie,

Depends on the nature of the maintenance. Small parks with lots of rental homes are always going to be a headache in terms of turnover and constant repairs. It’s just the nature of the beast. Without rental homes it comes down to separating the routine maintenance from the capital improvement needs.

We tend to sub-contract the routine stuff (lawnmowing, snow removal, trash pick-up, etc.), and use our one maintenance employee to either perform repairs (water lines, potholes, clean-up of move-outs, new carpet in a rental, etc.) or supervise and direct the contractors that do specialized tasks (paving, septic tank pumping, tree trimming, electrical, major replacement of water/sewer lines).

The last park we owned was a 56 space park with public water, septic systems, paved streets and three rental homes. We sold it last year. The maintenance wasn’t tremendous, but we had to be diligent about pumping the septic tanks. Sub metering the water cut way back on usage (>30%) and added years of life to the drainfields. The rental homes were getting some age on them (we bought them new in 1986) but we make a practice of screening tenants very tightly and they still looked pretty good inside and out. We handle leasing and collection in-house… never have liked having a third party between us and our money. We’re fair, but very firm. Pay or quits ( a five day notice) go up on the sixth day past rent due dates, and unless the tenant agrees to a “set-up” (my brother’s term for a payment agreement), then we get a court summons the sixth day. We will evict, but rarely have to. That’s where screening pays off.

That’s what works for us. We manage a number of properties this way (15-20), all different types, all ours, we neither hire nor do fee management. We’re a family company… I work with two of my brothers, one does leasing and collections, the other does maintenance and construction (me?.. I’m the dealmaker… finding new deals, do all the financing and refinancing and the selling). We have an in-house controller, and he has one assistant that doubles as a data manager and receptionist.

Everything is automated… we use Quick Books (actually a heavy duty variation) to manage the accounts. We do our statements in-house, but use an outside CPA for taxes. We have a number of customized spreadsheet applications that manage the nitty gritty details, like tracking utitlity usage in every building and property.

Over the years we have found that every property has unique needs. By developing long-term relationships with our sub-contractors, and being diligent about systemizing the routine chores of operations and accounting, we are very quick to assimilate new properties and jettison the old, and keep our own payroll and overhead to a minimum.

Once a year, usually in January, we go through the details of everything we own and decide what we want to do with it in the coming year. That’s my favorite meeting, because it gives us a chance to talk about what we want to do instead of what we have to do. Gives us a chance to “begin with the end in mind” (Stephen Covey’s Seven Habits), yet again.

ray

import · December 19, 2003, 10:04pm

Mobile Home Investing-NJ/FL-for Mr. Alcorn - Posted by Michelle

Posted by Michelle on December 19, 2003 at 23:04:06:

Hello,

Just wanted your advice. I currently live in NJ. There are relatively few Mobile Home Parks in this state. But will be moving to FL in 6-8 months, should I wait until I get to FL?
Or can I basically invest in Mobile Homes in any state I choose right now, even if I am physically in NJ?

Thanks

import · December 20, 2003, 4:12pm

Re: Mobile Home Investing-NJ/FL-for Mr. Alcorn - Posted by ray@lcorn

Posted by ray@lcorn on December 20, 2003 at 17:12:31:

Michelle,

My answer to whether absentee ownership is wise for any particular investor would depend on two factors: the investor’s experience level, and the property type.

If you are a beginning investor, and the property is anything other than a credit tenant, pure NNN (triple-net) investment, then my advice would be no. (Triple net properties are those where the tenant takes care of all maintenance tasks and expenses, taxes and insurance responsibilities. For purposes of this discussion I am only speaking of those NNN tenants with investment grade credit ratings.) Any other type of property requires management, and after price and financing, management is the one most critical factor that determines profit or loss from an investment.

An absentee owner of a property that needs management must, by default, use either fee managers or resident managers. Without getting into a discussion about the pros and cons of management types, if the investor is inexperienced then the learning curve is doubled. Not only must one learn what it takes to run the property, but also how to manage the managers. I think you’re better off to make that first investment, if not the first few, in your own geographic area, where you can learn firsthand how income property ticks.

For many years our family development firm had operations in all seven southeastern states, which we ran from our office in Virginia. So absentee ownership is something I am very familiar with. We?re no longer spread that far, and I am grateful. I think an investor should manage at least one property for one year before moving to absentee ownership. I know of no course, book or software that will totally substitute for firsthand knowledge.

In the case of a MHP, the management function is not quite as intensive as apartments, but critical all the same. Spaces must be rented, rent collected, service and maintenance must be performed and complaints must be handled. There is also the intangible value in having local market knowledge, and how market factors apply to problems and opportunities. Not having firsthand knowledge of the condition of your rent roll and the property puts you at the mercy of filtered information, and value can be lost before you are aware there is a problem.

In my opinion, you need a knowledge base of how things work before delegating the task of getting the job done to others. It’s hard to judge whether the job is being done right if you’ve never done the job, and you’re relying on the person being paid to do it to tell you how’re they’re doing. How likely is it a manager will come to you and say, “You know, I’m doing a terrible job and you really should fire me.” In my thirty years in this business I’ve never had that happen. What I have had happen all too often is hearing every excuse under the sun why whatever the problem is because of something other than the manager.

In buying properties I have seen situations where the owner actually worked for the manager. That?s what happens when the manager has free reign to educate the owner, and I?ve seen properties with managers that have outlasted several owners. They become entrenched, and you?ll never know what you don?t know until it is too late. Better to clean house and learn from scratch. Sure you?ll make mistakes, but I will bet they are more than offset in exposing everything to a new set of eyes.

Besides gaining the experience of what it takes to manage property, that year of management will be invaluable in narrowing your focus to make investments that reflect your talents and preferences. Then if you hire a resident manager or management company you will know whether they are doing the job or inventing excuses.

My preference for small properties is to use resident managers in exchange for rent concessions. I use the manager to do minor or routine maintenance; be my representative to tenants, vendors and officials; supervise any contracted maintenance; and generally look after my interests. I like to have a regular schedule for meeting on the property to make sure the reports over the phone or email or fax are accurate, and to gauge the effect of any new situations. That?s another reason to locate the investment without easy reach. A manager will not be quite so quick to let things slide if it is known that you are there on a regular schedule, and also likely to drop in unexpectedly. With this structure it is generally recommended to have all rent payments mailed either directly to you or a bookkeeping service.

Once you learn what it takes to makes the operation work, then you can look at doing deals further from home. Be aware though, even for those of us with experience, properties with fee management have higher vacancies and higher expenses than self-managed properties, almost without exception. Even a stable property will deteriorate if a regular maintenance and improvement plan isn’t put into place, and it is the rare jewel of a resident manager that will treat the property like it is his own. It does happen, but it?s the exception, not the rule. Much better to be prepared, and let an exception be a pleasant surprise.

ray

import · December 20, 2003, 5:14pm

Re: Mobile Home Investing-NJ/FL-for Mr. Alcorn - Posted by Eddie-Mi

Posted by Eddie-Mi on December 20, 2003 at 18:14:41:

Thanks Ray, good post. Having had a few management problems already, your experiences sound about the same as mine. Going to have to skim the archives and find more management stuff.

I am curious how you would handle maintenance work in a 50 unit park with rental units and some tenant turnover.