How would you value this mhc purchase?


#1

How do you value a mh park? I have looked at one with 43 lots, 16 rented for 235/ lot and 27 empty. No park owned homes. City water and sewer. Tenants pay utilities. There is extra land included for a total price of $475,000. If you were to value just the park ( 43 spaces ) and exclude the extra land using 16 lots rented @ 235 = $45000. gross, and $10000. expenses = $35000 net without management costs, what would a fair price be to a seller including an amount for managing for the buyer which will increase the costs another $3000.? Therefore the net would be $32000.

Post Edited (03-26-08 20:41)


#2

Dennis,

This is not the type of property that I focus on and I hope others may just n and help out with the math etc. but what I wanted to point out was a couple of things that go through my mind when looking at new investment properties.

My main focus is cash flow, then the ability to create an increase in value.

I have seen to many folks buy properties that have the potential for value to be increased but they about go under in the meantime because there is no current cash flow.

Now there are times when you may consider a property that is break even or some might consider negative if but only if they have a quick remedy and ability to employ it to get that property cash flowing in a positive manner. Once they have it cash flowing positive, they can then work to increase the value and cash flow.

For me the focus has to be remaining financial solvent at the end of each month.

If you have the money and ability to develop additional lots then the extra land holds some (but not yet great) value. This will cost a lot of time and money so you can’t pay too much for it in my opinion.

The cost that is most often left out is the cost of bringing in homes and getting them to market (either to sell or rent).

Where is that money going to come from? How will it be secured (if financed), how long will purchase, move set up, and sale/rent take? Will that income offset the payments necessary to finance the development and home?

I do not believe in the “build it and they will come” scenario. Too many folks rely on buyers and dealers to fill their lots but buyers and dealers are extras in my opinion because they work on their own time frame, not ours.

Let’s use round numbers for an example.

Even after the development costs are forked out, let’s say you have to buy, move, set up and touch up (or fix up) 27 mobile homes for these lots. Now I buy older mobile homes that need a lot of work and typically the whole move, set up and rehab runs me $10k per singlewide with my labor being free. Few investors will do this for new parks and to be honest it would take me forever to do that many homes by myself.

You would likely want newer homes. Let’s say that after purchase, move, setup, touch up, holding costs etc. that each home runs somewhere between $15k to $20. That means that you would have to come up with an additional $400k to $550,000 in cash.

That’s essentially another half million in cash you will need to come up with in addition to any development costs which tend to add up very quickly and that is before the city, county, town, etc. gets their fingers into your pie. Trust me, just because it was once a certain number of unit park does not mean it may remain so today (don’t ask me how I learned that little lesson).

Again, I don’t buy these type of properties at the moment so my advice and opinions have little, specific value. I post only to point out some mistakes I have seen and made.

Tony


#3

Tony,

Thanks for your advice. It is very welcome and appreciated. What types of properties do you buy or would recommend for a buyer.

Thanks again,

Dennis


#4

Please don’t misunderstand me, just because I don’t invest in this type of property does not mean by any stretch that I am saying you or others should not. I just wanted to point out that since I do not invest in this type of property, you should take my opinion with a grain of salt.

It has always bothered me when folks give advice about things they have never done without identifying that fact.

As for me, I prefer land/home properties and the small, “mom and pop” mobile home properties. This too is a special nitche that is not for everyone but a great place to start in my opinion.

Tony


#5

you touched on one of the most dangerous pitfalls of new folks buying 1/2 empty Parks. As Steve Case always points out, buying one of these Parks is senseless without a guaranteed source of funds to bring in these needed new homes.

The repo market has dried right up and a new 14X70 3/2 from Clayton will cost 16-20K without set up, skirting, footers, permits, decks, landscaping.

I use 26K as my estimate here in FL and to bring in 40 homes is well over 1M. This is without advertising and supervision labor. A huge amount of money.

One of the ideas I am toying with is to purchase a park using Clayton financing and a minimum down. Use my own 1031 or SDRIRA cash to infill and then refi a fully rented park with notes on homes to pull out needed cash.

Large parks are not my niche either Tony. My fear is all my money is tied up and something beyond my control (base closing, environmental issues) restricts my ability to fill up the park. These small parks work well for me and judging from what I saw in your market, they have worked well for you as well.

2 of my friends have lost parks this past past year, and both were due to the lack of planning to fill up the parks and get them running at peak occupancy…one coined the phrase “slow death” to describe the feeling of having large mortgage and utility costs with not enough spare cash each month to bring in new homes. Cash flow really is king and, like you, I need every property I own to give me cash each month. someday i might have the reserves to buy a negative cash flow investment, but not today!

As an aside, very few investors I know will lend on favorable terms these kinds of sums without a proven track records and an impeccable rep. Kind of a Catch-22 for newbies, but it does make sense.

Regards,

Greg Meade


#6

I couldn’t agree more with yours and Tony’s view of the type MHP and a first timer. However for those investors with a bit more experience and $$ the park lending program that 21st Mortgage offers holds a lot of promise where new home sales (and higher priced used) homes are concerned.

In my area, the days of GT and Vanderbilt supplying the homes at good prices have past… not to say I don’t still pick up one now and then, but no way for large infill projects. That will either be as Tony does - with older homes, or with new.


#7

Tony or Greg,

What do you consider a small, mom and pop park? How many homes? Are the homes park owned , tenant owned or a combination of both? I like your opinions and suggestions. Every bit helps.

Dennis

Post Edited (03-27-08 20:29)


#8

What I call “small, mom and pop type parks” is about like it sounds I guess. The kind that when you drive in, you feel like you are in a “trailer park” and not a “manufactured home community.”

