First park under contract


#1

I’m in Iowa, visiting the first MHP I’ve put under contract. It’s a small park, only 19 lots rented now out of 36 total. Had a 1:00 PM meeting with the engineer doing the Phase One Environmental and as I come up to the park I see police cars and fire trucks and smoke coming from a trailer. Heck of a first visit to the park.

As it turns out though the trailer belongs to a former manager of the park who was using it for storage and wasn’t paying rent. So I’m not out a paying tenant if the trailer is trashed, although the current owner of the MHP might be out the money to get rid of the trailer if the trailer owner abandons it.

But the park looks like a good deal. It’s on city water and sewer. The city utilities director remembers the sewage system going in 20 years ago and thinks it should be in good shape. Might need to replace the water main sometime but the city says if the park owner buys the pipe they will pay for the installation. The city is small but growing, and only 25 miles from Des Moines. The city seems to be well run and ready to be very cooperative with someone trying to improve the park.

And the current non-resident park manager looks great. He is a supervisor at a local agrichemical manufacturer. Owns his own house and a triplex, a family man and church goer, both ambitious and a nice guy. He and his wife invited me to dinner - home cooked Mexican food. He is well connected with and respected in the Hispanic community and should be able to find buyers for houses I bring in.

I’ve been looking for about 9 months. Got to say, going to the bootcamp in San Angelo was pretty important. That taught me what to ask before deciding to put the park under contract and arranging a visit. And the questions I’ve been asking here of the city and the park manager mostly came from the bootcamp experience. Thanks to Steve and Corey!

So now I’ve got to start the process of looking for my next park - ideally within a few hours of the airport in Des Moines.

Gordon


#2

Gordon

Congratulations and good luck hope the phase one comes back clean and the deal goes through for you, sounds like a good one. It was nice meeting you.


#3

I know the absolute joy this news brings to the sponsors that put on Bootcamps, seminars, and events.

sounds like you are on your way! congrats.

Greg


#4

Gordon,

Congrats on making it happen and welcome to the wonderful world of park ownership. I hope that everything is clean and you end up closing on the deal. Next step is to fill it up and create that cash flow we talked about at the bootcamp.

It sounds like you have already established a good relationship with local officials, which is essential in a small town. They can help you tremendously throughout the turnaround process.

Your post made my day!

Let us know if we can help.

Steve


#5

Greg, Fred, Steve,

Thanks for the positive messages.

After several days on the ground it’s clear that the park is not as good a deal as originally presented by the seller - big surprise huh? I’ve been fighting hard to get any info from the seller. I suspect that he just doesn’t know the details himself. The park manager, who has been in place for almost 2 years, says he has only met the owner twice. The current owner has improved the park some in the last two years, but I think the main step he took is getting the current manager in there. Just an outstanding person, very well respected in the community.

So the main unpleasant surprise is that there are fewer rent paying tenants than advertised, and several of the homes have title issues. The previous owner of the park (two years back) was selling these homes to the occupants but never delivered title to them and didn’t respond to their attempts to communicate with her. These tenants have been paying lot rent but are thinking about moving because of their frustration with the title issue. I think I can help them get the titles - the tenants are poor people who don’t know how to play the game. I on the other hand am perfectly willing to be both obnoxious and persistent. (I have speed dial and know how to use it…)

The other issue is common to many older parks, small lot sizes. Some of the lots are not big enough to take anything over 60-65 feet long. But most of the lots will take 70 foot SW trailers, and a fair number will take 80 foot SW trailers.

On the positive side there is demand for housing and the current owner drastically raised the rents two months ago, from $200 to $300 per month, primarily because of uncontrolled water expenses. People are running water all winter to keep pipes from freezing, which not only raises the water bill but also raises the sewer bills.

People are unhappy about the price increase, especially because they don’t feel they are getting any benefit from it. The other MHP in the area is charging $260/month. “My” park does have the advantage though of being right in town, walking distance to both grocery stores.

If I buy the park I’ll probably immediately announce a $10 per month decrease in rent, because I think it is too high for the area. That way I get most of the benefit from the drastic rent increase the current owner pushed through (which created lots of negative feelings towards him) while presenting myself as the “good guy”, the new owner who actually dropped rents.

And I will probably buy and have the park handyman install heat tape and insulation on the water lines for all the trailers, at my cost. Most of those lines don’t have heat tape - in Iowa with subzero temperatures. No wonder the water/sewer bill is outrageous. At the same time we can install water meters and start preparing people for a change to metered water.

So as is the park will only have about a 5 percent cap rate, and that doesn’t figure in my management time. But using the 60-30 rule it looks like a good deal. I have the capital available to immediately start moving in homes. I think that each home I could bring into the community would increase my cap rate on the park by about 1%. Bringing in 15 homes over the next few years will bring the park to 80% full and a 20% cap rate - if I’m not completely out to lunch on my numbers…

Gordon