Green Horn Investor Looking for Wisdom

Hello all!My name is Jake and I’m a 19 yr old in Florida. Since I was a young kid I have been running my own businesses including a pressure washing business and later buying and selling boats which I still do currently as a freshman in college. I am now ready to diversify my experience and have, for a while now, been increasingly interested in purchasing or building a Mobile Home park. Over the past few days I’ve been perusing listings and soaking in all of the info I can get. I am hoping to tap into your experience and gain some practical knowledge on where (or if) I should start. I have some starting capital, but certainly nowhere near enough to purchase a park outright. I am mostly interested in finding someone willing to do seller financing. I’ve primarily confined my search to Alabama and Georgia. It is my understanding that Florida tends to impose more stringent property standards. Any words of advice that you all may have for me would be greatly appreciated!Thanks!~Jake

Jake,If you are seriously interested in this business, you need to educate yourself.  The more information the better.  I would suggest you spend the money on the homes study course offered on this website - Frank & Dave do a very thorough job of explaining all aspects of the park business - and they give you real life examples of their successes and failures.  Commit to educating yourself, that’s the first step. 

My advice would be for you to finish college and then get your career established first. The finances and responsibilities of operating a business should take a back seat to your education unless it is not your intent to pursue a career path in your field of studies. The reality is that you need a good solid income stream first then pursue the long term plan of wealth growth through real estate.Spend the next few years learning what you can about real estate investing while focusing your energy on your education/career.

Thank you for the replies. Definitely useful insight. I am a very proficient student and can succeed academically without much effort, so I do have a good amount of spare time during which I’ve been able to run sidebar business ventures. Greg, you allude to the importance of having a steady income stream prior to investing. If I can secure a reasonable seller financed deal with a 15%+ cap rate, is it feasible that the park could be self sufficient and require no additional outside funds…? My short term goal is to graduate college already having built some assets which I can then sell to jump start a business of my own or invest further. If I can pay off my debts quickly, I am thinking that the income from a park would be an excellent way to fund a masters degree. (MBA most likely). Again, I could just be an insane kid with no real concept of what I’m getting into so feel free to let me know your thoughts!!-Thank you! Jake 

NOTE* Of course, this plan is assuming that for the first 4 years or so, I am directing all of the operating income towards servicing my debt and collecting little to no profit for myself. Good idea- bad idea…? AND I will definitely keep learning and educating myself as much as possible. I’ll locate the homes study course, Rob. Thanks 

A 15+ Cap rate is very difficult to come by.  However, a 10-12 CAP deal is a little more doable.  On the topic of servicing your debt, let the debt be paid for by the park.  By using your leverage, you should be able to nearly double your return on equity over your CAP rate.  Meaning that a 10-12 CAP park should return 20+% on your down payment.  I agree with Rob as far as getting an education in the business first.  Read a few books on syndicating capital, MHP investing, order the home study course, and listen to a few podcasts on general real estate investing.  Then, define what your investment goals and target returns are, put together a plan for how you are going to find your deal, put together a plan for how you are going to pay for it, and put together a plan for how you will manage it and dispose of it. After all of that, put the plan into action.  Also, don’t be afraid to shoot higher than you can afford.  You have an entrepreneurial mind so there is never any reason to think about why you can’t acquire a solid investment.  There is always a way to do any deal worth doing. 

Your MBA will go a long way towards answering all of your questions. Again I would advise you finish your education first then look at starting a business of this magnitude. You need money to make money, either yours or someone else’s and you can not live off of a property that does not produce positive cash flow. You have suggested your business plan would be to service the debt with the intent of paying it off as quickly as possible. Why would you consider that to be a good business plan? Your basic plan, in theory, to negotiate a 15 cap with seller financing is doable but the reality is not likely. If it were every one could be rich.  Income from a investment property has to sources. First the income from rent and second the return on cash invested. Cash invested (equity) has a opportunity value. To calculate cash flow it must be based on, at the very least, the true value of the property based on 100% financing. Investors that only deduct their debt repayment from their income and exclude the value of their equity in a property are artificially forcing higher cash flow numbers than they should. A 1/2 million dollar property purchased with cash will cash flow all day long until you factor in the value of having 1/2 million tied up in that property. Deduct what the reasonable return from 1/2 million would be from the income and see what you have left.     It is not at all uncommon for a park to be self sufficient but you still need a bank roll to finance both the initial purchase, even with seller financing, as well as covering emergencies. Owning rental income properties takes money, time and hard work to succeed.Finish your formal schooling while also educating yourself on the business and getting your savings in place. A park will not by itself support you which is why you need a good job and steady income. With luck you may be able to retire from a job in 10-15 years but by then your life may be going in a entirely different direction. Park ownership may not end up being your final goal. At your age my life priorities would be Finish your education, get established in a career, set and implement investing goals.     

finishing your education is worth the effort but you can still move forward with your real estate career. when the economy and the real eastate markets are going up your mistakes are erased. when the economy and the real estate market is going down your mistakes are magnified.

