First Park is U/C - Welcome Advice

I’ve invested in SFR for 10 years, but I’m new to the MHP world. I recently found a park in GA that has been owned by a bank for nearly 3 years. For some reason, they didn’t begin to market it until last year. Since the residents have been living without oversight (and rent-free) for so long, the park has become rundown. But I think it has great potential.

It’s just over 7 acres and has 56 lots with city sewer and water; each lot has an individual water meter. It also has natural gas. The main road is paved and maintained by the city. The park has one dirt/gravel road. I’ve spoken to the city and county authorities, all of whom have assured me that the park is grandfathered and will be permitted to continue as a park and without unreasonable restrictions (i.e. homes must be newer than 1976). The utility office is unaware of any repairs needed. And it’s not currently in violation of any laws or ordinances.

There are currently 39 homes, at least 29 of which have active utility accounts with the city, but they are not currently paying any rent. Taxes are not current on the homes. I’ve spoken to several residents, all of whom expressed their desire to stay and willingness to pay rent. When I asked what their rent had been (prior to the bank taking ownership), the answers varied from $110-$150. I think I could rent the lots for $150. I spoke with the managers of the other parks in town; one rents their lots for $140-$160 (nice, larger lots) and they’re 95% occupied in one park (200 pads) and 100% in their smaller park. Another park in town (300 pads) has many openings, but the rent is $300/month (including water, sewer, garbage) and it’s not as nice a park.

My concern is turning around this park. Many of the current residents moved in after the bank took possession. Some/most bought the homes from the former owner (who retained titles), but they never transferred the titles to their names, so they’re still in the name of the former park owner (the bank foreclosed on the land only). From what I’ve been told, it’s become a drug haven. There are pit bulls tied out at many homes. But the long-term residents said it used to be a nice park and I believe it could be again. It borders a very nice housing development with homes in the mid $150s. I think it’s worth improving.

It last sold for $1.2 (with many POH). I currently have it under contract for $175k. I think this is a great price for the infrastructure, but my concern is turning it around. I don’t think on onsite manager could handle it, as I believe it will need close professional oversight that I could not expect from anyone willing to live there. I found a professional manager in town that’s interested in taking on the project. I’ve spoken to the former owner and identified a respectable long-term tenant who could possibly assist by being the eyes/ears in the park.

My intentions would be to send an application to each current resident and requre that they meet new guidelines (i.e. no felonies) and that they’re willing to comply with new rules (i.e. no ‘dangerous’ dog breeds). I realize that I will lose a large portion of residents immediately, but my focus would be on building a safe family park and not simply filling spots. In speaking with some of the long-term tenants and the former owner, I believe I could be reducing my occupancy to as little as 10-12 tenants initially. I don’t think the others are likely to move the homes (most are mid 80s) and the former owner said I would be able to obtain title to them. I’m not interested in renting the homes, only the lots. But I’ve had several people express an interest in remodeling the homes and renting them out. I’m not sure how long to expect it to take to turn the park around. I’m hoping the problems will leave once they realize they must be approved, pay rent, and follow rules. But I will still have to resolve title issues, allow time for home renovation, and market to a new demographic. A contributing factor is that the park has acquired a bad reputation in town. It’s a fairly small town of about 15k, but it’s commutable to much larger cities.

I don’t live in the area, so it’s not possible to be ‘hands on.’ Do you think it’s feasible to turn it around from a distance and without an onsite manager? Any other thoughts or ideas I should be considering?

I’m excited about the park’s potential, but I wonder if I’m crazy to be taking on such problems. Has anyone else had success in turning around such problematic parks?

Thanks for your input.

Yes, I’ve turned around parks just like that. I once bought a park that was so out of control that it didn’t even have a rent roll and had not even charged lot rent in months (it was an inheritance, and the heir was afraid of the tenants, so he didn’t try to get rent). You can turn around almost any type of park. The key question is if it is worthy of turning around. At $175K, I would think so. If you can keep the existing homes in there (even though you may have to kick out many of the tenants living in those homes), then you’d have 39 x $150 x 12 = $70,200 of revenue and would probably net 60% of that, for an EBITDA of $42,120. At $175,000, that would be a 24% cap rate. However, you’ll have to factor in a bunch of money to probably renovate those homes. If it costs you $175,000 to do so, then the cap would only be at 12%. So I would focus a big part of the diligence on the cost to renovate the homes – that looks like the 800 pound gorilla in the return on investment on this park.

