First park, major rehab


#1

First off I have been in the residential single family rental business for almost 20 years. I have been there, done that so to say. I know all of the perils of rental property. I have been looking at MHPs for about 6 months. Tried to buy a local one in my town but have had no luck. I also happen to be a manufactured home retailer.

I recently came across one that is about a half day drive from me. It is in a small town (1000 residents), but is within 30 miles of some larger cities (75,000, 10,000, etc…). Still rural though. Seems to be a stable (not shrinking not growing area).

The park has been totally abandoned. There are 33 spots. 4 abandoned homes (1 decent usable home, rest are junk).

The owner died and apparently things went South pretty quick. I don’t really have the full story, but it is strange. It was almost completely full less than 2 years ago.

I made an offer of $60,000, they countered at $76,000, I countered at $70,000 with seller paying for half of an inspection of water, sewer, and electric system. They just accepted that offer, my offer also gives me 45 days to do due diligence period to figure out the what the deal is with the place and weather or not it can be put back into service.

The park is on the edge of the town, but I don’t think it is in city limits, BUT is on city sewer and water.

What are you thoughts? Very little overhead, and if it takes a couple years to fill it, is is not a big financial burden.


#2

The first thing I would do is call the county zoning dept. I know for the park i’m in contract on if the park is fully vacant for 18 months the county will not allow it to be mobile home park again.


#3

So here is some of my research.

  • City water (master meter only, city won’t submeter). So I would most likely use someone like ABT to handle that. I will have some leak testing done to make sure no major issues.

  • City sewer, billed based on usage of water. Park is located in the country, but sits on the edge of community. The City will allow the system to continue to be used as long as they are paid. The people I spoke with said it is a PVC system, but they thought there was a belly in the line which sometimes has caused problems. Said not a big issue, easy to get to and repair. I will research this more and have it scoped to see what is under there.

  • There will be some cleanup of about 4 homes that will need to take place. Getting bids on that now.

  • Electrical system should be OK, but most likely some if not all new pedestals. Will work on that more.

  • There was a central propane system that apparently was served off of a large propane tank then submetered, all of this was handled by a local propane company. If it is the case seems like a winner to me. Anyone heard of this type of system?

  • Will get a phase 1 environmental study if all of the above checks out.

  • According to local folks I have spoke to they feel there is good demand, but the park had a poor managment history. There is a large agriculture company with a large population of lower income workers that don’t speak english well. I have been told this is a great customer base for parks and tend to be good tenants.

  • My goal is to fill with a mix of new homes, some used late model homes, and some space for summer RV rental (retirees, and seasonal workers).

Anything I am missing? Any advice (good, bad, or otherwise)?


#4

If you are basically redoing this park, which is what it sounds like, you should probably just convert to all electric. A lot of electric providers will help you out with this in order to steal business away from the gas/propane companies. It appears you are basically going to need to bring in 30 homes yourself so they might as well be all electric…

I would also like to point out that you need to be well capitalized to engage in this project. You’ll do well to speak to someone from either legacy or CASH to assist you with filling this community. You may also want to tap into some of your hard money lenders (which I’m sure you have from the SFH business) to help with financing new or newish homes. Essentially, you really want to know exactly how you’re going to conduct the infill and you’ll really want to test the market to see if the price points you need to charge on the homes makes sense in the local market for end consumers. If they don’t, you’ll likely need to make your lot rent “fit” where the market is on the home/lot combination.

Lastly, I would check with ABT on that plan. This park is likely too small for it to make sense for them. Especially starting out. You might be stuck with RUBS or sub meters your manager reads.


#5

Charles,
Thank you for the response.

I currently use 21st for our retail floor planning, I have contacted them about the CASH program. Looks like Legacy doesn’t operate in the state we are in, and we don’t have 100 lots. Doesn’t the CASH program finance newer used units?

I currently don’t have a hard money lender as I have been able to handle past projects without that option. Where is the best place to find a hard money lender?

What is the best way to test the market? I prefer no POHs.

Thanks in advance.


