Hello all. I am looking into buying my first park within the next 3-4 months. I am pretty young and just bought a house so I don’t have a lot of capital to put into the business. I have been running the numbers and if I go through a private/hard money lender for down payment + seller financing for rest, my debt service will essentially eat up all of the operating income.
That’s actually ok with me. I have a job that pays decently, and I really just want to build equity right now. While browsing loopnet and MobileHomeParkStore I have seen 2 types of parks: fixer uppers that require a lot of capital but have a lot of upside and established/well run parks that have good income, but not as much short term upside potential. When I say stable income I mean something like 95% occupied, many long term tenants, no need for high cost repairs in the near future, etc.
My question to the successful MHP owners here, if you were in my shoes would you try and go for the fixer upper or a well run park for your first purchase? I’m leaning towards a park that is pretty stable and will give me time to learn the role while not having to make too many costly mistakes. If I don’t make a dime on this for 2-3 years that’s really not an issue for me as long as I’m building equity.
I would def NOT get something that will is 100% leveraged (i.e. no equity) and then is not generating any passive income. I think you can do it but you need to still be at a surplus of positive cash flow if everything is leveraged.
Things can go wrong and you need reserves. You ideally would want to find something somewhat stabilized and with upside. Ie below market rents ( that won’t require large cash outlay).
Also , i don’t like your plan because it hinges on getting a seller carry deal. While you can get it, not every seller will want to carry and you don’t want to pass good deals due to your ability to not bring outside financing or cash to close it.
I would really focus on finding a partner with experience or equity preferably both. You can maybe structure something where you do the heavy lifting and share in the upside.
As a former hard money lender, I doubt you will find any private money on such a highly leveraged deal and with no take out loan on the horizon you would have to find a real idiot to lend you the money. Hard money is for bridge loans, not for long term investments.
Marvel is right, 100% leveraged deals are very risky. Landlording is a business. And all business have their ups and down. When you are at 100% you have no margin for error. Just one hiccup can be devastating. It would have to be absolutely a killer deal for it to make sense.
Thank you both for you answers. I appreciate it. I’m curious if the equation would change if I made a personal guarantee based on the income from my job/home. When I say that I could go a couple years without money from the MHP and be ok, I also mean I could probably go without making a dime from the MHP as well as putting a couple grand a month even(worst case scenario) into the park from my work income and still be fine.
I am a financial advisor and my practice has been growing steadily. I would like this as a passive investment obviously, but if you guys think there is no way then it would work, I understand. Please let me know if this additional information would change the situation at all.
Take this time to learn the business, analyze deals and get smart. Work on building some savings in the mean time.
There are a lot of people that take 6 months to over a year just to find their first deal ( and they have money even) so even if you don’t have the money right now, not be discouraged. Take the time and build a foundation of knowledge. Maybe you can even find the right contacts while you start to learn. People are less likely to defualt when they have skin in the game ( and the risk to a lender decreases as the equity stake increases) . Even if you have a personal guarantee and think you can carry negative cash flow, statistically speaking , there is a greater risk of default so that is why lenders typically don’t operate in this fashion.
Definitely listen to the advice on here. I’m in my first park now…and it took me a good 6 months of looking to find the first deal. That’s after a good 9 months of just learning the business and reading this and other boards to understand what i was signing up for.
It’s not easy, but I found a deal that is sort of between the two scenarios you describe: It already cash flowed (barely) but had significant upside as a low level turnaround type of situation. Six months into it and we’ve doubled occupancy and it cash flows nicely enough to fund future upkeep and renovations.
Like I said, there are deals but you have to be patient and persistent — especially in search of your first one, because if you make a mistake there it might well be your last. Good luck.
The expenses when things break in even the most pristine park are extremely expensive, the reserves are a necessity. Sewer or septic, large scale electrical dilemmas, severe weather can all take out your asset.
Yes Barbara I did acquire my first park back in August. It’s going great. 100% collections almost every month so far and I raised rents 30% day 1. The park is on septic and I haven’t had any issues yet, but I’m sure they’ll pop up at some point. As far as weather, the park is not in a flood zone or coastal area. Other than having good insurance, I’m not sure how else to mitigate that risk but I understand your point about having reserves.
I am so excited for you! Great news on the rent increase and that so far so good. Happy pockets and happy residents. What state did you buy in if I may ask?
I just bought my first park 8 months ago and the returns have been great Id love to chat with you about the challenges on both types of parks call me 989-313-7829
Congratulations Dominic! I am a newby looking to purchase my first park that is stable. I’m a bit nervous and was wondering did you work with a broker or do your own searching for properties. Any advice would be greatly appreciated.
@wrest123 I’ll give you a call over the weekend. I’ve been on vacation for 9 days and will contact you when I’m back.
@timj I did the search myself. I did not use a buyers broker, I don’t think anyone really does that to be honest. And there are a bunch of acquisition strategies out there. Far too many to outline here. The best advice I could give would probably be to attend the boot camp. I went last month…after I bought my park and it was 100% worth it. I learned very valuable information that saved me 4,500.
I would say it’s probably smarter to do the boot camp before buying your first one and once you get into the business you realize the 1600 or whatever they charge is a drop in the bucket compared to what it can save you.
I always try to keep my debt to income ratio low when purchasing properties. If I am flush with cash, I am more open to buying a fixer upper with higher potentials.
What state did you buy in if I may ask?