Mobile Home Park - Posted by JHyre in Ohio

import · September 22, 1999, 10:18pm

Posted by ray@lcorn on September 23, 1999 at 09:03:42:

John,

Sounds like you’ve done your homework on this one. It makes me a feel a lot better to hear it won’t be mortgaged to the hilt… that will leave wiggle room when the fireworks start. A thought: you may be trading dollars for dollars in waiting to start the clean-up. With that substantial down payment you could up the loan a tad and escrow a years worth of payments (if necessary). The expenses would fall dramatically as soon as the place was vacant, and you’d have the advantage of not developing “relationships” with the current tenants (e.g. collections, judgements, evictions, etc.) Just drop the bomb all at once and be done with it. Just a thought… but it’s hard to look from afar and know what will work. I trust your judgement, hope you do!

Also sounds like you know what you’re in for timewise… I am assuming this is some distance from your home as you indicated that preference in another post some time back… so doing the rehab may cut into your post-April leisure time! But hey, if it was easy everybody would do it, huh!

With potential space rents at the $200 mark, I gotta believe your best prospect for an exit is the adjacent park after the clean-up. If spaces are at a premium, then you have to consider also that you could be a player for the larger park when the time comes. It doesn’t take much to extend your monopoly to spaces as well. There are some very attractive conduit financing programs for parks with 100 spaces and up, so if you combined the parks the whole could be worth more than the parts… again, that’s just me thinking out loud.

Don’t forget to consider separately metering the water. That is one of the best income builders in a park that can be had. We just did our 54 space park at a cost of about $330 per space. That’s for a turnkey job, including ongoing billing and collection. It will reduce the expenses by 50%, which will give us a 100% payback in about eighteen months. I’ll be glad to give you the contact info when the time comes.

Go for it! Good luck,

ray

import · September 22, 1999, 10:18pm

Mobile Home Park - Posted by JHyre in Ohio

Posted by JHyre in Ohio on September 22, 1999 at 22:18:20:

Found a park that I am very interested in buying. Pardon the stream of consciousness format. To wit:

26 lots, 3 vacant. VERY low-end park. Scary tenents (yes, I’m a lousy speller). $110 lot rent. The owner is far away and completely uninterested in running the park. She just evicted the deadbeat who purchased it on land contract and stopped paying a few years ago. Deadbeat owned the trailers (and trust me, these junkers were trailers, not mobile homes) and rented them to the tenants for $290. Before getting kicked out of the park and contract, deadbeat “sold” the trailers to the residents. I say “sold” because deadbeat’s ex-wife has the titles and refuses to turn them over because deadbeat evidently scr*wed her too. So anyway, now that deadbeat is out, owner wants cash for the park. She is predictably uninterested in anything but cash given the fun she and deadbeat had together. In addition, numbers will be hard/impossible to verify because deadbeat is uncooperative, liar (he tried to sell me the park, among other things) and vanished. Owner hasn’t directly dealt with the park in eight years.

She’s asking $110,000. She got this price from real property assesser’s office- so it’s totally random. The lots are small- I may have a hard time putting 70’ long on there, 65’ should work. As I said, 23 lots have junkers on them- eventual idea is to clear those out and Lonnie (yes, it’s a verb!) some decent homes in their place. Civil Engineer/consultant said park is in decent shape. Sewer and water are city but not sub-metered. Electric is by and large up to code, although 5 lots will need some work. Park has a small cinderblock building- will probably give future residents key and install coin-operated waher, dryer and vending machines. Road is in good shape. It is wide enough to accomodate parking, otherwise park would lack enough spots. As it is, parking space is only 1.5 cars per lot. Not alot of room to expand- park is next to another slightly nicer park (of which it was once a part), a car dealership and a cigarette shop. Given space restrictions and area, I think park can be upgraded from “F” status to “C” status. As an “F” park, given current lot rent, return is about 16% assuming 40% expense ratio. “C” park should produce lot rents of about $200/month + proceeds from Lonnie deals. Upgrade expenses will be dominated by cost of trashing trailers and moving mobile homes in. Will probably wait 6 months to one year to do this- that way I get some cash reserve built and tenants get some mileage out of their “purchases”. Latter is not essential…but nice, all other things being equal. Will need to spend some on electric upgrade and coin-machines. Will also put some $ into modest landscaping- shrubs, flowers and the like.