With the boat flipping, you probably have more of a certain kind of experience than many park owners and “Lonnie Dealers.”  If you want to get into this business, given your circumstances I would start by becoming a “Lonnie Dealer” – that is, buying, fixing up, and renting (i.e., subletting) a mobile home or three (perhaps from park owners who, like many in this forum, do not want to be in the “homes” business).You should do this with the permission and blessing of the park owner.  There are myriad benefits.(1) You will get a sense of the cash flow and capital gain available in “Lonnie Deals.”  If you are smart about it you can get very high returns (although you have high risk that your tenant wipes out your investment by trashing the home).  That brings me to my next point.(2) You will get a sense of the customer base in the areas in which you own homes, which is essential for understanding how to value and operate a park.  You will make or break your mobile home wheeler-dealer career on your judgment of potential renters and “picking” winners as renters who will not trash the home is a useful skill for park owners.  Keep in mind that it is illegal to discriminate among applicants based on illegal factors, including family status and age.(3) You will get a sense of what owning a park is like if you are subletting inside a park.  In exchange for what you pay the park owner in rent, you will see what kind of amenities and expectations you have (and the residents have).  After all, you are going to be getting the angry phone calls from the tenant when something is going wrong.(4) You will also get to know the owner(s) and his/her/its policies.  Getting to know the owner in a small park might just pay off in spades.  For that reason, I would buy one home each in several small parks that you would not mind owning, and hope that in one case you can convince the owner to sell to you one day.  The park you would want to buy would be the one where you realize, “I could clean this park up and run it 10x better than the current owner.”(5) Part of the reason park cap rates are high is that few understand and want to get in to this business.  The other part is that in fact, a park has relatively few services that it has to provide its customers in exchange for money (rent) and therefore expenses are low.  In our experience, most of the expenses of park ownership, barring capital investments like street or utility repairs, come in the form of the cost of getting homes into the park and getting those ready to rent or sell quickly.  You will be giving yourself a leg up if you are already experienced in this regard when negotiating with sellers for a park.Brandon@Sandell

I really appreciate all of you taking the time to articulate your thoughts. I’ve read and thought about all of your ideas. Greg, you bring up some interesting “food for thought” about the opportunity value of money. Apart from Brandon’s advice which is completely unique, it seems that I am mostly getting two different kinds of input on this thread, but also from people in my life who I have consulted. Those two positions are described as: 1) Focus on school/career building before bothering with an investment of this type so as to have financial backing when things go awry. 2) Use your youth as a chance to get ahead of everyone else and begin investing (or at least taking steps in that direction) as soon as the opportunity presents itself.I’m open to both viewpoints. I know that there is a lot that I don’t know. I am young so I have a lot of time before I REALLY need to worry about wealth growth. However, it also means that I can jumpstart my future by making wise(<emphasis here) investments. Whether that happens in the mobile home industry, normal real estate, or other forms remains to be seen. Let me pose this idea to you. I accept that I am not prepared to take on the responsibility of a large park for many reasons. I am looking at a half acre park that currently holds two park owned homes that are consistently rented for $600/mo.(which, to me, indicates demand) City water/septic. I need to do a thorough check of regulations, but I think that at least one, possibly two, additional homes could be added. If this is possible, I have calculated a 16-19 cap rate. It is on the bottom end of the mobile home park price spectrum and only around 3 hours from my house.  I feel that something along these lines could be a fairly simple and hopefully harmless way to see if I can handle the duties of a park owner. I have the capital to cover whatever the down payment may be plus a fair amount of emergency expenses. Questions:-Where would be the best place to find info on county or state specific mobile home ordinances? (with regard to capacity limits based on septic, size, and whatever other factors exist) - Would partnering with a close and similarly-minded friend be a wise decision? (Just in general) Again, I really appreciate you guys taking the time to school me a little bit. Thanks! 

I would advise you not to buy a park with park owned homes. They are high maintenance and generally are a money losing, break even at best, business. Additionally only two homes will not cover the overall costs of operating a park.Your money will not generate any cash flow in addition to the fact that with park owned homes you may be call to an emergency at inopportune times (exams). One vacancy will break you.