The small parks that are run as much by family style as business in many cases.

Yes, most of these have a majority, if not all, rental mobile homes in them. I personally prefer that ALL home be RENTAL homes in these parks, in my area. I know, this is totally against the train of thought for larger parks which is why I make certain to identify my type of parks as the “small, mom and pop style parks.”

I did not mean to imply (if that is how you took it) that you should seek my kind of parks over the type of deal you had originally posted, nor do I mean to imply that you should not try for the more traditional, larger parks that so many have to great with here at this site.

Again, I was just pointing out my thoughts while letting you know that they were only my opinion and that they were not intended to be taken as based upon my experience in a park/development expansion deal as you were considering.

I like the smaller parks and niche for a variety of reason and am happy to expound upon that but do not wish to confuse the issues.

Tony


#9

if there are less than 50 spaces and won’t support a full time manager.

I prefer all park owned also. We have full time rehab crews and owning the homes gives us total control of tenants.

I have a beauty 26 spacer that loads of folks from this site have viewed and with 1 more of these “cash critters” I will be retired…for life.

I have personally viewed several of Tony’s and Scott’s small Parks and they are beauties. They show pride of ownership and are easily managed.

My motto is “start small, start smart”. For a new person I strongly suggest MHM and Tony and Scott’s bootcamp in August. I have attended each and there is a wealth of info shared for very little money.

Steve and Fred just closed on a 375+ space Park 1/2 empty and I guarantee they have iron clad funding in place to infill. With their experience in this business it will be a seamless transition with steady growth.

Come by and see my operation and park if you are in the area.

Greg Meade

352.216.2020 Cell


#10

Can you please post about this program with contact info? I have heard a rumor about this, but nothing concrete.

Thank you Brother,

Greg


#11

Greg, their website is at www.21st mortgage.com

I signed up and here is how it goes: basically it is recourse lending - the ammount of recourse that I am liable for is determined by customers FICO score and amount of down payment the range of recourse is between 80% - 55% , meaning that if a customer should default I have agreed that within 30 days I will send 21st a check for the pre-determined (at time of loan closing) percentage between 55%-80% of unpaid balance, 21st sends me title, I find a new buyer - rinse and repeat.

Don’t get me wrong, I prefer to create these notes for me not for 21st, but whenever there are lots of vacant lots to fill, the liquidity that this provides is a big plus. Of course floorplan lending is available for new inventory as well.

Additionally customer rates currently range from 7.75% to 14.5%

21st bases their approval for park lending program on the park Community attribute survey, and the owner. It seems to be a good tool now, and a more useful one as the supply of late model repos goes away.


#12

Shawn,

Has 21st approved your park for the program? I recently spoke with two people who were turned down and didn’t know why.

Thanks,

Steve


#13

My park was approved…Steve, my guess is that your problem is your total lack of experience.


#14

Steve, I should have read your post more closely this morning…I mistakenly thought I was replying to your lack of experience.


#15

thing I have ever read on this forum. I dropped my laptop when I read that.

Shawn, Steve owns several HUGE parks and is co-owner of this forum and Mobile Home Millions.

He is also a great guy and i bet he got a chuckle out of that also. A friend of mine was also declined (probably one of the same as Steve’s).

Did they ask for current appraisal on your Park or did they actually send one to your park? I like the recourse loan idea. With a personal guarantee with 800 personal FICO and 20% downs what kind of rates are typically involved on mid size loans?

This is very exciting news…lots of folks I know need these types of loans if they basically open a LOC.

Greg


#16

for the type of customer you described 7.75%. and really for anyone above 600 and above 5% down the rates are good, check their website, you have to go through many layers but you can see for yourself their current rates ( with park agreement use private property rate) 21st didn’t want an appraisal on my park- they require a community attribute survey - it is on their website as well. I really like the idea of getting some more new homes placed in my park now, and really the buy back is in a lot of cases a price that I couldn’t beat elsewhere. I am aware of Steve’s achievements in this business and thought I was getting a jab at him until I read his post stating it was friends that had been turned down (open mouth -insert foot), I would think it useful to know what 21st deems unaceptable.

I have been contacted by 21st for reference check for other prospective floorplan customers, and they asked way more questions about the prospects character than I had ever been asked by any other lender.


#17

Shawn,

The two people I referred to in the post above aren’t personal friends, just people who have contacted me via this website searching for answers.

I believe it’s a great practice to check out someone’s character before doing business. This is exactly what Jim Clayton does with his bank and one of the reasons his program is so successful.

I had lunch with Tim Williams (21st CEO) last Spring and he wasn’t very positive about MH communities. The main reason was due to owners who insisted on “beating up” finance companies and trying to squeeze them for every dollar on the repos by holding them hostage within the community. I told him there were several honest and ethical park operators who would work with 21st instead of against them. I’m glad to see that he has developed this type of program and it will no doubt be very successful with the right people.

It’s great to see an industry leader stepping out of the box and creating programs that will help everyone. We need more companies like 21st in this business.

I have over 300 spaces to fill in my parks and look forward to working with companies that want relationship based business. It’s the only way to do things decent and in order in my book.

Steve


#18

item in your post. It is critical to develop business relationships with mobile home finance companies. They have eaten millions of dollars of bad debt in the past 5 years and the Park owners who beat up Conseco, greentree, chase, vandy are now finding the shoe is on the other foot.

something Tony is big on are small, local Banks. I have found them to be very useful getting customers financed. There is a crisis in financing of any kind right now, and the folks we have gotten financed were with small 2 branch banks. They lend to whomever they want to and hold these loans.

Clayton has a good program but the last time I looked at the packet it was over 60 pages long…

Greg