80% Park owned homes


#1

Under contract on a park With City water city sewer, pvc pipes, paved roads, upside in raising rents, upside in billing back water sewer bills, and upside in filling vacant homes, and in a decent market with demand for affordable housing, but with 80% park owned homes. Would you buy this park?


#2

You share nothing about the numbers current rents / lot rents/ age of POH, do other parks charge for utilities? What is required on the vacant POH, nothing about the price , nothing about the market lot rents. Decent market with a bunch of POH and vacant homes? I would really drill down on what you are classifying as decent with providing market metrics because that is going to be dependent on how successful you will be to owner conversion.

You have not provided the information for anyone to adequately answer your question here.


#3

80% POHs is reason enough for me to not even consider purchasing regardless of any numbers. There are easier ways to make money.


#4

The park should carry a discount for the added struggle of the POHs, it just depends on how strong of a discount that is.

Finding a park with nothing moderately wrong with it at a great price is tough these days.


#5

During Diligence I’m going to inspect every POH and get bids on the repairs needed to get them livable. Then use that to negotiate down the price.


#6

Purchase price: $600k
Under contract
Lot rent is $215-$225/mo
5 tenant owned homes
23 occupied POH on RTO @ $325-$600/mo
6 vacant POHs
0 vacant lots
1 Manager home
1 storage home
Age of POHs (waiting on the full POH inventory)
Market lot rents: $250-$380/mo (some include w/s some don’t)
I’ll have inspections done on all the POHs and get bids.
Test ads pulled well - so I know there’s a demand for affordable housing in the area


#7

Market rents should be more of a fixed number not a range of $130. There is a big difference between a market rent of 250 and 380…

One the surface, i feel, its worth looking at. Question will be what kind of homes. If they are 70s and 80s… might be tough. If they are 90s and 00s, different scenario. Condition of the current homes will also give better idea of what you are up against.

I also get scared when i see lot rents at 215 and home rentals at 325 (assuming that includes lot). While we don’t know how many have really low rent amounts, historically from experience, that never seems to bode well… on either the home or tenant quality but maybe thats just a couple homes…

I personally don’t love a remotely operated project like this. The reason being, you don’t have a tremendous amount of overhead to pay an allstar to handle all of the moving parts which will include homes sales/rentals/ rehab / or maintenance work on the POH. I would be a lot more inclined to go after a project like this if it was close to me, close to another property where I can utilize trusted sources, or partner with someone who might have boots on the ground resources. Its not like you can throw everything at it because there is just not tons of overhead you can pack in there given the numbers so you are going to just have to be creative with getting these done and getting decent resources to help you work at it. Its possible but you will surely want to make sure you have an accurate picture of what you are getting into as this will not be a hands off deal from the get go.

The other thing you mention is RTO… I would def dig into that further. What are the terms of the agreements? How long have the tenants been seasoned or in place for ? Was there consideration on the front end? Answers to some of those questions might give you a better idea on the stability of the revenue.

One of the potential “perks” of a POH scenario is the lot rent reset . Whereas you might be at 215 lot rents today but the tenants are renting all homes at 600, you convert to a 325 lot rent park, and work to get the homes off your books and lot rental only. Thats one strategy and if the market rents are 350 or even 325, that strategy could work.

Make sure you don’t overvalue the upside either I would add. If the market strength is less than you would have anticipated, and the rents not achievable as high and you are banking on a 50 dollar increase AND sub meter of utilities, that might be too much pressure on your tenant base.

Just a handful of things to consider…


#8

Marvel,
Thank you for the insight. I’m still waiting on the seller to send me the DD items I requested. The financials, detailed rent rolls, rental agreements, and RTO contracts will shed light on some of the things you mentioned.


#9

From a risk and insurance perspective, someone with a primarily POH occupied park, with most of the POH’s being built before 1976 is the most difficult. Reasonable coverage is expensive. And the risks associated with older POH’s (wiring issues leading to fires, floors than can break through, steps in poor repair) simply make the cost of ownership higher. These can be some very attractive cap rate parks, but they should be. Lenders are equally discriminatory against them.


#10

i think if you play your cards right , you can do well on this
if not it will be a nightmare

what year are the homes?condition?
terms on the rtos
will owner finance with all those pohs?


#11

I’m waiting on the DD items. Part of that is the POH inventory and details on the RTO contracts. I’ll let you all know once I know.


