Live like a multi-millionaire


#1

Here is an incentive for you guys; work hard, take risks and build up your park business and some day you can move to beautiful California, land of song and movie stars where you can live out your days as a squire of your own grand estate like this one which just sold for $2,000,000 (no joke):

Did you notice the jaunty diamond squares filled with imported red lava rock in the parking strip? Such designer touches don’t come cheap, but discriminating Californians demand such sophistication to compliment their multi-millionaire lifestyles. In the spring they sports local native grasses popping up between the pebbles – always a nice touch.

Behold, the grand entry hall!

That door with the leaded oval window is one of the most exclusive doors you will find in the isles of Home Depot.

I will leave you with a peak inside the master suite where luxury abounds; most notable is the commanding view of the extensive landscaping. “Follow your dreams” indeed.


#2

That is a 200K home where I live. All you have to do to live like a multi-millionaire is not live in CA.


#3

When times are good, they look like this. But when the next bubble pops you know that half of California gets foreclosed. Why the hell would you want to own property that acts like a leveraged stock market fund?

Also, if the owner of that home had gone through the trouble of putting some new poinsettias in the flower bed they could have landed another 250K. Amateurs.


#4

Meanwhile, down in the deep South; aka, Hicksville…

Sorry, I just can’t stop myself; I have to show you some photos of a house picked at random in Georgia with an asking price the same as the sold price of the California home. California, as well as much of the country, has long looked down on the South as a bunch of backward hick. Doubt it? Then just consider how Hollywood has depicted it over the years. But I think that is starting to change. California has been loosing lots of it citizenry, at least the kind that actually pay taxes and who are actual citizens. Last night Tucker had a long segment on the decline of the once great state. Maybe you saw it.

I got my real estate investment dollars out of California about 12 years ago and think it was the right move. While I am sure the seller of the above house is feeling pretty good about his investment, the market is just too insane. Cap rates are often dirt low and the government is kind of hostile towards landlords. I just don’t see how it can be sustained.

Anyway, let’s see if we can figure out, dollar for dollar, who has it going on:






Relevance to MHP investing? I think this really drives home why we search the country for deals. My business life would be a lot easier if my properties were around my town, but it would not be as profitable. You have to go where the deals are and nothing could be clearer than the contrast between these two examples that the dollar has different values when it comes to buying real estate in different parts of the country.


#5

Love the write up on the little gem at the top :slight_smile:


#6

Perhaps the property taxes are also very similar for each property. With new lower mortgage rates allowed for deductions (taxes on federal returns) in place the Mcmansion might be more of a dinosaurs in Calimexico except for the Hollywood Elites. Locally the school superintendent was pushing for for a new bond issues and boldly proclaimed it would only affect property owners–if it only affected property owners why would they be really be the ONLY ones allowed to vote on the new proposed TAX. Like in most areas the tax increases to park owners are passed on tenants and in some states our taxes are 10% of our income and really what are wereceiving for that thief that some park owners cannot even vote on since they live out of state!!!


#7

OP:
Hmm… Seems like a pretty glib post.

In the past 5 years my 2 CA parks rent has gone from $550 to $750. My Oregon Park has gone from $325 to $350.

Looking at just one of my Parks CA parks:
$200/mo x 95 Units= $19K/mo
or $228K a year. Using a 6% Cap which is VERY Conservative for a San Diego County Park. Using a 35% expense ratio the Value has gone up by $2.4MM in 5 years.

While My Oregon Park : $25 x 66 Units= 1650.00 x 12 Mo. $19,800 per year. 8% Cap 35% expense. Added Value is $160k…

I’ll take California Parks Thank you.

You are Cherry Picking the houses. This house is Amazing.

AW


#8

Thanks for sharing your info on your CA parks. I know typically the Frank and Dave ideology is to steer away from them but kind of cool when you put it in that perspective. I don’t know that game so don’t play it but wanted to thank you for your sharing perspective.


#9

SD Guy ; very nice–thinking of buying it ??? Taxes on the home at Lakeside just went up 29% ?? from last year and presently $16,922 per year or 1410 per month–for most people could rent a nice home or apartment!! I remember distinctly my grandfather saying during the depression paying the very low taxes was nearly impossible to pay and many people lost it all. How prepared are most people–70% do not have an extra $1,000 for an emergency and the highest poverty rates are now in California!!!


#10

Carl:
I’d love to buy that place but we just signed a contract to put a pool in. So I’ll be staying put for the next 5-10 years.

AW


#11

I have no vested interest in CA but the one thing I can say for certain is that unloading CA real estate 12 years ago was certainly NOT the right move.


#12

Well, that certainly is a spectacular gain, almost as spectacularly good as the Sunnyvale home is spectacularly bad. And it is an excellent example to illustrate that the most powerful way to make capital gains in income properties is through rent raises and the multiplying power of low cap rates for the seller. I wonder what you contribute your success too; a change in market rents, or identifying under market rents in the parks before purchase? I always like success stories, even when they are not mine. Why don’t you sell your Oregon park and buy more in SD?

When I was last looking at California parks, about all I could find was parks out on the Salton Sea, Ridgecrest or in the middle of nowhere south of Reading. And all over priced.

