MHPI Fund vs. buying your own mobile home park

I have been considering mobile home park investing for some time now. I know there are some funds (including those managed by Frank/Dave and Jefferson) where you can invest in a fund that either owns one or multiple mobile home parks. Obviously, you give up some return since you don’t need to deal with all the day-to-day management and headaches, but from my research, a 15% annual return is a good target. What is a typical ROI that you guys see in the industry if you are leveraged with a 20-25% down payment? In other words, how much would you be giving up investing in the fund vs. buying mobile home parks yourself? Are there any other things I am not considering that I should be when comparing these 2 structures?

Thank you.

Investing in a fund gives generally gives you preferred returns of 8%-12% and a % split of whatever is left-over after the management company takes it’s cut.  So, 15% on your money would not be out of the question.  I believe Frank and Jefferson both offer 50/50 splits after preferred returns and management fees.  Loaning private money to less experienced operators can offer better terms on the remaining cash, but it also comes with greater risk.  Whereas, Frank/Dave’s and Jefferson’s track records are well known.A third option is to become an equity partner with an experienced operator.  Just post something on the forum about wanting to become an equity partner on a deal and you should see quite a few deals coming your way.  

I have personally invested in Frank,Daves,and Erics funds for a couple of years. Receive a 10 preferred dividend paid quarterly like clockwork.When the finished parks are sold off,we should split profits 50/50 after expenses. That kind of ROI will be hard to beat. What exactly will it end up being? Upwards of 20% would be a good guess. Try to match that with stocks,bonds and mutual funds. And after they are sold off,I want to be first in line to invest again. Question is can you beat that ROI buying a park yourself? Possibly after you find the right one, cut expenses and grow the cap rate and find the right buyer. I am kind of lazy,would rather let someone else do all the work while still getting a good return. As Jefferson says,my 2 cents

You may already be considering it, but don’t forget about the holding periods. Are you trying to get a stable cash flow for the next 20-25 years, or are you OK with completely optimizing the park then selling in, say, 7 years? Not saying investing in funds necessarily results in a guaranteed sale in 5-7yrs; it’s just an aspect to keep in mind.Although on the topic of funds, I’d appreciate if Frank or Jefferson (preferably both, if answers are different :slight_smile: ) would chime in regarding what happens in the event of a refinance instead of sale. Does the investor get their initial capital returned, thereby ending the x% preferred return and going to a straight 50/50 split of profits going forward? Or does it completely end the investment with the investor getting their total return (initial $ plus appreciation) and the fund owner taking complete ownership? I don’t know if you’re allowed to comment publicly due to SEC stuff, so perhaps an answer as to what is “common” for funds in this industry would work…

for what it i worth, I have looked into investing in both funds. the funds were structured as following Jefferson … investor receives an equity position based on investment percentage and the corresponding tax advantages as such. An eight per cent annual preferred return and a 50/50 split of profits until park is sold. If a refinance occurs, the investor receives the preferred return, return of outstanding capital, and then a spilt of 50/50 spilt of profits. Going forward, a 50/50 split of profits would stay until the park is sold, at which time profits are again spilt 50/50. I was looking at investing in Jefferson’s KC park he recently closed on, it was a nice park.I have reviewed F&D’s recent offers, the investment works similar to jefferson. One main difference is F&D purchase a number of parks during one offering while Jefferson seems to work one park at at time. The major difference I identified is that the initial the split of profits with F&D is 80/20 until the original investment is recouped, and then profits fall to 50/50. F&D do require a 2% management fee in the expenses while Jefferson has no management fee.As an equity investor in the park, the investors own the parks and contracts for their management companies to operate and make all decisions in running the park. 

