Help Me with an Exit Strategy & Lessons Learned for Novices


#1

First - Let me start by stating the obvious - this forum site is awesome. I have enjoyed the opportunities I have taken, although not often enough, to read and learn from the valuable information posted here by all. I only wish I had found this site 5 years ago when I got into - scratch that - dove into the MHP Business. The 20 or so times I have read this forum over the last 3 months has finally convinced me that it is time to tell my story and time to sell my parks.

Put simply, I have learned the following info from this Forum:

  1. I have a lot to learn - a tremendous amount - about RE investing. I still dont understand half of what the heck you guys are saying (cash on cash??).

  2. I got lucky as he** with the one of the two parks I bought 5 years ago. Not so much with the other bought 2 yrs ago.

  3. I need to step back and re-evaluate my goals and plan ahead with a young family 2 very active kids (6 and 8).

So, I do not really know where to begin - listing the mistakes and poor decisions I have made over the last 5 years while owning two small Mobile Home Parks might be worthy of some much space/time that I need a “Blog” or something - not even sure what the heck a Blog is. I will be rather vague at times in my message and perhaps in replies - because my ultimate intention is to SELL THESE PARKS!! So, I will hopefully provide insight and experiences to the new folks and I will hopefully gain knowledge/instructions from the veterans on a rapid, but effective Exit Strategy.

For clarity and cathartic healing, I will be using a code word when writing - when I want to place special emphasis on a piece of info that a new investor should pay extra attention to. The code is (YIAAI) - pronounced Yee-Ahh. It stands for "Yes, I Am An Idiot).

First - Me: Hardworking, successful owner of a small company ( and discussed on this site:

  • 11 acres

  • 21 lots with 19 park-owned SW’s and the other 2 are owner-occupied (just lot rent)

  • All 19 park-owned units are rented with furniture in place (beds, kitchen table, couch, washer/dryer, stove, refridge)

  • one very, cool cabin (code word for Money Pit) that was actually the original structure on the property.

  • and a nice 2004 Double wide with 4 BRs/3 Baths, vaulted ceilings, wrap around decking. It truly is nice.

  • Park is on two wells, and each unit has a septic (YIAAI).

  • All singlewides are 60’s, 70’s and 80’s with nice metal 2-car parking canopies for each unit.

  • This park is nestled among lots of hardwoods and has a mountain settting feel to it. There is also has a 2 acre pond with it. It really is a nice setting.

  • Park came with old pick up truck, tractor, nice sheds, shelters, etc…

This market in Virginia is a little different (from what I now understand) than most MHPs for two main reasons:

  1. Utilities are included in the rent.

  2. Weekly rentals - not monthly.

  3. ALL utilities are included (power, water, sewer, propane (for some units heat or stove). Each weekly rent is allowed $100/month of power and/or $300/season for propane. (yes - it gets confusing). Anything over that $100 - they must pay us back for. But, we would give them weeks to a pay us back an overage where we had to pay the power company immediately. (YIAAI).

  4. The rents are paid weekly - not monthly. Which has actually been a plus. But - again, I didn’t even know this was unusual. Almost all the parks in this market (just called around) operate this way. It is NOT due to a very transient tenant base as having furnished units weekly rents would lead you to believe - it has to do with the weekly rental ‘Agreements’ not being ‘Leases’ and, in Viriginia, it makes it much easier and quicker to get non-payers out. PLUS - since we own the power - we simply pad lock the power off at the panel if rent is not paid. The two lot renters have been there 16 years, there were (and are) 3 renters of SW’s that have been renting in the park over 6 years at the time I bought it, many others that have been there over 2 years. I did at least look at all the rental agreements, deposit slips, one year of tax records (YIAAI), and, a lot of hand written logging, notes, napkins etc… of $ paid out, rent coming in, etc… Trusted it all because I WANTED the deal, was excited about it, felt like I was lucky to get it (not advertised For Sale - got wind of this deal through a Craigslist Listing I put in asking for anyone interested in selling to contact me - remember, I didn’t even know about this site). So, guy emailed me - said the park he was living in was getting ready to go up for sale - I hopped in the truck and ran up there to lock in the ‘Deal’.

