For those that haven’t come across this term, the idea is you avoid having to sink money into rehabbing a home, by giving the title to a resident who will then do the rehab themselves, and you just collect the lot rent. Good idea on paper, but it’s hard to assess whether the tenant will actually follow through.
Experience 1: My biggest rehab job to date was someone who had come in under the previous owner on a handyman special, spent perhaps a month or two starting to rehab the place, but then spent the rest of their tenure at the park drinking. We did get the lot rent for a couple years, but when we finally had to boot them out, the inside was atrocious, think “Hoarders” but in a shack made of MDF board. Pet urine smell, insects everywhere, potatoes that had grown 10" shoots… Big rehab to get it habitable.
Experience 2: I’ve got another home in the park, where one person gave the title to another who claimed to want to fix it up. The recipient did pass our background check to live in the park, but all signs are he hasn’t bothered to start fixing it up. Lot rent is coming in, but I’m wondering when the ball is going to drop…
One could argue that at least lot rent was arriving for a while for both these situations, but on the other hand, if they don’t address certain repairs, they are certainly creating a bigger cost if the home ownership reverts to you…
Ideal situation would seemingly be someone with some construction skills looking for a place for a family member who is on a low fixed income but doesn’t want the family member living with them. Probably hard to post an ad looking for exactly that without bumping into fair housing laws. And in any case, how do you really know if someone is going to follow through?
I fear just posting an ad without conditions is just gonna attract a substance abuser looking for a flop house however.
Would love to hear about your successes and failures with this concept, and the conditions you impose to increase your likelihood that it works out. Haven’t heard that many positive stories unfortunately…
We’ve recently done three handyman specials in our parks.
A resident who wanted to do a mobile home flip. Probably the nicest repair on a home we’ve yet to see and he likely lost money on it. However, we identified a real talent and he is going to rehab a few homes in a nearby park we are set to close on later this month.
A young single mother with a handy father. The renovation went smoothly and the home is pretty nice now. They are currently planting about $500 worth of flowers and shrubbery. They took delivery of the landscaping the last time I was at the park and I took the opportunity to go talk to her and she showed me what she had done to the place.
My last one is a work in progress. The amount of building materials he’s had delivered leads me to believe it won’t be like you described in your post.
I think the key has been that our manager in each of these parks has engaged the resident throughout the process. Even helped them out with suggestions and vendors to save them money. Our managers are excellent and they care about what happens in their community. We also screen the tenant and we ask them what their plans are for the renovation. If their plans sound stupid, we pretty much just deny them. If they actually have a reasonable plan, we’ll probably give them a chance.
We have done handy man specials in the past. We set the standards for what we expect in regards to renovation work especially regarding the exterior. Our standards take priority over the buyer.
We screen for both acceptability as a tenant as well as their back ground in renovation and construction. If they can not prove by example that they have renovation experience we do not accept them.
The key to our process is we do not sign a lease with the buyer and do not allow them to live in the home/community until the renovation passes our final inspection. At that point we sign a lease and they can move in.
Second Greg on that part. Their renovation should not include them living in the unit while it is being renovated. That would be a prime example of a stupid idea. I think the overall key is that the person isn’t desperate and sees the opportunity they are being presented with.
jhutson, most of our managers live in the park. The only exception is that in one of our parks we have a maintenance man who lives there and a manager who doesn’t. The manager is the maintenance man’s grandfather and it has been a very good dynamic thus far.
I’d say your best bet is to fix up the POH’s and sell them for cost or a slight profit (if possible and yes it sucks to fork out the $$). The handyman specials that I’ve done, sure I get the space rent but after the initial enthusiasm of fixing up the trailer is gone you’ll notice it slowly creeps back into disrepair again (if not worse) and you’ll likely be stuck with it again when they abandon it.
Better to enhance the parks appearance by rehabbing it yourself and having a quality tenant purchase through a real estate agent. I’ve found rehabbed POH’s sold through real estate agents bring in a higher quality, longer term tenant than any of the handyman specials I’ve tried.
One additional piece of info, because I think it might influence what works. My park is probably a 2-star park. Pretty stable, but there area always several problem residents. Not violent, but substance abuse, that kind of stuff. I’m guessing most of the actual residents would never have several thousand dollars in order to buy materials, hence my suspicion it might be another family member doing the rehab.
I like that idea – sounds so much better then fixing it up and turning it into a rental that in a year or two you will be fixing it up again at a cost that wipes out all the profit off of it (plus a chunk of the park’s profits.) Even better then the rent credit program where you rent it out and at best, break even for 10 years or so, and then turn the title over to the tenant never having recovered the capital you have tied up in it.