From personal experience, as an owner operator presently receiving a 27% return on investment or simply in less than 4 years my net is greater than the price I paid for the property. As buyers with experience we know the possible trama to expect with some properties and other properties that are a dream to own and operate! I still prefer to have my wife as the only partner and I know she will be totally responsible and ethical. One comment I need to make about being close to my residents, our business model at this time is showing that 40% of our new residents are from referrals from our present residents which refects on our attitude toward residents. Residents are great assets in operating the park business we allow them to be part of our happy family and respect is mutual. As to Moore we do not experience the day to day headaches since we are VERY CAREFUL WHAT WE BUY and own normally for 15 years run. Again what Mr. Buffet says: you do not sell your money maker: and in his his case will probably never sell Coke-Cola. But like Jefferson says, yes I would sell for the right price.

Our investors share in our profits 50%/50% after being paid their 8% preferred return.  Unlike Frank & Dave, Park Street Partners does not charge a 5% management fee.  So with a 50%/50% split, that is an extra 2.5% off the top for our co-investors (meaning we are paying closer to a 10.5% preferred return).  Profits are any and all 1) monthly NOI, 2) sale of property, or 3) refinance of property.  ‘Profits’ are basically ‘any cash taken out of the MHP at any time in any way.’  With no management fee, we don’t get paid unless our investors get paid first.  We are very motivated to get the most out of each deal for investors because we stand behind them in the payout.My guesstimate is our co-investors will earn a return in the mid-teens (cash plus appreciation).  If one were to want to take on all the deal-sourcing and operational responsibilities themselves and purchase their own MHP, I’d guesstimate one’s returns would probably be in the mid-20’s.So it’s a question of what your time is worth to you, and whether you really want to do this with a meaningful amount of your time and passion.Your mileage may vary,

Jefferson, looked at ParkStreetInvestors and wonder why you would want to use other peoples monies if the returns are so great. Noticed investors need a net worth of $1,000,000 and or an income of $200,000 per individual or with a spouse a $300,000 income or most first time park buyers could not squeeze in. Also noted you are not registered under the SEC security act nor intend too. Just trying to understand the process and looks like you have spent much time on the program–NICE!

Carl,I would ask “why wouldn’t you use other people’s money if the returns are so good?”.  I’ll break this down on a calculator.  Let’s say Jefferson’s park nets $25,000 on the year.  We’ll say this represents a healthy 25% return on an initial $100,000 equity investment for a particular park.  Jefferson’s investors will get the first $8,000.  Then, Jefferson and his investors split the remaining balance of $17,000.  So, the score at this point is:Investors: $16,500Jefferson: $8,500Now, lets look at the return on investmentInvestors: $16,500/$100,000 = 16.5%Jefferson: $8,500/$0 = ErrorThis is a classic win/win.  The investors are earning 16.5% for doing nothing more than throwing money at Jefferson.  Jefferson is investing no money (only time and know how) and making $8,500 on the deal.Now, run this scenario over and over again until you own a massive portfolio that is fully diversified across many different markets. (much lower risk than owning one or two parks) Which you can do if you make it worth while to your investors. (i.e. raise the money for the special deals) Syndicating money on deals is definitely the way to go if you have the know how, a track record to back it up, and you take care of your investors.  After all, it’s pretty much how Donald Trump became Donald Trump.Your other point on the requirements are an SEC rule for crowd-funding.  You are not allowed to pitch your fund to persons who are not “Certified Investors”.  I’m not an expert on the subject, but my thinking is that the SEC would like to keep inexperienced investors out of these types deals as a way to protect them from getting swindled.  The assumption is that if you have that type of wealth, you probably know what you are doing.

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So why would anyone invest in a park if it is so much easier to just place the money with Jefferson since he has the experience and the large capital that as you mention a person with one or two parks doesn’t have? Charles the SEC is a complicated set of regulations dating from 1933 that protects participants and they receive massive amount of information on the project and the project operator then has a third party that qualify the propects. It provides good checks and balances and forces project operators to go through many hoops to justify what they are offering. I own parks but recently got involved in oil and gas projects that we received over 300 pages of information as to the creditabilty of the project and at this point have never seen in black and white an actual project on parks that verifyied such returns as 16.5% Thanks for the information and the site. Anything that involves money Charles has risks–using other peoples money bears great responsibility and I know of no one that can tell the future–not even the stockmarket numbers for Monday!