Intend to offer $100,000 LESS a $20,000 credit for electric & other badly needed upgrades. Bank is OK with that @ approximately 9.75% to 10.25% rate with 25% down…you didn’t think I’d use MY money did you? Owner has not seen park in 6 years but is aware of deterioration. It clearly bothers her because locals say she ran it well. I have a competitor- local maanger for “A”/“B” grade park. No other competition that I know of. I intend to make this offer SOON- no point in waiting for more competition.

Any comments?

John Hyre

import · September 23, 1999, 12:01am

You can get in… - Posted by ray@lcorn

Posted by ray@lcorn on September 23, 1999 at 24:01:52:

…but can you get out?

John,

Good to hear from you. I was afraid I was going to have to carry the flag alone on that cap gains post down below. Waiting on you or Piper to come and stop the foolishness was more than this feeble brain could bear!

I like this deal, but for totally different reasons than you may be looking at. I already have my urban renewal merit badge, so I generally shy away from that much work nowadays!

But this may be what I call a great warehouse deal… no, not the storage kind, but a way to warehouse (i.e. pay for, with some nice cash flow to boot) a well located piece of land until the value approaches the stratosphere. (Okay, that may be optimistic.) It sounds like the area is pretty commercialized… if the car dealership is a good one and needs to expand, or if the cigarette shop could be the start of a strip center, or the other park gets bought by a REIT and it just has to clean up the neighbor or at least own it, then… what’s the property worth at that point? It could well be that at that point the income becomes academic as to value. We have a hotel sitting on an old 40 unit park… that’s how the land got paid for! The last offer we turned down before developing it was four times the value of the park based on the income. So I would be very curious to hear more about the surrounding neighborhood, and the general economic condition of the area.

I like your plan to improve the park, but that alone wouldn?t convince me to do the work required to see the payoff. The problem with deals like this is that in order to get the payday (after the cash-out refi of course!) you have to find someone that is looking for a hobby, or is just starting out, or just after cash flow. In any of those cases, there is a good chance that financing will be tough and you wind up carrying some paper, which can be a good thing, but doesn?t substitute for a payday. But if there is a good potential to sell to one of the adjacent owners, or redevelop the property at a later date, then the effort starts to look worthwhile.

I’d take a hard look in my crystal ball, maybe call the psychic hotline, roll two sets of dice three times, and try to determine what the long range prospects of the neighborhood are. If the answer is “not to good”, then I would have to evaluate it on the dollars/aggravation ratio. Dealing with 23 soon-to-be displaced fledgling trailer owners is not on my list of favorite pastimes. And wait till these new “owners” find out what it costs to move their little castles… their true renter mentality will kick into overdrive and there could be 23 vacant shells. I can see a scenario where you’re $25T into the fixup money just in getting rid of the junkers.

On the other hand, if things go even half right, you could be looking at a $100T payoff in a three to five year time frame. (200x26x12x55%)/15%cap-(cost+~improvements) That ain’t bad pickin’s no matter how many obscene phone calls you get!

But I probably ought to read this again in the morning? it?s late and I may just be too tired to see the rainbow!

Good luck, and keep those posts coming!

ray

import · September 23, 1999, 6:55am

Re: You can get in… - Posted by JHyre in Ohio

Posted by JHyre in Ohio on September 23, 1999 at 06:55:26:

Ray,

Thanks for the input. I’m looking at this for income and a Lonnie monopoly. I could probably do an immediate flip to the adjacent park for a tidy profit- they are cleaning their park up and would probably love to assimilate and clean this little park. I doubt that they know the park is for sale.

This town probably saw its best days 20 years ago. It’s a 30,000 population Northern industrial town in a rural area. It is a “rough” place, but not a warzone. It has lots of MH’s per capita, ranging from A to F parks.

My calcs assume that the current trailer owners will walk away from their castles- I wouldn’t pay $50 bucks for any of them. So I assume that large men wielding implements of destruction (chainsaws, crowbars, pictures of Hillary) will need to be paid to come forth and destroy, pack-up and remove the MH’s. I intend to have this done in one fell swoop- leaving ONE of the current residents (I’ve met them all) in the park would scare off any sane person. That means no income for a spell- which is why I want to build the cash reserve first. Filling the park with repos and the like will be quick and easy once a war chest is accumulated. I assume that selling these will be slightly harder given the current image the park has to overcome. Then again, people in this town LOVE mobiles with financing.

How do you feel from income/Lonnie monopoly standpoint? I will probably come up with 50% down for loan- I am wary of high leverage on this type of property. By the way, I probably will NOT rachet up the debt for tax-deferred money…LOL!

John Hyre