Impossible to Find good MHP Deals? Lessons from a 30 year MHP owner


#1

So my partner and I are about to partake on a venture to purchase 1000 lots over the next 60 months. At least that’s the goal! Today I had the good fortune of speaking to an MHP owner of 30 years who currently owns 1000 lots himself.

He told me that he is always looking to buy MHP’s but hasn’t been able to buy one for the last 3 years as he simply has not been able to find any deals that make sense. I’m relaying this story because I would like to know what others are experiencing. We are well funded and are no strangers to building companies/enterprises.

My Concerns are that this person who is very close to a trusted friend of mine was very nice and very forthcoming with information. Some concerns he brought up:

  • MHP biz opp value is no secret. Every mom and pop knows the value of what they are sitting on
  • Every MHP owner they talk to is getting at least a call a day to sell and often from brokers
    informing them of the projected pro-forma value they could sell their MHP based on.
  • Available deals are getting bid up well past any reasonable value putting cash on cash returns in the lower single digits.

Anyway these are some of the main talking points. I was wondering what others are running into when trying to grow a small MHP biz like we are (8-10 parks).

Very grateful for any feedback with detailed understanding of your experience!


#2

Over 30 years experience and have made over 10 offers in the past 3 years and during DD we needed to walk away. TOO MANY people seeking the same golden goose and really have noticed in the last 3 years the quality overall has degraded and the cap rate TOO LOW for growing equity. Presently brokers talking with sellers of good properties have indicated IF we sell what can we replace it with???–so quality parks are generally NOT for sale or will list for a 5 cap or less since it might take 10 years to achieve a similar NORMAL selling price. Many properties loaded with cheap TRU homes that could only be filled by owner bringing it homes and than selling the property making the buyer responsible for the NEW debt on homes plus more for the real estate plus including rental money from homes included on Pro Forma for crazy selling prices. Presently have MORE luck with RV parks to find good deals–please South Texas is in real trouble with snowbirds–be careful.


#3

Carl,

What state are your parks in, just Texas or elsewhere as well? And do you mind if I ask how many lots you owner currently? I really appreciate your detailed response!


#4

I withdrew my comment.


#5

Brandon,

I’m not sure what value you intended to provide but your remark seems honestly a bit Crass with no real value add to the conversation. Clearly I’m aware that money doesn’t grow on trees. I just sold 3 good size companies in the last 4 years and am no stranger to market conditions. However, there are clearly better times to buy certain asset classes than others and strategies that can be put into place based on market conditions. A detailed conversation around those conditions is my intent here and responses like Carl’s can help to provide input on my, and many others, upcoming acquisition efforts. May you have something of deeper value to add to the conversation?


#6

Mark,

My partner and I started in this asset over the last year and seem to be in a similar position with parallel goals. I think the comments of the owner are accurate for many of the areas of the country. Institutional investors and brokers aside, the aggressive new investors have focused on many of the MSA’s over the last two years. Many have built their owner databases and hit the same owners with different methods of marketing. I live in the Northeast where MHPs isn’t as common of an investment as say the SE and SW. However, we were surprised at the amount of calls, letters and offers owners receive regularly. I also think it’s perspective when it comes to the 30 year investor. He or she had a great run, while we’re just getting started. I do believe there are areas that still have upside, better cap rates, and 3-4 year exit strategies, however they may be under 100 pads. We’re learning new angles each day. I’m happy to talk specifics further privately.


#7

I’m back in the market to buy a park after selling one earlier this year. I would agree with all of your bullet points. It’s definitely much much tougher to find the coveted park that is on city services, has mostly tenant owned homes and is in decent shape in a nice city. I don’t know how much effort the gentleman who owns the 1000 lots is putting into finding parks but it’s definitely more difficult now than it was 3 years ago. It’s not impossible though. You just have to be diligent.

I have a few park lists that I’ve acquired over the years. I did comparison of a list from a state that I got in 2015 to the updated list that I recently got. It’s fairly easy to tell who the mom and pop owners are and based on a quick review, there seems to be many fewer moms and pops on it today.


#8

Thanks for the feedback! great insight…


#9

I think part of it is supply and demand. Another is unrealistic expectations from the seller. For example in Mississippi I had a park owner that I’ve been talking to that has a 28 space park occupied with all POH in a not so great neighborhood that he thinks is worth upwards of 400,000. I thnk deals are still there to be had just have to look harder and be more creative with value ads


#10

I would agree with all of your bullet points. I’m know that I am on the list, because I get 6 to 8 letters a month telling me that people are ready to buy with cash, can close quickly, and “they realize that all properties are not perfect”. It seems that all of the letters were written by the same person, as they all say the same thing. Since my wife owns half of the LLC that owns our three parks, I guess that you could consider us a “Mom and Pop” operation. A few observations about the opportunity to find “good” deals.