As far as turning a park around, the technique is relatively simple. You re-paper all of the leases to a new set of rules and set the rent at $150 per month, with all of the necessary terms on payment being due on the 1st and late after the 5th. Then you simply enforce what they have agreed to, and adopt a no pay/so stay on rent and a no play/no stay on rules. You will end up kicking out a bunch of tenants. At the same time, you start a marketing program and home renovation program to re-fill those homes with decent quality tenants (better than what you had before). You can send a message of your new mission by re-naming the park and getting rid of the old stigma.

Can you do this from out of town? Sure. But you will have to get a decent manager in the park and have good systems to manage it.

Your biggest problem will be in finding someone that is capable of turning around this property to your expectations. No one cares about a property as much as the owner and finding someone up to that challenge in my opinion is extremely unlikely (probably impossible).

If you could take on the responsibility personally of managing the park I would recommend you go forward. However as it stands having no previous park owner experience and being not hands on makes your task extremely risky.

You state you have landlord experience with SFHs. Do you have a zero tolerance policy with tenants regarding rent and rules. Or are you compassionate regarding their individual needs. Compassion has no place in turning around this community.

I envy you your opportunity I however do not envy your position. I personally would take on the challenge in a heart beat but I make and enforce rules without regard for individual tenant concerns (my interests and the over all well being of the park always take precedence) and as such would hand out and follow through with evictions without hesitation. My practice is to target tenants that are the highest profile,most arrogant and uncooperative in the community and make an example of them.

Find an ally in the community to point out any tenants suspected of being involved with drugs and get rid of all of them even if they do initially appear to be conforming with your rules. They must go if you want to succeed with turning around the reputation of the community.

I would set the rents at $150, put all the rules in place and make it understood that non compliance/resistance will not be tolerated.

Once the community has gained a decent reputation I would increase rents appropriately to further improve the base quality of tenants. In addition I would not permit homes to be rented out by owners until the turn around is completed otherwise you will be compounding your control issues.

If possible I would also implement a adult only policy better yet 55+. If necessary grandfather any children that do remain after cleaning house but do not permit any more. In my opinion a successful turnaround is much easier by eliminating young families and vastly easier to maintain. It does eliminate a demographic but in light of the fact that yours is a small park and there are already several other parks in the area by specialising in adults only you potentially will elevate yours above the rest when completed.

Frank and Greg, thank you for your replies. I have no qualms about evicting anyone who fails to pay rent or comply with the new rules. I was compassionate at one time in the r/e business, but was burned by every person I tried to help. The experiences changed my outlook and probably served me well for this endeavor. Besides, I’m investing my life’s savings in acquiring and turning this thing around, so I don’t have the luxury of making allowances for others.

The property manager I’m hoping to work with is retired military who appears to be a no-nonsense guy who runs a tight ship. I spoke with him at great length and I believe we share the same vision. He said he would not be associated with anything less than what I’m suggesting in terms of my ultimate goal of providing a safe, clean park.

I’d love to have a 55+ park and when I was in the area last week, I spoke to many individuals about the idea – from Realtors to City Council members. Unfortunately, the general consensus is that the demographics wouldn’t support it. But an adult only park may be a possibility. Thanks for the idea!

You both mention new leases outlining the new rules and the rent, which I fully intend to implement. But what do you think about requiring every current resident to meet the new standards by submitting an application? I don’t intend to ban someone for a parking ticket, but I don’t want to have any residents who were convicted of a violent crime, drug dealing, or sex offenders. My intent was to evict them without ever collecting a rent payment (to avoid entering into any type of landlord/tenant relationship).

I’d also be curious of your thoughts on POH. The former owner told me I was crazy for not wanting ownership of the homes and he suggested hiring a maintenance man (the long-term resident he recommended) and renting the homes in addition to the lots. They could be rented for $450-$500/month easily, but I’m concerned the maintenance would eat up any profits. And I’m thinking that I will have my hands full with just the lots. But if I decide this isn’t the business (or park) for me, they would add value for resale. In your opinions, are POH worth the bother if they need complete renovation (as I’m guessing these will) and I have to hire everything done? If not, I was thinking that I could give them to an investor would assume responsibility for renovation. Of course, all tenants would have to meet the new park requirements/qualifications.

Frank, I can relate to someone being afraid of the tenants. I’ve visited the park multiple times and I’m very uncomfortable with some of the people there. They’re all aware that the free ride is about to end and they’re not happy. I met with a guy to get an estimate on repairing the park-maintained road and he described the environment as ‘hostile.’ I think/hope some of the behavior is posturing in hopes of scaring away any prospective buyers, but I’m not sure that it matters because I’m looking to buy it to make money, not friends. The former owner said the police department will be willing to bend over backwards to help clean up the place. And I was told there’s already one resident reporting suspicious activity to the drug task force, so I have hope.

I’m excited about the potential, but there are times I find the idea daunting.

Thanks again.