Newb question I've not seen addressed


#1

I am new to MHP investing. I’ve located (probably far, far too early in my search) what appears to be a viable MH Park candidate. The asking price is $1.5 million and the owner is willing to carry $900K in secondary financing. $100K down and new first position financing req’d @ $500K

Upon receiving the offering package, the claim is being made that ALL the homes in the park are rent-to-own deals owned by the current occupants. Frankly, I find that hard to believe but that’s not the crux of my question, nor do I have a pile of examples against which I would compare.

My question is, and please excuse me if this is a silly question, if the loans on some/part/most of those MHs are being held by the current park owners…then why would not those park owners wish to keep holding those notes? After all, the owner is willing to carry $900K in financing. Those notes were created at numbers well above the values of the homes and probably much higher interest rates than what a current buyer would offer in a park purchase. They are apparently no more than 5 years old, so they have good time to run.

If I buy the MH park and thereby become the buyer of those notes or their implied values… am I not becoming the one who buys the 1973 and 1986 MH for $39000 at 11% interest?

Concurrently, if I am buying the park but NOT and buying these homes by buying their notes, then my purchase price is considerably reduced, no?

Personally, I would love to be the holder of these kinds of notes. Maybe that is in contrast to how most MH Park owners do things, but why would I not want to own an asset upon which I made a lot of money (sold the MH and created the note bearing such a large interest rate?

And finally, if there are 35 homes (let’s say) and ten of them are owner-financed by the current park owner (the rest by banks) and were sold for $35K and have been paid down to $30K (just using gross estimate numbers) and the current owner sells me the park but keeps ownership of those homes… then on ten homes that I did not have to buy, would not my purchase price be reduced by 10 * $30K = $300K. What’s not to like about that?

Many thanks for this terrific forum; finding it only a few days ago and bingeing the topics and newsletters is already proving to be a super resource


#2

I wouldn’t entertain purchasing RTO contracts. The value of your garden variety 1978 singlewide is 3-5K cash plain and simple… So you’re basically considering overpaying 8x for a 40 year old mobile home where the tenant can leave at any time without recourse, as soon as they have their first water leak or major repair they cannot afford to fix.

After you see hundreds of Parks for sale, there are a lot of creative ways the owners will boost the real value to tell a misleading story as a means to get the best price possible. A lot CAP the home rent into the purchase price that cannot be financed. Others will say that the Park is 100% occupied, but the tenants have all been there under 3 months. I really enjoy seeing the owners that say they have a 10% expense ratio on a 20 pad park. And then there’s the inflated RTO contract model conveniently in place for every POH.

Welcome to the forum, and good luck on your search.


#3

Thanks so much for your reply. That’s kind of what I thought; the several things you said. Yeah, a $5K 1973 MH has value if it can be rented and negative value if it gets trashed, looks like an eyesore, and has to be towed away and dumped.


#4

Listen to Jhudson. Don’t be seduced by the false allure of note income secured by crappy old mobile homes. Focus on lot income. Your future fortune from park ownership comes from being able to raise lot rents and filling vacant lots.

Repeat that to yourself; raising rents, filling lots.