Now - if the little hairs on the back of your necks stood up when I mentioned the Locking of Power Panels to help evict - and you said to yourself “Man, that doesn’t sound legal” Well, you are probably right - I truly, to this day, do not know. But, that is the way the old owner had always done it and it worked for him. I trusted him (YIAAI). And, to be honest, it worked for me that way for a few years too. I got lucky.

Due Diligence:

I have read about the Due Diligence mentioned by Jim and Dave on here. Believe me - my DD is the Hot Pocket from the 7-11 store at 2 AM thrown into the nasty microwave in the store for 30 seconds until Done. Their DD is the 7 course meal at the fancy restaurant that takes weeks to plan and hours to enjoy. Bad analogy - but you get the point.

I spent only a few days calling (not visiting) the County zoning department, the County Health Dept, the Inspections dept, called the State Water Quality folks, did visit the County tax department, and, checked with one local (to the MHP) bank. Called local parks - asked what rents were and how full they were or weren’t - for comparison. Got local lawyer (referred to by banker), got loan approved (didnt care about rates as long as approved). Bank had an appraisal done and said it looked acceptable. If it was good enough for them - good enough for me. (YIAAI). Remember it was 2005 and the RE market was good, $ to lend, and I was slammed busy with my Day Job.

Bottom line: I just got darn lucky for years. Made $. Very easy, out-of state ownership. First year or two - no major issues other than I spent about $50K in repairs to bunch of units (too much $ for the work completed I later found out). During the divorce decree period - the owner did little upkeep. But other than that - we went 2 to 3 years with No major issues. Surprisingly NO major water or sewer issues. Had to replace a water pump for a few hundred bucks, had to pump out a few septic tanks over the years but that’s it!

My wife would have a 30-min phone call every Sunday evening with the manager going over issues, rent in, bills paid, etc… (money was deposited on Mondays after rent collected on Friday before) We could see all deposits through online banking. Park is 2 hours from home and I’d stop by every 45 to 60 days. If we spent an hour on this park every week - I’d be surprised. All was very good. Then it changed.

Starting about 12 months ago, I started to hear from my wife that we had a few more empties than usual and every month or so it’d go from 2 empties consistently to 3, then 4 - then back to 3… I wasn’t too concerned as long as we were covering the Note, the power bills, etc… and I was just TOO busy at Day Job to worry about it. We went literally SIX MONTHS (fall of 08 and beginning of 2009) with out visiting the park that is only 2 hours from the house (YIAAI).

It was during the last 9 -12 months that all has changed. We have gone to 4-6 units empty each week without much explanation why from manager. (But WE didn’t do much to find out why other than re-running ads in Craigslist or the local paper). Kept hearing it was due to the economy - and that units needed repairs. Started to see the savings going quickly to cover the monthly expenses from the park. Found out from my wife that it was spent on Power Company overages, on some HVAC repairs, etc… And, with the downturn of the economy, my Day Job business suffered extensively as well. All profit had to be re-invested back in the company to avoid layoffs, and to carry the company through this tough stretch - there is very very little money (and I mean little) to carry this park.

Also, this downturn necessitated longer hours (from 50-60 to 90-100/week) to operate and manager the Day Job business. Wife started back to work part time. She still handled all the Sunday night calls and it slowly seemed like the place was getting emptier and emptier. NO EXCUSE for not visting other than I did want to face the problems. After much evaluation of the problem I truly think our APATHETIC approach and lack of visiting to face the problems (out of site out of mind) reflected down on to the manager and filtered down to the way he carried out his duties. His duties were weekly rent collection, grounds maintenance, small repairs, applicant interviews, enforce park rules, handle/oversee major repairs where a HVAC or electrician had to be called, and to handle evictions. The manager was compensated only by free rent in a wonderful DW, with his power, gas, phone, cable paid. He worked a full time manufacturing job up there - actually hired his mother to cover phones/office during the weekdays for $100 cash a week, and everything was fine. But I think they finally figured out that they get ‘paid’ the same whether the park is full or half-empty. (NOTE- VERY IMPORTANT POINT - I think one should tie mgr’s pay to profitability of park??) And, if the owners don’t even care enough to visit - why should he bust his butt for us…