#12

@Marvel_Equity ,

Ok so I got more info from the Seller. I’ll address each bullet below:

-there is still room to raise rents to market based on surrounding lot rents. Plus 2 bedroom apartments are like $700/mo.

-POHs are primarily 80s, 90s, and 2000s (still need to get down there to see condition and get bids for repairs).

-Rent is $215 (lot rent) + $235 (house payment) = $450 (total) per month for the POHs (the newer homes are higher in monthly house payment).

-I hear you. That’s why I am looking forward to seeing the condition of the POHs and getting bids for repairs to make ready. I’ll be making sure I hire a great manager to help with all the POHs, sales, and filling vacancies. I’ll have a VA and myself to do a good amount of work as well.

-there are 23 POH renters that are on year leases that have the “Option” to buy their homes in 10 years. They all paid a non-refundable Option fee. The Seller has shown me 2 years of Schedule E tax forms (the income is there) and 2 years worth of bank deposits show the income is coming in consistently per month.

-I do plan on systematically selling the POHs to the current tenants and then at the same time fill the 7 vacant POHs. There are no vacant pads. There are 6 tenant-owned homes. 36 total lots.

-I won’t be raising the rents anytime soon because I will first add water submeters and bill back the w/s bills to the tenants. This will cut out a $1900/mo expense line time (huge upside).


#13

-POHs are primarily 80s, 90s, and 2000s (still need to get down there to see condition and get bids for repairs).

-there are 23 POH renters that are on year leases that have the “Option” to buy their homes in 10 years (Lease-Options). They all paid a non-refundable Option fee. The tenants that are on these Lease-Option rentals moved in 2016 and 2017. The Seller has shown me 2 years of Schedule E tax forms (the income is there) and 2 years worth of bank deposits show the income is coming in consistently per month.

-He may consider it if I can’t get bank financing


#14

if you want to discuss you can call me
404.488…3282


#15

I would advise you raise the rents the first day you take ownership. Tenants expect it.
It appears that you are locked to a 8-10 year time frame of not being able to off load the homes and at that time most will like not commit to buy.
Depending on the contracts your maintenance costs will be high and in 8-10 years the homes will be seriously depreciated.
This appears to be a high risk, high maintenance community.
I would attempt to negotiate a shorter time frame on the tenants option to buy.
I would also sell the 7 vacant homes outright as opposed to renting or options. Let the buyers find their own financing.


#16

I think you are going to have to be comfortable with it. You can probably do fine with it or it can be run a muck. It will depend on how you operate it , hopefully get some decent boots on the ground for your turnaround plans and be able to give it the the TLC that it WILL require. I really don’t like homes but will make exceptions in the right circumstances (primarily the market).

Good luck if you run with it.


#17

Greg,
There’s a lot of tenants still on a year lease so I think i have to wait until their leases are up before I can raise the rents.

I am for sure going to fill the 7 POHs with buyer/tenants so I can get those homes off my books. I plan to sell them for cash. After closing I’m going to talk to every Option tenant and ask them if they want to buy their homes for $2000-$5000 (for 80s and 90s homes) in cash instead of waiting (they can also get their own financing from a bank if they want - if they qualify). This way I’m not waiting for 10 years for all these homes to get off my books.


#18

Yah, totally. I plan to make sure my manager is fantastic and with some home repair background. I plan to have the manager do inspections on every POH every 3 months to insure no deferred maintenance and that all the homes are in good condition. He’ll be in charge with fixing all the minor home repair stuff that tenants call in about (leaky faucets, leaky toilet, leaky ceiling, sagging floors, etc.). I’ll use video and FaceTime for accountability.


#19

Have you done the Frank and Dave Course by chance?

I def don’t want to be discouraging. But your strategy hinges on an all star that may or may not exist. I think its going to be challenging to get all those skill sets batched into one who will also rock with sales etc additionally with not a ton of room being packed in for overhead ( i.e. smaller park).

I would def plan to be going out there regularly in the interim and have a plan in place for switching managers should it not work out.

It could be a viable project, you just need to have an accurate picture of what you are getting into for something like this from a remote position.


#20

I mean ideally I would like to have an on-site manager do only the enforcing of the rules/regs, mowing, keeping park clean, post notices, go to court for evictions, etc., and have an on-site maintenance guy to handle the home repairs and pay him a flat rate (I would start to phase him out once I start getting low on POHs).