If I were a newbie now

mobile home university
1

All,

I don’t want to have the same topics as the other forums. There experiences with this group is unique and valuable. I’ve been re-reading the old threads here, trying to see the topics that have resonated with this groups’ experiences. As I tend to look forward, while learning from past experiences, I’d would like people to fast forward and share what they would tell me as a newbie getting into this business Today.

There is a TON of experience on this forum. Tons of people have been hurt in the economy and I believe those that are working themselves out our (painful as it may be) will be so much better equipped for the future.

So some of the old gurus here who may feel that things have gotten to difficult, I’d like to hear what your advice to me would be.

  • What did you do then that you would do differently now?

  • When did you notice this change?

  • What challenges are you facing trying to course correct your business?

Note: Lets try to be specific rather than generalizing. I would not be surprised if we find some interesting & helpful ideas being shared in response.

(sorry for being long winded)

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Good idea, Howard, and one that I have been giving a lot of thought to. Anyone who reads these forums knows my situation so I won’t go into that. As this phase of the project winds up and I move onto other adventures, I certainly don’t want to repeat the mistakes of this one. Here is what keeps coming back to me:

  1. There must be a long-term source of decent paying employment for the area. If you do mobiles, then there must be an array of jobs, not just one big employer, for the people who live in parks.

  2. Is there a stable, long-term, source of water? I think this one factor is going to bite a LOT of people in the behind and sooner rather than later. How y’all doin’ down there is south Texas?

  3. What is the “quality” of the people who will become your customers? This is a tough one and a concept I’m have trouble getting my head around. The “quality” (for lack of a better word) of the general population in my area, Amish and Mennonites excepted, sucks. The general population is poorly educated, white trash with extremely dim prospects for the future. Sorry if that’s not PC but it is the truth. There is also almost no inner drive amongst the people I encounter to better themselves. Why any employer from outside the region would choose to establish/expand facilities around me if beyond my comprehension. To have to think about not only the current state of an applicant but whether or not they can likely sustain their employment long-term make landlording even more difficult.

If anyone understands what I’m talking about and can help me define/re-phrase the concept, please help me.

There are other factors I’m looking at as to why I’m not doing so well here but #1 and 3 are the biggies as far as I can tell.

Rolf

Wheat Hill

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#1 - The first thing that comes to mind for me Howard is Capital $$ and lots of it if you are infilling.

#2 - I would not buy a 33% occupied community even if it was a great deal, because of the following (our deal) = $650K for 149 spaces and the need for $1.5 million +/- for homes to infill with and increase occupancy. The capital investment for homes does not compute very well in my simple mind today. There are many equal sized communities available with 75% + occupancy and park owned homes included that can be bought at a better price.

Live and learn and thank God we make money at what is now a 54% occupied community.

1 Like
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I totally agree with Rolf. An old real estate adage seems to be particularly important: Location, location, location. Lonnie Dealers are at a greater disadvantage than park owners because we don’t get the added bonus of lot rent.

So for Lonnie Dealer Newbies: 1. There must be a long-term source of decent paying employment for the area. If you do mobiles, then there must be an array of jobs, not just one big employer, for the people who live in parks. and #3. Quality of people. Are they of a hard working, self sufficient, responsible mindset or of the entitlement mindset (copied or paraphrased from Rolf’s Post).

For Park owners #s 1,2,& 3 will remain acutely relevant for the next 10 yrs. Many mismanaged parks will be going the way of the drive-in movie. The well-managed parks adapting to their circumstances are the ones that will survive.

Steve

5

Howard,

Great question.

Most of the people on this forum know that my model in the past has been buying infil parks as cheap as possible, thus foregoing any cash flow for a big pay day down the road once the property reached 70 percent occupied or higher.

As Rick pointed out, this takes a huge amount of capital. In the past, I had two or three banks that would lend the capital at great rates. Unfortunately, all but one of the banks have failed and most of my capital now comes from private investors and one bank which offers a credit line on my receivables at a so-so interest rate. There is no way I would recommend a newbie to take on a project that has more than 20 empty lots.

There is a new phenomena that has developed in our business the past few years that didn’t exist in the good old days and that is the availability of used homes. When I started back in 1999 there were at least 1,000 repo homes available in the state of Georgia. You could attend an auction every other week where at least 50 homes were on the block. Now, we are lucky to see 75 homes in the entire state on the repo lists and most of them are at least 15 years old.