So, over the last 6 months - we’ve gone to a less than half full park. The steady, long term tenants are still there (thankfully) - but, the 6 month to 2 year folks we had are all gone. Also - as the park deteriorated in upkeep (lawn not getting cut, tree limbs on roofs stay there for weeks, not fixing maintenance issues in a timely fashion, etc… the tenants put up with it less and less - wouldn’t pay their rent on time, wouldn’t pay us their power overages. These overages got more excessive than their Deposits so they would simply walk out - and we’d be stuck with the overage AND a dirty, beat up unit that had to be cleaned. Double whammy. We Still had to pay the power company on time and it got to be too much. We finally had to make the significant change of making all tenants switch power into their names. Whch means they also had to come up with a couple of hundres bucks for a deposit too - which isnt easy for these tenants. We lowered their rents of course - since no power included now. This change lost us a few more tenants.

It finally got to a point two months ago - only 6 units out of 19 occupied - where we had to decide what to do. I have decided to sell. So - FINALLY - here is where I actually do the RIGHT thing and ask for some expert advice.

This past week - I have had a crew up there to re-build about 5 of the units in need of repairs, updating - they finish today actually. New SUB floors, carpeting, linoleum, paint, some plumbing stuff etc… I just placed some new signs out to draw renters off main road, plus newspaper ads, Craigslist, etc… I kicked out a few deadbeats last week that were behind a week or two on rent so I could go ahead and at least repair their units - and I am now down to 6 rentals out of 19. But, should change very quickly with these units with newer interiors. (I HOPE)

The Questions:

  1. How do I make this marketable to potential buyers since it has had 6 months - 12 months of declining rentals?

  2. How do get a Buyer to look past the bad ‘stigma’ of 1. park-owned units and 2. the septic systems? I truly have had no problems with the septics. Yes- repairs suck and I have had those - but not outrageous by any means and I am trying to do most of them now for a potential buyer.

  3. How do I deal with a pontential buyer that asks all those great Due Diligence questions (that I should have asked) when I don’t even know the answers - or cannot prove I do. For instance, there is no nice Autocad drawing showing where the water lines are, where the plumbing lines, the septic tanks, etc… i was just showed by owner by walking around a pointing at a green patch of grass. Probably will not fly with any one that knows what the heck they are doing. I could do a paper napkin version - but that’s about it.

  4. Should I hire a Broker? Not sure I can afford to lose the % - whatever that might be. I have an attorney to rep my interest, review any contract once we get to that point (same one that rep’d me when I bought it).

  5. I JUST switched the manager - who really is a darn good guy and a hard worker - to a 5% income of the Net Profit. He no longer gets free rent or any power, tv. He now pays $700/month for the double wide. Keep the park full and keep the maintenance costs down (fix small things himslef now instead of calling a plumber everytime) helps get him paid to cover his rent/power. He can make about $1000 a month now. Is this a good strategy and appealing to a potential buyer??

  6. The weekly rentals would seem to scare off buyers (from what I have read on here). Should I try to switch the park to monthly now that I am actively re-filling it. The problem there is this is a Blue Collar town. Everyone gets paid weekly - and lives pay check to pay check. Asking for $475 a month with a $475 deposit - is not as easy as it sounds. Asking for $120 a week with a $120 deposit is much easier. If I am trying to get cash flow back up asap - shouldn’t I take the easier path??

Sorry for the long ‘BLOG’ here - hopefully some of my land mines will help others avoid the same steps.

Look forward to some advice on my Questions to help me with my Exit Strategy.

Take care.

mhp.owner@gmail.com