My Experiences with Small parks (VERY LONG) - Posted by Ryan (NC)
Posted by Ryan (NC) on March 11, 2008 at 21:06:25:
After reading today’s post I wanted to share my experiences without getting in the mix of two similar post…
I’ve found that most of the small parks I’ve bought have been purchased from burned out landlords and are suffering from deferred maintenance.
The parks are mostly park owned with a couple lot rent only tossed in. (this will become important later)
All of the parks need a dose of cash tossed in to the park owned homes to bring them to acceptable standards. Which I do by getting the property cash flowing and then using the excess cashflow to finish the property thus limiting my expenses on the front end.
I’m go in expecting to be evicting 25% of the tenants with in the first 90 days of my ownership. If you budget for it, it don’t hurt to awful bad, expect everything to go perfectly and it’ll kick ya in the gut!
These are the common items that have been present in every park I’ve done to date, they aren’t pretty 5 star parks… They are working class communities that are in decent areas or areas that have potential upside (speculation) for commercial use somewhere down the road.
The most common deferred items I see are deferred maintenance of safety issues and general upkeep which the landlord does not desire to fix. To counter act this the landlord reduces the rent and the quality of the tenant in order to keep the unit full. (more often than not it’s with a non-paying tenant)
Before anything else I come in and fix any major safety issues, install smoke detectors, and begin evicting the worst of the worst from the get go. I make a big impression by doing this and prove that I really do mean business and am serious about what I’m saying. I then focus on fixing the units that I forcibly made empty, one at a time I repair and refill the empty units bringing up the quality of the tenants in the property.
It takes me on average 6-12 months to “turn around” a small property like this. In the end I’m left with a small property that cashflow’s nicely and that I’m not scared to take my friends in…
On to how I’ve been able to buy these little parks…
First I’m looking for a piece of dirt that I’d like to own! The mobiles are simply a way for me to pay for that piece of dirt, I can speculate to an extent this way because the property cashflow’s as long as it is properly managed. Worse case is that none of our properties ever become worth anything and I can only collect the cashflow until the properties are paid for and then get a pay raise for as long as I care to run them.
I’ve found a weird trend in our properties that seems to work very well for me. We have a hand full of lot rent only units in each park, these units pay about half the mortgage consistently month after month and make it so that I only have to keep one or two units rented to pay all the bills. At over a 50% vacancy I can still pay for the properties and insure my retirement in the process.
Small LOCAL parks aren’t big enough to draw non-local investors which limits the selling pool for mom n’ pop operators that only have one or two properties which from my experience is very common. This allows me to be in a position of power as I’m one of the few people that can/will tackle the property. in a nut shell I’m building a portfolio of these small parks which when combined equal a “big” park.
Here are the current numbers…
Park #1 - 5 MH’s, 1 SFH, Basement Apartment, retail store
Don’t remember all of the purchase details on this one but we put $2500 down and made payments to the owner for about a year and a half while we fixed the property. Refinanced and pulled about 10k in cash.
MH1-$325/month
MH2-$275/month
MH3-rehabbing now
MH4-$300/month
MH5-$325/month
SFH-$500/month (long term tenant)
APT-vacant
Retail Store-vacant
This property is high on vacancy right now but the gross rents are $1725 I spend about $100/month on repairs, mortgage is $1003 (12 yr amort) taxes run $75/month, water bill is roughly $80/month. Net at 42% vacancy is just shy of $500 month. We average about $1250/month net on this property.
Park #2- 2 lot rent only, 3 park owned
Purchase $52,500, owner financed $2500 down and 467/month, negotiated a reduced purchase price and refied a couple months ago and pulled 16k outa the property.
MH1-$275/month
Lot2-$115/month
Lot3- un-useable vacant lot
MH4-$395/month
Lot5-$115
MH6-$375/month
Current rent roll is $1275, $505 month is from long term great tenants. Mortgage is $500, Water bill runs $75ish, taxes $50, we have low repairs right now due to recent rehab of property average is about $50/month. So we net about $600 and tend to see about 2 months a year with a vacancy, the big deal on this property is that the lot rent tenants and a very solid SSI tenant pay the mortgage for me.
Park#3 8 lots, 5 park owned, 2 lot rent only.
Paid $56,500, assumed the sellers mortgage sort term giving them $2500 for the purchase option and refinanced about 4 months later with the same bank putting 20% down (11k). The sellers had paid 62k for this property less than a year before we bought it from them and the sellers wife gave me a hug and thanked me for “taking the property” at the closing table…
MH1-$325/month
MH2-$455/month
MH3-Needs repair/replaced
Lot4-vacant lot
Lot5-$115/month
MH6-$275/month
MH7-Vacant as of today (rents $350)
Lot8-$115
Gross $1285, mortgage is $462, water runs $90/month, taxes $75/month, repairs run about $100/month. Current net is $558 with 37.5% vacancy, one is an easy fill and the other 2 we’ll likely replace the units sometime down the road. The mortgage on this property is also set up so that a steady SSI tenant and the lot rents consistently pay the mortgage every month without fail.
Park4 - 12 spaces, 9 park owned, 3 lot rent
Park5 - 3 MH’s, Duplex, SFH
These parks we’re bought as a package and on seller terms, we paid $290k for both, 15k down and $2300 month for 240 months at 8% with no calls and some neat things in the note.
Rent roll:
Lot1-$115
MH2-$325
MH3-finishing this week, will be $425/month
MH4-replacing after finishing MH3
MH5-$350/month (tenant is 27year tenant upgrade from MH4-10x40)
MH6-$455
MH7-(finishing setup now, will bring in $455)
MH8-$425
MH9-$375
Lot10-$115
MH11-$375
Lot12-$115
Park5
SFH $425
Apt1 $360
Apt2 $400
MH1 $385
MH2 $375
MH3 $400
Total Gross is $4995/month with several units to boost income even more, mortgage is $2300/month, utilities are $1200(slowly getting rid of these, down from about 2.5k), have yet to determine average repairs cost as all cashflow is currently going into repairs until finished, water bills are running $175ish, taxes will be around $100-200/month. Our current net is about 1120 with about 3k in future potential cashflow.
THE END RESULT is that we have a current net income on these properties of about $2750/month, and this is after a REALLY bad round with evictions and a slow market that I quit working on units for a while. By summer this number should be back up around $5000/month net give or take a little for vacancy.
Best of all, we have about 10 years before the first 3 parks are paid for, once this happens our net profit will jump by about 2k a month even if we were never to raise rents. The last 2 parks we have a partner who put up the cash, covers overages, and splits the end profit, God willing he’ll never have to put another penny in to the properties and will get about 2k/month on 15k plus about 100-150k in equity.
I have been very “hands on” and taken the blue collar approach as Tony calls it but the end result is my retirement is pretty secure and I believe that 7k/month just from these parks will take care of my family through the years even if all of our other investment were to go kaput. To each their own, I like my “little parks”!
Best wishes,
Ryan Needler