Will a park support new homes? If the market rent for a 3BR/2BA is $575 and the lot rent at the park is $200, then you might as well forget about buying new homes because they will run $30K by the time they are rent and “sale” ready. If the park can’t support new homes and used homes are no where to be found, you will end up with a functionally obsolete property.

New entrants into this industy need to stick with small properties that can easily be managed by a resident manager and produce plenty of cash flow above the total expenses.

I would suggest that the newbie also try to lease/option the property if at all possible. This strategy allows them to walk away from the deal by not renewing the lease if the property ends up not making sense.

Just a few suggestions for those who are lurking and planning on taking the plunge in the future.

Steve

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All,

Thanks for the feedback so far. It takes a lot of character to share your ‘not so good’ experiences. The interesting thing as I read these so far is that I sense slightly different bits of advice (or are they the same?).

Rolf/Dr B: Sounds like demand for affordable housing is the key issue for you? But are you able to find product into your parks? When you have homes can you infill quickly enough?

Rick: You have demand. I recall both NC and Idaho were good markets. But the $$ capital is huge and finding good used product is also hard. So if you had product the demand is there I presume?

Steve: You mentioned lack of good used homes. I dont know where your pack is but if you had the product do you also have demand? Also, you mentioned that your business model entailed forgoing current cash flow for future forced appreciation. (Btw, this sounds like a LOT of investors who are trying to do this with apartments and other distress CRE right now) If you bought your park with good cash flow I presume this infill project would not be so bad and could be done on a more natural pace?

Dave/Frank: I also have a question for both of you. I know you guys are buying a ton of new homes with Legacy and other sources. How is your cash flow model? What do you forsee as potential risks or points of failure to your current plans?

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Howard,

The lack of demand is more of an issue for me. There is a reasonable amount of product here for my purposes. The parks closer to the city (Cincinnati) are faring well. The parks more than 5 miles outside the metro area are hurting.

Steve

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Hi All-

Great thread. For me this discussion can and should be described as your own personal Investment criteria. This may be unique to each of us with a certain amount of crossover or themes from individual to individual. The biggest change for me personally has been a better awareness of how critical defining this criteria is; prior to moving forward with acquisitions. Previously I did business in this industry and others without a clear set of objectives and criteria. Without this detail and deal specifics I made many marginal acquisitions and mistakes. I now operate with a more formal plan , my investment criteria helps prevent some of the less informed decisions and acquisitions I would’ve previously made. Much of my criteria was defined by trial and error, and much knowledge has been gained from all of you who participate on these forums. I greatly appreciate all of you.

As for my criteria, it contains considerations similar to that previously mentioned. In addition, in no specific order;

Market fundamentals-

Diverse and sufficient employment-who are the employers, likelihood of them sticking around

AMI (average median Income) in line with our offering

Market vacancy

Competition within the market place

Demand-with consideration to other housing options

Median stick built housing costs

Apartment rates and occupancy rates

Migration and demographic patterns

Approx 10 Cap on actuals-no pro-forma or appreciation dreams

Large enough project in scale to sustain reasonable operational expenses

Opportunity for capital growth-upside

This is not a complete list, but should suffice as an example of what I believe to be one of the most important first steps in this business. I think we could all agree that the correct purchase, at the correct time, in the correct location, at the correct price, is critical to long term success. This list of criteria,

personalized to you, is my best advice for attempting a successful acquisition and operation in this space. Again, for me the biggest change and lesson learned so far in the business.

Best of luck-

Post Edited (08-28-11 20:15)

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I’m having the exact same problem as Dr. B. Finding homes to buy at the right price is turning out to be pretty easy and I’ve gotten way better at fixing them up very nicely at an acceptable cost. (Let’s hear it for the Amish and Mennonites.) The problems are demand and almost total lack of money on the part of buyers. To own a home in my park is much cheaper than apartments rents around here yet I simply cannot get people to buy. Go figure.

Rolf

Wheat Hill

10

Howard,

Yes, the demand is there for two of the parks…the third is maintaining occupancy despite a local unemployment of almost 18%.

In one park I have over 150 empty sites and the infil rate right now is about 30 per year. We average 6-7 move-ins and 4-5 move-outs per month. This park does cash flow but not enough to buy 3 homes every month. My average cost on a used SW is $15K by the time it’s ready for sale. DW’s jump up to just over $20K for used models.

As you can see the capital requirements are extensive for this type of project. Yes, it would be great if this park cash flowed $60K per month and the infil happened naturally, but that’s not the case. Eventually, as the cash flow builds it will reach that happy place.

Steve