$14 million dollar deal presented at MHM6!

mobile home university
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Hi all,

I’m getting excited for MHM6 and can’t wait to see everyone and meet a bunch of new friends too! Thought I’d give the group a quick heads up on some of the things that have happened and will happen at an event like this.

Several years ago I was a speaker at MHM2 and needed to raise $1M in private money on a $3M cash flow deal that I had under contract to purchase. The “readers digest version” goes like this: 315 unit waterfront community with positive cash flow after debt service from day one, 50 vacant lots, a boat ramp, 300 ft. salt water fishing pier, 65 acres, 2 pools, brick clubhouse, bocci courts, shuffle board, and 7 vacant acres of commercial road frontage. Three years later I’m happy to say this park is worth a conservative $8M (and when I say conservative I mean I would NOT sell it if offered $8M cash today). I remember Ernest Tew looking me square in the eye while we were standing on the fishing pier and saying, “Karl, this is a blue chip property.” He was right.

So now its time for MHM6 and this time I need to raise $4M in private money on a $14M cash flow deal that is also currently under contract to purchase. This project appears even better then the last - 752 developed lots, cash flows the day we close with a net (EBITDA) of $1.2M, priced at just shy of a 9 cap on performing lots only, leaving 250+ lots to fill as upside potential. With our proven conservative infill program this project is forecasted to be worth $21.4M in 4 years or less, and at full occupancy less 5% vacancy it will be worth $23M+. The first year infill program is already liquid in cash and ready to go. This is a

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Ok gang - this post is for the “accounting” types who love NUMBERS. So far, thanks for ALL the private messages from those who qualify and are interested in this project. During this process I have received a question that I thought I’d share with the group.

One investor wanted to learn more about the phrase - “…net (EBITDA) of $1.2M”. This is from the part of the above post where I’m forecasting a conservative annual “NET” of $1.2M if we where the current owners of this project. EBITDA is crucial in coming up with CAP RATE values which I’ll explain more below.

So what is EBITDA?

E - Earnings

B - Before

I - Interest

T- Income Taxes

D- Depreciation Deductions

A - Amortization Deductions * most of you will never deal with this so I will not go into any detail about it.

So EBITDA is a “re-casted annual net income” we expect to earn based on the sellers financials and our industry knowledge. It assumes we own it for CASH and it will be the amount of rent left over after expenses are paid but before paying income taxes and writing off depreciation deductions.

When people talk about deriving a capitalization rate value (we hear the term 9 cap or 10 cap all the time in this business) they should not be using the previous owners “net income”. Net Income is what the current owner pays income taxes on. To come up with a price you as the buyer are willing to pay we need to understand EBITDA.

You can not value the property for your needs unless you recast the current owners tax return to show how you will do business - not how they do business.

The previous owner may have a lot of discretion over the cash flow - he/she may CHOOSE to have a mortgage, or pay an auto expense or have health care, or take business vacations and entertain the tenants and employees… They will also likely take advantage of “paper write offs” like depreciation deductions. All owners do some form of choosing because it is a way to enjoy the cash flow of the property and minimize income taxes.

But if you owned this project you would likely want to know how much cash flow you will have to “play with.” So all buyers need to “add back” these items in order to see the project in this light. Only then can we forecast how much cash we have to work with annually and whether our price makes any sense.

By the way - once you really understand this, and if the Seller does not understand this - you can do some amazing things from a negotiating point of view. I routinely use the “sellers” numbers and “my” recasting in order to get the best price possible - both before the contract and during due diligence!

Anyhow, hoping everyones EBITDA is “spitting out money like an ATM machine” :slight_smile:

See you in Austin,

Karl

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Karl,

I have enjoyed reading your posts. I have a question reguarding the term “Entrepreneurial Strategist”. Is that some sort of professional designation awarded by a governing body or a type of degree oriented designation?

I am a certified financial planner with a MBA in business. My undergraduate was in finance with a concentration in real estate. What additional education would I have to complete to earn the “Entrepreneurial Strategist” designation? Thanks for your input!