I also made huge gains in California real estate, not in MHPs, but with apartment buildings before I pulled out and the market tanked. It’s a big state and I am sure there are lots people making it today but I believe it is not as fertile as it once was. And it has become all but a one party state and that party is going hard left. There is a serious move to remove Prop. 13 protection from commercial properties so as to better raid landlord’s pockets and my landlord friends here in Fresno tell me horror stories about a program that requires a city inspection every time there is a vacancy for any code violation even though there is not enough inspectors to do regular building permit inspections. Yikes.


The farther up the dollar ladder you go the more of an evening out of gap in regional differences in homes – throwing out such insanely overpriced markets such as Sunnyvale and ignoring that some markets top out far below other markets. Up to about the $1M there are huge regional difference in what a $1 will buy in housing. Go up to $2.5M and the differences are not a great, but still there. When you get to $3M, $4M and above and generally you can get an amazing home just about anywhere. Were price no object I pick would Pebble Beach or Hope Ranch in Santa Barbra. California has the weather and views that can’t be beat.

Let’s take a look at that house you found:

Sure, it has a great view and great SD weather, big deals in themselves that have the GA home beat on those levels, but look at the house itself – first, with 5072 sq ft, it is only half the house of the Roswell, GA home with its 10,367 sq ft. But it is not just twice as large but the finish in the GA home outstrips the SD home.

Let me show you what I mean; compare the bars in both homes:


The CA home bar is OK. But the GA bar is so much more high end. Both have a lowered curve ceiling. But look at the finished carpentry in the GA home vs the CA home where the builder just threw up dry wall and said that’s good enough. The result looks kind of track housey – big and expensive but it does not transcend that Home Depot feel. I am not talking about the cabinetry or the factory built items like the front door, but what the builder does. It is all about cutting corners and the result feels kind of cheap.

Here is another example:

Look how they handled the window in what I guess is the master bedroom. Instead of framing the window and giving it a window stile they just ran sheetrock around it. You can say it’s more modern, when the truth is it is just cheap again, the kind of thing you would expect to find in a track house.

Look how they did it in GA.

CA served up sloppy joes while GA presented us with bacon rapped filet minion.

Look at the coffered ceiling in the dining room in the GA home below – I am not saying the interior decoration represents my taste, it doesn’t, I am talking about the build quality – you just don’t see that kind of finish in CA. Instead you see them always cutting corners.

You may think I am nit picking but it really makes a difference in the experience of being in the home. The first time I went to GA and looked at the houses there, I was flabbergasted by the difference in build quality and how much more high end the houses felt.

Really, is there any parity in quality?

Notice the window above in the CA home and compare to these:

BTW, that view through the trees to the lake is not exactly warmed over dog food.

And look at this room, its called a Keeping Room, a concept that does not exist in CA. It’s like a little living room off the kitchen. Compare the Jacobean fire place with the CA one above which looks like the guys doing the labor came up with the design.

And the outside of the home; CA with its cheap stucco vs GA with its stone and brick (and the brick in GA is not the same crap they sell in HD – you have to see it to understand.)

I will stand by what I was saying, dollar for dollar you can generally get a much better home in places like GA than you can in CA, weather and scenery aside. Yeah, sure, I would be happy to live in the SD home and it would be a huge step up but we were not comparing my miserly lifestyle with others but CA vs GA in the $2M range – GA gave us twice the house in terms of size and more than that in terms of build quality. I would love it if you could show me some homes in the $750k - $1M range in the West that are up to snuff – I’m a third generation Californian and would like to keep it that way.

So, what is it with CA builders? Why can’t they deliver comparable quality? Why do they always take the cheapo route? Does it just come down to lot prices? Or maybe a lack of sophistication? What do you think?


#13

Yeah, it really was.

After years of a slowly dying market, apartment prices in the Central Valley bottomed out in April of 1997 and then after a long pause, started to inch up. The market caught on fire and then exploded in about 2000 with the collapses of the Dot Com stocks, the lowering of lending standards which ushering in the liar loans and interest rates fell. Money that had been invested in and punished by the dream and promises of internet startups fled the market looking for tangible investments, aka real estate. California real estate prices blew off the roof – and the Central Valley saw the largest inflation of real estate prices in the country. For those of us who were late 1990’s investors it was like winning the lottery – at least those of us that saw the crash coming and acted in time. As price went up, people became frantic to get aboard the easy money train. No one, it seemed, wanted to be left out. When I put my apartment buildings up for sell on a Monday, I had full offers on Wednesday.

Starting in 2005/2006 the market softened and then all but collapsed. It took a few years before the foreclosures started, but after awhile it turned into a flood. Soon it was international news as stories came out about how retirement funds were bankrupted in places like Iceland, a town in Germany and, as I remember, in Norway, who had heavily invested in bad loans backed up with over priced real estate in markets like California, Las Vegas and Phoenix.

My house is a good example of what happened. I bought it in 2000 for $106,000. In 2005 Zillow estimated it at $465,000. Today is has it at $225,000. I kept in touch with one of my buyers. I bought that building in 1997 for $100,000. I sold it in 2005 for $850,000. Poor old Mike, who bought it, tells me he would be happy to get half of that today. Ouch.

