I need a wake up call and genuine guidance.
I have read many different articles about MHP from valuating them, to due diligence but I am no investor and have a lot to learn.
Basically, I am a 25yr old infantry veteran and this is my first move into investing. I been saving my money at a rate of about 2k a month for the last 2 years and have successfully saved 50k. I am 100% disabled through the VA and under my rating I am unemployable. I can invest and own things but I can’t have income from working or if I do I will lose my disability.
I am looking into buying a mobile home park. I understand that the park I am looking into is a high risk investment. The reason I accept that risk is because I can see financial gain and feel like it compensates for the risk. Also if it fails I can still live without it hurting my personal finances.
I still need guidance on operating it or even if it is worth the risk.
To start with, the MHP is out of state.
20 Mobile Homes
13 Lot rent $120
1 Mobile Home abandoned
1 lot unoccupied
5 Park owned $325
For my personal valuation I been basically doing
lot rent x lots being rented x 70 + 4,000 x park owned homes.
so I valued this place
18 x 120 x 70 + 4,000 x 5 = $171,200
They were asking 175k for the place, so on the surface it looks like a decent deal.
I called around to other mobile home parks and they told me that they charge roughly $200/month lot rent.
I asked the real estate agent in my list of due diligent questions when was the last time lot rent was raised?
The last time it was raised was in 2001
so I can see myself raising it by the beginning of next year to $200 bringing it up to market value and instantly adding 100k equity to my new MHP.
The zoning for the mobile home park is HI for Heavy Industry and was informed by the selling agent that is fine but I take his advice as a grain of salt. He didn’t seem to knowledgeable about the MHP industry and think he just wanted to make the sale for the 4% commission.
Now the bad,
The park was owned by a Chinese business man who was fluent in English and purchased it through another Chinese man.
He has since passed away and his wife has been in possession of the property since 2009.
She doesn’t speak very good English and hasn’t been able to manage the place. There is a lady who lives in the mobile home park who collects the money and gives it to the owner.
NONE of the people who live there are on leases, and there is no books on the property. If the owner also didn’t record anything and just mixed the cash with her personal finances.
Now, with all of that going on many people who tried buying the MHP was unsuccessful at securing a loan through a traditional bank so the owners is doing owner financing.
Also, the owner still owes 64k on the property to the original owner.
Knowing all of this, I am looking to get the best deal on the property, take the risk and use leverage to get a deal on it. My due diligence is out the window. I viewed the property on several occasions and the tenants seem to be good stable long term tenants. The owner actually spent 9k on having the gravel throughout the mobile home park regraded last year. All the mobile homes are probably late 80’s model they look pretty secure. the tenants have been good at keeping the place up she does have someone who does repairs. It has in a sense been taking care of the only problem is the management of money and leases. All of the mobile homes have successfully gotten permits yearly and they are up to date with 2013 stickers on them and the taxes are up to date.
I feel like this place will be prime picking for an investment opportunity. I plan on buying it and acquiring me a property management company and expect to pay them 10% of the collected rent. I want the property management company to set up leases and raise all the lot rent on all lots to $200 a month starting by Jan. 1st. Basically to plainly put it, if you don’t agree to sign the new leasing effective by Jan. 1st you will be considered trespassing.
I was advised by one of my friends dad who is an accountant that I should set up an LLC and that is how I learned about them. I have also set up a separate bank and transferred my money I will be using on the MHP over to it and plan on keeping the MHP cash flow and my personal finances separate.
My current negotiations have went like this:
Under the circumstances I understand that for me to invest in this mobile home park I will be ultimately taking a huge financial risk. Many of these risk have been factored into my offer.
I plan on taking over the MHP AS IS, With no warranties or guarantees. I understand that the records have not been kept up with; so I will NOT be able to get a loan through a bank by no fault of my own. I also understand that I will be taking over the property without it being properly inspected or appraised. My due diligence period will be surrendered and forfeited.
I have a family friend as a buyers agents. I will not bring him in to the table unless needed or requested. If that is the case the deal will be more scrutinized.
My offer expiring by the 10th of October at 5pm;
75k Owner Financed.
3 years at 5% interest.
My down payment will encompass my first months mortgage.
At closing seller pays:
20% of 2013 Taxes
After 3yr payoff buyer pays
Deed transfer fee
The total face value of my offer including interest is $130,921.42
Monthly payments of $2,247.82
Dec. 1st 2013
Oct. 1st 2016
November 1st 2013
Upon closing we will meet with the lawyer to sign the promissory note and render my deposit.
The response I received:
I spoke to the holder of the note. They are willing to have the loan dropped to $60,000 from $64,000. They will also accept $30,000 cash at closing, with the remaining $30,000 amortized over the next 24 months at 5.5%, with a 12 month balloon. This should allow us to work with $50,000 cash total at closing. The owner will finance $70,000 over 5 years, with a 24 month balloon at a 5.5% rate.
Are you able to agree to these terms?
I don’t truly agree to the balloon dates so I will start negotiating on them when I am more serious about committing. I am almost there but after I acquire this property I have no idea what I am doing or what to do.
What do I need to do in order to get this place up and running?
What should I do prior to buying this place?
What do I need to know about setting up an LLC?
What would be the full role of the property management company?
I need them to handle all of my business as I live in a separate state, 8 hours away.
I will take any and all advice small or big. I didn’t grow up with that “rich dad” knowledge, I was fairly poor and everything I have is because I worked for it. I am very frugal with my money, often referred to as Mr. Scrooge. I can’t stand the thought of shopping but I can fascinate myself with the thought of investing for hours on in. I have saved for this moment and I want to reach the next level. In order to reach that level I need to surround myself with the people who have been there and have the knowledge to help me succeed. So, give it to me straight.