Do you think that receiving all of the calls and letters asking me to buy my parks are lowering my expectations on what I could get for my parks if I decided to sell? You see, its a numbers game in reverse. With so many people contacting me, perhaps one would be willing to meet my “unrealistic” ask. Since I’m not really in the market to sell, if someone walks in with “stupid money”, I’d be foolish to not sell. But then what would I do with the cash?

Stop telling me that I am doing it wrong. I own the park and you don’t. I’ve had many lookers tell me that I’m not running the parks correctly. They tell me that they were told not to do the exact thing that I am doing. I set up my business plan long before I ever heard of Frank or Dave. I set up my business plan based on the concept of Lonnie Deals. Notice that I said “based on”, not copied word for word.

If you want to buy my park, reasonable price is based on what it is doing for me, not what you think that it can do for you. My parks are generating cash flows and returns based on my investment, not yours. How much cash would you have to give me to replace the cash flow that I an currently making? At 1% interest, it would take quite a bundle to just match what I am making now. Sure I would rather sit on the beach and clip coupons, but the interest rates of the 80’s are gone. You are trying to induce me to sell, the “reasonable price” just went up.

I think that Park owned homes are great. They generate a lot of income. Owning the homes , at least in the beginning , makes it easier to turn the park around. It is hard to get rid of old dilapidated homes that you do not own. If you own them, a 30 day notice to non-renew the lease is all that it takes to get rid of the old house. The new house is not only a potential “Lonnie Deal”, it quickly raises the perception of the park , which leads to increased rents across the board.

Many potential buyers have told me the the Park owned homes, even those that are currently under contract, are not worth anything. Maybe they are not worth a 5 cap on payments, but they are worth more than the replacement cost of the house. I’ve had people tell me that they want to buy my park, but not the POH’s. I say that is OK, but I’m going to move all of the homes to another park the week after closing. The buyer screams foul. He says that you can’t do that. He says “I can’t pay the bank without the rental income, and it may take me years to get back to 100% occupancy.” You see, you can’t have it both ways. If the houses are only worth replacement value, I’ll keep them and you can replace them. I think that there is value added to have a park 100% occupied and to be collecting payments on those houses every month. My reasonable price includes this value, even if you aren’t supposed to.

I own three parks in Colorado, the last one was purchased in November of 2018. I think that I got a smoking deal on it. There are still good values out there. It just takes a little creativity and perhaps a different point of view. But, that could be said for any investment plan. Those that follow the herd may make some money, but those who go out and take the risk, can win big or lose big. That is what make America great.


#11

Here, here…and well said!


#12

All great comments. I think it boils down to what you as the buyer are willing to put into the investment to make it what you need to make it work.
I think there is a lot of noise out there that you have to buy at a 10%++++++ cap or it is not a deal. The park has to have city water & sewer, no park owned homes, etc. Those are the easy ones, but the ones that make you the real legacy money on the ones that you have to be creative with. Some of my best deals in RE investing were the ones that I had to create a solution for that even the seller and others didn’t see.

Great stuff.


#13

Your right it’s whatever works for you. Hope I didn’t offend. I have a park that is 100% tenant owned and I have people call me all the time wanting to buy it (anything is for sale) and then they tell me what I do wrong and how I want too much for it, or “Oh man it needs a lot of work”. That’s right before they tell me they don’t even own a park and never have.


#14

No offence taken. Hell - I’m invested in Mobile Home Parks and take grief from my in-laws every time they see me. I just smile and pick up the Benjamins on the first of every month.


#15

I know it’s crazy since I bought my first one people have asked, “Are you trailer trash now?” Call me what you will but I’ll be on my wiping the tears away with the dollars. Funniest thing its always from people who have no clue about investing of any kind, but hey everyone has opinions. Opinions are like armpits everyone has two and they usually stink.


#16

thanks for the feedback. what state was that in?


#17

One thing that is really important, is to build good relationships with brokers. The good ones generally have pocket deals that might never get listed, but are available to the right buyer. Sometimes building these relationships takes a deal or face time, but it is important to be knowledgeable, but honest when you don’t know something. Brokers are extremely busy and their time is valuable, you want to be someone they think of as a no nonsense closer.


#18

Couldn’t have said it better.