#6

Test ads are a good way to see the real market demand and you also need to get good comps on what customers are willing to pay for the lot/home combination on newer homes. I would also spend some time on the ground speaking with local managers in other parks who are selling homes. You really need to pick their brains to understand the customers in the area and what’s working vs. what’s not working. From my experience, most markets are willing to pay $750-$900 in rent for the lot/home on a new home. I usually do the math like this:

$850 - Allowance for taxes/insurance/maintenance = Home Payment w/ lot rent.

From there, I adjust based on a 15 year loan at 10% (or whatever loan program you are working with since this is payment driven) So, if after the above calculation I am left with $700 and I have a $300 lot rent, then my payment is $400. So the financed amount for the home in this case can be $37,000. If I want a more expensive home on that lot, then I would likely need to adjust the lot rent on that individual lot in order to make it “fit” with what the broader market can afford or is wiling to pay. It’s a technique but by no means is it the whole story. If given the option, I would gravitate towards nicer homes if you are planning to hold long-term (10+ years). If this is a community where you are looking to flip after infill, then you may want to pursue the higher lot rents for a better exit (e.g. use less expensive homes).

I would also say this about CASH. We’ve not been too terribly impressed by them and we are starting to gravitate towards programs like Legacy and using our own financing through hard money. Selling a home through CASH has been challenging for us simply because it takes 45-60 days to get our customer through the process. Your average customer is not usually willing to wait that long. There are creative ways to get around this but I can’t intelligently speak to them because we never tried those. Our typical CASH sale on a new home has been to existing residents who’ve upgraded from their current home. We’ve done 6 or 7 new homes and about a dozen used homes through the program so we probably aren’t the best people to take advice from on it. The way we are using the program hasn’t fit with what our customers want so we are reverse engineering what they want now and trying to make a program fit. Again, we are just one customer and there are plenty of people who’ve had great experiences with CASH. But, we haven’t.

We are also less than excited about backstopping mortgages. This used to not be a big issue for us but we know another owner in AL where the tenant in his community moved a CASH financed home out. In his case, the documents that required the home to stay in the community weren’t enforceable in AL. He’s not done fighting that battle but the brain damage he’s experiencing combined with everything else has us looking elsewhere.

If you need a hard money lender then I would suggest attending industry events and local investor meet ups. These people are not hard to find and they certainly fill a unique role in helping you do more with your business.


#7

I was a hard money lender for years and still hold a few choice notes. You can find private money by calling up mortgage brokers which often have a small stable of note investors they work with. Also you can talk with title officers and ask them who in the area are doing the private money deals. If you think about it, title / escrow offices see everything that is going on.

An alternative to finding a private lender to put the deal together at the start, which can be pretty pricey (they call it hard money for a reason) is to fund a deal or two yourself and then sell the note. You could bundle the notes from any number of home sales and sell them to an investor together. To do that you would have to discount the notes to get they yields up to be attractive. Even if the loans were made with a high interest rate, any knowledgeable investor will demand some discount. The notes will be most marketable after being “seasoned” for a year, when they have gained a history of performance – investors like that. It might be hard to find an investor unless you guarantee to buy back any non performing note, and that only works if you have a pretty solid credit score and healthy financials.

For what it is worth; all my wheelin’ dealin’ hard money days were in California, where there was a lot going on and you would not have much trouble to finding mortgage brokers who put private money deals together. In the last year, I have called every mortgage broker known to Google in SD and NE. None of them had a clue about that side of the business.


#8

You should have no problem filling it once its got some functional units. Once you have it nailed down a little bit more and have the structure getting to be in place, plant the seed in the local economy that the park will be up and running again soon. Once you have one house up and ready, do it again, then going forward monthly until you have a waiting list. They will watch the progress, word of mouth will spread like wildfire and keep marketing / advertising expenses down… BOOM! Full.


#9

A lot of electric providers will help you out with this in order to steal business away from the gas/propane companies. It appears you are basically going to need to bring in 30 homes yourself so they might as well be all electric.