A few questions:
Do you finance the sale yourself and if so how do you handle the legal part of it? And what price range have you done this with? Also, what kind of commission have you had to pay the agent – I’m guessing some kind of flat rate since I think it would be hard to find an agent who would bother with 6% of $8,000 or some such.
We have never had much enthusiasm for the handyman special – it is reasonable for us to assume that 1/2 of the tenants “stick” whether homeowners or renters, and in any case you’re going to get the home back a certain percentage of the time if you had it to begin with. I’m not a marketing expert but perhaps I need one. So, finding the “right” handyman is probably harder than finding a tenant so why not just look for “regular full fare” tenants and not offer the discount? It seems to me there’s no higher likelihood of getting a “handyman” that doesn’t rip you off than a tenant who doesn’t rip you off.
Once you accept the fact that you will always be dealing with POH in some form or another (unless perhaps you are at the high end of the rent and therefore value spectrum), you will have to invent some kind of business plan to handle the rehabilitation. I use the long form of the word here because really you will have to satisfy your jurisdiction (state/county/province whatever) definition of “habitability.” You’ll have to police the handyman or you’ll have to manage your staff (employees) or contractors (if you sub it out). There’s no easy answers and all three are difficult and the name of the game in this business. In our experience, employees are best, but …
Everyone would like that! The name of the game is how to get a home “into your park” (and someone living there paying rent) but then get “out” from under cost of obtaining the home without being liable (on average) for some loss.
Getting “out” means getting your (sunk) capital back, presumably with some time-value-of-money interest; but given the applicable interest rate, discount rate, whatever you call it, an infinite rental stream looks a lot like a single lump-sum payment. The point is that selling and renting look economically similar to the park owner if the customer “sticks around.” (Regulatory-wise, it’s very different of course).
But, selling and renting look really similar when it comes to the customer point of view also – how much down and how much per month? So. We price our homes a lot higher than $8,000 – more like $20,000 (and probably higher if we could). here’s an example –
Lot rent $300 per month, home rent $650 (includes lot rent). That’s $350 that could be rent or a mortgage payment (home rent premium over lot rent). If it’s a mortgage payment, over about 7 years at 12% interest rate that’s about $20,000. I think I did that math right. Figure a home “dressed up” is worth $20k retail, and an unknown home is worth wholesale about $5k-$15k depending on general condition ($10k average?) that’s about $10k sort of leeway to “sink” for rehab on average and hope that you get that $10k back (on average) through rent (time value of money / hassle / whatever included) or through “principal paydown” at some reasonable interest rate which captures the time value of the money / hassle / whatever included. The home depreciates and the mortgage amortizes and at some point the wholesale FMV exceeds the amount due on the note but it’s a really, really long time in the future. The longer the note, the longer the date of “crossover” (where the customer has equity from a wholesale (or from the lender’s) point of view – the customer has equity from the beginning from a retail point of view since they chose to live there).
Congress makes a big stink about subprime mortgages and subprime lending in general (payday or auto title lenders for example, used car salesmen, one step up is probably MHP sales on their radar?) but the truth is that in the trenches most people are not being taken advantage of by housing that “costs” $25k-50k in principal amount of value. An excellent home can be purchased new for this amount (although moving it and hooking it up and adding failure points like A/C machinery and decks and skirting adds a lot of trouble and cost – that’s why wholesale prices are different from retail prices.)
At $20,000 (average) used or $40,000 new I think there is a legitimate market that we are targeting. I had never considered a real estate agent but curious what MH Village and real estate agents pull in in terms of leads. (We use craigslist, newspaper & “pennysaver”). Also curious to others’ reactions.
Long post, I know, but just to summarize we’ve had bad luck with selling a $6,000 handyman special and moderate luck with selling a $20,000 ready-to-shine (used) home. In markets that can’t afford a $40,000 (new) home.
If your market can’t support a $20,000 home (~$600 rent), you’ll have to figure something out (and maybe we will too!). Better cost control over your rehab crew, and better tenant selection control – is how you will make more money (or avoid losing it, which amounts to the same thing, on average since I’m aiming for net $0 in the “homes” side of the business). Let the customer take the rest of of the “profit” so to speak and you will always be able to find a customer.
“I’d say your best bet is to fix up the POHs and sell them for cost or a slight profit.”
We have a Mobile Home Contractor that has done our renovations. Once the Mobile Homes are renovated we then rent them. If the Renters are good, we will offer to sell the Mobile Home to them.
We tried to sell just one “Handyman Special” for a very low price. The Tenant was in the Mobile Home for a month or so and asked to give it back to us. Thus, our “Handyman Special” was a bust.