Joe

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Hi Joe,

Sorry for the delayed response - it’s a busy time. The term Entrepreneurial Strategist is not a professional designation - simply a description of a service for hire.

A prerequisite for me to be hired is that the client agrees to have their professional advisors review legal or tax implications prior to putting a particular idea into practice. The only real “litmus test” as too the accuracy of being an “entrepreneurial strategist” is the follow up call from a client saying “hey Karl, my attorney reviewed this thing and suggests no changes at all!.”

Good luck with your investing and continuing education. I’m personally looking forward to learning a bunch this weekend in Austin - the seminar will be full of potential mentors, partners, ideas, and strategies for all our toolboxes!

Karl

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Are you guys serious or kidding with comments like “I hope your EBITDA is spitting out cash like at ATM machine”? I am trying to take this seriously, but all I keep reading on this forum are meaningless terms like “millions”, used conversationally but with no basis in fact. I want real information that is not full of b.s. and blue-sky optimism. In Texas, they might call you guys “all hat and no cattle”. Is anybody else out there feeling the same way? Where can I find real life information and good listings of parks for sale.

Post Edited (04-18-08 11:30)

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try www.loopnet.com and www.mobilehomeparkstore.com

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Edwin,

While I have not seen any of Karl’s hats I have seen one of his “cash cows”, & it is worth at least what his estimate says, likely much more. Karl is a great person to learn from, & freely shares his knowlege here. This particular deal just happens to be waaay over most of our heads.

Rick

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Rick,

Where is this deal and what is the estimate? ?Why is it over our heads?

Edwin

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Edwin,

I never said that it was over your head, I said waay over most of our heads, while this may not necessarily be true for “most of us”, it is for me, see below.

" What is an accredited investor? An individual accredited investor is generally someone who has a net worth of $1,000,000 or more, OR makes $200,000 or more per year in the immediate preceding two years. Entities, such as institutions, partnerships, or pension plans, have different standards for accreditation.

If you fit into this category you may be eligible for many investment opportunities that other investors are not allowed to participate in. Past performance is not indicative of future results."

Your post;

“Are you guys serious or kidding with comments like “I hope your EBITDA is spitting out cash like at ATM machine”? I am trying to take this seriously, but all I keep reading on this forum are meaningless terms like “millions”, used conversationally but with no basis in fact. I want real information that is not full of b.s. and blue-sky optimism. In Texas, they might call you guys “all hat and no cattle”. Is anybody else out there feeling the same way? Where can I find real life information and good listings of parks for sale.”

Karl is the guy to ask, it is his deal.

Your post above is more than a little bitter. If you are in fact an “accredited investor”, as defined above then he may consider discussing this deal with you.

FWIW you may have better luck catching flies with honey, than vinegar.

It takes a while to learn, you have questions, seach the archives, post questions, read, respond, buy some coarses advertised here, & elsewhere.

The websites that Dale listed are two of the best.

If you register with a real email, & let us know where you are, some of the fine folks on this forum may be able to help you out.

BTW The best deals don’t always make it to listing.

Regards,

Rick

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Rick,

Thanks for jumping in man. I just flew my self back from MHM6 to see this string. As you might imagine I have never heard from this “investor”. Of course, everyone is welcome to comment but unfortunately only those the government deems “qualified” may actually participate.

Many of you have been to my parks before. In fact the MOM meeting two years ago was held at our 65 acre 315 unit waterfront community. I wish some of these objections where actually based in some form of reality - maybe someone should contact the property tax assessor and convince them the park is worth pennies on the dollar. Sure would be nice to reap the benefits and baffle the tax man into the mega discount!

Anyway. Thanks again for posting your thoughts - there are plenty of other people who’s lives have changed for the positive from all the giving people on this site. No reason to put any real energy into negativity.