It took a number of years after the crash before the Auction.Com signs started popping up all over town. It was really an amazing sight. Here in Fresno they would rent a big hall in the convention center on a Friday night and auction off 200 homes or so. In the flyers, they published the last sales price, which of course was about what the banks had lent on the property. The typical auction price at the end of the evening was $100,000 - $150,000 lower. This went on for years.

That would have been a good time to get back in the CA market, but by that time I had a software company in St. Petersburg Russia and was flying back and forth and was having the time of my life running around the Former Soviet Union.


#14

Randy,
Thank you for the plaudits.

I will conceed that the GA is a lot nicer than the CA home. I was just trying to contrast that POS home in Sunnyvale.

CA is crazy hard to build, so the builder have to cut corners somewhere. I recently read that up to 30% of the overall build cost can be attributed to government regulations and overall higher building costs (here is a great link http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx)

I am selling my Oregon Park right now. It’s a great park, 66 Units rents range from $340 to $355.00. I have 2 homes that we are rehabbing and then selling. City water and Septic. In 2009 I spent about $100K upgrading the septic. $2.5MM OBO. It’s in North Bend OR. I plan on doing a 1031 exchange and buying something else in CA.

CA is the same game as anywhere else. Buy a Park, Fill it to 100% occupancy, put some lipstick on it, and raise the rents. The Cap Rates are horrible for buying, but they are great for equity growth after a few years of rent increases. Just be sure to avoid the Rent Control areas.

Yes, the enforcement is ridiculous. 1/2 the time the enforcement agency doesn’t know what they are doing. I have to fight for my rights a lot. I find these two questions will put the inspector back in his place 1. Can you site in writing what I am doing wrong? 2. Can you site in writing your authority to enforce this on me? LOL…
What I have found is that most inspectors are going off “Policy” and not actual law/code.

AW


#15

Hey, why you all be hatin’ on my native state, the great state of California. Yes we believe in global warming and a woman’s right to choose and evolution and banning assault weapons and not bringing back coal mining and separation of church and state and changing with the changing times, ie we are progressives.
I have two charming, not ostentatious, lakefront homes in Northern CA for which I paid 525K (2008) and 590K (2017). Neither has a bar with a curved ceiling or all those other hideous goo gahs.
I shopped 2 years to find the right MHP to buy here in 2017. Rundown, 70% empty, 37 sites on 5 acres, plus a 36 site campground, all sites waterfront for $450K. We have sold 5 of the abandoned homes for 20k each. Lot rents are $400 to $460 plus utilities. We are bringing in used singlewides we get for the cost of moving them from Silicon Valley parks upgrading their homes.

Have you been to Yosemite, Lake Tahoe, hwy 395 along the Eastern Sierra, hwy 1 along the Pacific coast, eaten San Francisco sourdough and Dungenous crab, been to Death Valley, Santa Barbara, Carmel, Sausalito…
There’s a reason it’s expensive in CA, it’s fabulous!
Just doing my part to bring us all together🤗.

Sue


#16

SD guy, I am interested in your OR park, how do I get in touch?


#17

Wait… you have lot rent in Oregon for $25/month? This is a completely bewildering thought for me… that doesn’t seem possible. Is it?


#18

@SDGuy I was VERY intrigued by the conclusion you presented in your first post. So intrigued that I felt compelled to run two scenarios to see if perhaps a low cap rate beats a high cap rate , assuming the low cap rate is in a very hot market. My analysis may be too simplistic, but it’s a start and it helped me get a grasp on the concepts. In scenario 1 I assumed a MHP purchase at a cap rate of 12%. In scenario 2 I assumed a MHP purchase at a cap rate of 6%. However, rent increases (and therefore net gain) grow faster in scenario 2. Given the specific assumptions in this comparison, scenario 1 is a better investment. What do you think?

Certainly, your San Diego MHP may be seeing much rapid gain increases than shown in this analysis. The other thing to consider is at what point do low cap rates become a sign of a bubble.


#22

The analysis is great based on your assumptions.

Rents in CA are a lot higher than $300. More like Double that.

In order for the CA park to make sense with the same initial purchase price. I used a 25 space park with rent at $600/mo.


#23

@SDGuy Thanks for taking a look at this. You helped me understand that an investor has to consider market upside in strong markets when looking at cap rates that appear to be too low.

Yes, the example I posted wasn’t meant to replicate your particular situation. I was thinking the SD market is probably a fairly unique market. If you notice though, the Rent Net Gain per Month for Scenario 2 ends at $322. That translates to a monthly rent at year 10 of $537/mth. Vs the cheap park which would be $384/mth at year 10. But I see your point. It can be argued I should have started the expensive park at a higher monthly rent than the cheaper park.

If I could, I’d like to get your thoughts on one more item; Most MHP investors tend to think of this niche as fairly recession proof. However, it would seem to me that cap rate cycles still apply to MHPs. If so, where does an investor draw the line on “low cap rates” in a “hot market”? Do you still try to maintain a certain spread (say 2 points) between interest rates and cap rates?

Thanks!