We took the Mobile Home back and we renovated everything including adding a new metal roof. We are now renting out this Mobile Home with hopes of selling it to the correct Tenant. We need to try the Tenants out first before selling
Truth be told I prefer to do the reno myself as opposed to the handy man route. The majority of individuals that would apply for a handyman special are bottom of the barrel.
I also make money selling homes in my community without any long term financial commitment so I am on a different playing field than most community owners.
I found a real estate agent that does mobile home deals for 2k regardless of price. So on the first deal I received a formerly tenant owned home who abandoned, put 10k into fixing it up and sold it for 20k less the 2k commission. The next one was a tenant owned home which the title was signed over in exchange for payment of the last two months of rent, we put in 8k (total dump) and sold for 10k less the 2k commission so we basically broke even. Both of these homes are still occupied by the new owners and both have shown great pride of ownership (been almost 3 years). They were older homes and were sold for all cash (the best option).
That seems pretty good. With the CASH new home program you have to subsidize the deal with $5k. I would do that all day long (in fact tomorrow I am flying to SD to get my dealer’s license for my park there.) If I could move in good used homes and sell them off for up to a $5k loss, I would do so if I did not get stuck holding the note. In other words; if I could fill my 25 vacant lots and only be out of pocket $125k I would consider it a bargain.
One way of looking at it is it would be the same a buying a 25 home park for $125k. Or, seeing it as getting your $125k back in two and a half to three years off the NOI that the newly filled lots should generate.
The trick, as I see it, is not getting stuck holding the notes. Not that the notes are bad (with the CASH program, you, as the park owner, have to co-sign the note, thus making them very safe for the lender – ie Buffet) but I have other uses for the $500k or so of capital it would take to bring in 25 used homes.
Scott, did you finance the homes yourself or did you somehow get someone else to do it?
Filling empty spaces takes lots of time and money vr. a full park where you just raise rates. With more experience I believe the seasoned buyer will value nearly full park more highly than half empty parks that leave lots of question why the last OWNERS did not fill the park or why half of the POH are empty. Our new residents bringing in new homes to our parks have every reason to believe their homes are not the only ones of high value and definitely attract a different level of clients.
All the homes I’ve sold have been sold for all cash. When I first got the park I carried the notes on any POH’s I sold to the tenants but now I only sell them to buyers with cash, easy to do with lower priced homes in my market (<20k) but I can imagine higher prices homes would pose more of a problem with financing (unless in a senior park).
Despite a very mixed response here (all great answers BTW) I do have one party looking to do the handyman special. Someone who has worked with one of the park managers on and off for about 10 years. At least it’s not completely random. I’m considering doing it.
Are there any other issues related to having someone else sink time and materials into something they don’t have ownership of? What if they spend thousands on materials but their workmanship doesn’t meet your standards, now they are pissed they spent the $. I doubt they are sophisticated to slap a lien on the prop in most cases, but I’m just trying to think defensively here.
As always, love this forum and the spirit of cooperation and non-snarkiness. Pretty rare on the internet
And if the tenant were to live in it, while fixing it up, paying lot rent only, is there any chance I as a landlord am vulnerable for letting someone in a place that isn’t legally habitable?
Building permits are required and building inspector will insure work is to municipality codes and standards and provide final inspection/permit to allow habitation.
Do not under any circumstances allow any handy man work without permits as you will be held liable as the park owner.
This is the primary reason the park owner, when selling “handyman specials”, does not allow the individual to live in the home until all work is completed and permitted by the municipality.
I too learned my lesson on not doing the live in handyman special. Quick money, but 1 out of 3 tenants will only fix up the inside and not do a thing for good neighbor aesthetics.
Anyway, question about home sales- What kind of age groups have you had the best luck selling to? I find the under 35 crowd to be a fairly volitile market and I get about a year out of them before they either have marriage or job problems and need to leave, where the 50+ crowd are quiet, pay timely, and take great care of their place. However when I advertise, 85% of my applicants are young people. So what is your good luck age group? Suggestions? Thanks
I target 50+ primarily retired. My youngest tenant is about 45. Widows make excellent tenants provided they do not have dead beat children.
Older/senior home owners are very stable and understand the importance of respecting rules. They take pride in ownership. Most will stay till they move to a home although several have died in place.
My community is adult only, no children, so I do not need to worry much about younger applicants. Any younger applicants 99% of the time I can eliminate due to poor credit scores.
Probably hard to post an ad looking for exactly that without bumping into fair housing laws. And in any case, how do you really know if someone is going to follow through?