Karl

P.S. - Regarding MHM6 - to coin Cory’s phrase, it was simply amazing. Cory, Steve, Ernest, and myself (and others) hosted the first one in Gainesville Florida over 6 years ago and I think we had 30 or 40 attendees. I will not be surprised if this event did not draw 500 or maybe even 600 people. The diversity of investors was most impressive. There where those who haven’t done their first lonnie deal to those with portfolios in the thousands of units. Dyches Bodiford was my favorite presenter - but everyone did a top shelf job. It was great to see all the old faces and meet a bunch of new faces too. I’m sure there will be munch banter on the forum over the next couple of days! As for me - I’m simply beat and need a good nights rest…

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arguably most important line on many P&L’s. It predicated my wage each month for 9 years.

Millions are spoken of casually here because a lot of Parks or portfolios bought and sold here cost millions.

You have been given two premier sites to buy MHPs above here’s another:

http://www.unitedcountry.com/Search06/SearchRealEstate.Asp?SID=57513223&B=Y

If you had ever met Karl, you would realize how inane your comments are. I have done several handshake deals with karl and he is a kind and decent man that freely shares info and pays his bills prior to due date. He is also one of the smartest people I know. One para of his inserted into my L/O of a Park saves me 55K at Option. I would never buy a park without his paperwork approval.

I’ve seen his Park in FL (several times)and it is a beauty.

What work well in this community is to ask a question (s) or ask for help…we are here to help you. What doesn’t work well here is slights on folks we have never met…

I co-host a MOM meet in Atlanta this Fall…price is free and I would like you to come to this. There will be 20-30 Park owners there if it follows the past two in attendance!

Good investing,

Greg Meade

352.216.2020 Cell

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Karl,

Can you clear up a question with regard to the accredited investor issue? From my research, this issue is to avoid dealing with the SEC on investments by not offering a “security” but rather a real estate deal. This can be avoided without the AI exclusion with friends and family (known persons) For example, you could offer a partnership to your Mom even if she wasn’t an AI. Can you confirm this and discuss further? The SEC views these deals as securities, thus invoking the AI rule if a return is “promised” (although I’ve not seen many investments that promise anything)

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I wonder why Karl is hanging out with us peons and not his type like Trump, George Soros, and T. Boone Pickens? “Accredited Investor”. I believe that is the law that the SEC created to protect investors of modest means from losing their a$$ to highly speculative and leveraged investments. Sounds like a hedge fund to me.

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Hi Ken,

Good question. Securities by nature have a broad definition so when a real estate deal involves other people besides yourself most syndicators look to the allowed SEC exemptions in order to comply with the law.

Here is a link to read further about the subject:

http://www.methvenlaw.com/Handout_for_Real_Estate_Deals_and_the_Securities_Laws_2.html

Good investing,

Karl

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Why sell yourself short Joe? Don’t tell me “optimistic Edwin” is getting to you?

Above you post that you are a certified financial planner with an MBA and that you got your undergrad in Finance with a concentration in Real Estate. This is GR8T stuff.

But, now you call yourself (not my words) a “peon” like the rest of the group and “my type” hangs out with “the Donald”.

How’d you know - I had a beer with Tony Colella a MHM6 and the whole time I was afraid “the Tony” was going to FIRE ME!

Lighten up people. Nobody is trying to swindle you in some highly speculative, crazy leveraged up investment scheme.

You say “Sounds like a hedge fund to me.” pssst “its not a hedge fund”

I’ve been preaching “cash flow is the slow and steady approach, don’t speculate, know what you are buying, take your time and uncover every possible stone during DD, don’t become the greater fool”

Now I’m running a hedge fund?

Crazy the things people come up with!!

Post Edited (04-24-08 01:39)

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Guys,

I think it’s time I step in to clarify a few things.

First of all, I’ve known Karl for several years and he is one of the sharpest real estate investors you will find. His track record in this business is at the top of the charts. Karl knows what he is doing.

Karl presented this deal because he knows there are several investors who read this forum on a consistent basis who might want to participate in a large deal. He knew that this wouldn’t apply to most investors, including myself.

I think it’s time to put this whole thing to bed and move on to subjects that will help everyone on the forum.

There has been some good discussion on advanced finance topics dealing with this post, but the personal comments are not necessary.

Steve