Charles, I have never seen any dockuments

nyone invest in a park if it is so much easier to just place the money with Jefferson since he has the experience and the capital effiicient size that as you mention a person with one or two parks doesn’t have? Charles the SEC is a complicated set of regulations dating from 1933 that protects participants and they receive massive amount of information on the project and the project operator then has a third party that qualify the propects. It provides good checks and balances and forces project operators to go through many hoops to justify what they are offering. I own parks but recently got involved in oil and gas projects that required the Charles, I have never seen any dockuments

What CharlesD said.

Thank you for all the information everyone! Does anyone have any idea as to how often these funds refinance vs. sell? Are there any advantages to the investor for one over the other? If I purchased parks myself, my thought was to use all annual income plus refinancing the parks to buy additional parks. Once I had 3-4 good sized parks, I would probably just hang onto those and live off the income. Just wondering if that changes anyone’s suggestions/thoughts. Thanks again!

Carl,There are quite a few people who have no desire or aptitude to run a park.  That would be the person who would invest this way as opposed to buying the park for themselves.  That type of person, who actually buys the park instead, will likely be selling it to one of us for pennies on the dollar 5-7 years later because they lost interest and want out.  I’m sure everyone here has seen that scenario play out.Also, the guaranteed return in the above scenario is 8%.  Not 16.5%.  It works out to 16.5% through splitting the remaining money in this case.  No one in their right mind would go around guaranteeing that type of return as a preferred return.  One bad year, and you wind up working for free, or worse, paying to run the park for your investors.Moore, I would request information on all of the funds that are out there and ask those questions to them.  There are some variances to the norm and many of these funds have negotiable terms.  At the end of the day, you have the money and you need to find the deal.  The fund manager has the deal and he needs to find the money.  It is perfectly acceptable to negotiate in this instance because you have plenty of bargaining power on the money side.  Also, there is a ton of good information out there on becoming a private lender.  I would take a look at those materials and attend a few of those seminars prior to doing anything as far as funds go.

in my review of the proposed investment, I showed about a 11/12% return to start with a moving upwards of 15% in year 4 based on adding additional houses and filling lots. Any further increases would come from initial rent increases. The real payoff comes when the park is refinanced/sold. My main sticking point was the 50/50 share of profits as this allowed the management company to take away more money than a 50% equity partner. They management company has no risk however takes half of profits.i am watching for F&D’s next offering. Their preferred return is 8% minimum and the payback is 80/20 until all capital is paid back. The profits then revert to 50/50.  on the other hand, i should be able to invest about 33% less to purchase a nice, profitable park, and get a greater return as a park owner. My goal in investing was to learn the business, however if I can find the right park, i believe ownership is the right way to go.

Jefferson,Stupid question, but I’m a little confused by your wording. Initially you said profits are “any cash taken out of the MHP at any time in any way” then you went on to specify “cash and appreciation” when discussing returns. So when you go to sell, is the “profit” based on just the appreciation of the property, or the overall sales price after paying off any loans from the seller or bank?In other words, for simplicity lets say you buy a park for $1M, pay off the entire bank loan, and sell it later on for $1.5M. Is the profit split based on the $500k in appreciation, or the total $1.5M?

Let’s say that park was originally purchased with $250k equity from our investors, and $750k debt from our friendly local banker ($1mm total purchase price).  So with the debt paid off, the profit to be split 50%/50% would be $1.5mm - $250k = $1.25mm ($625k each).  It’s cash out of the property.If, however, we had already returned our co-investor’s funds to them, then we’d split the full $1.5mm ($750k each).  There is a pay-down of both debt and equity that affects the profit at the end deepening on who’s already had their capital repaid.  Our investors always get their capital returned to them (with an 8% coupon along the way), and then a 50%/50% split of all profits after capital is returned.Thanks for your interest, let me know if you’d like to hop on a call to learn more about our funds,

Two quick questions regarding this thread:1) If there’s a significant opportunity to expand/re-develop/further develop sites on the land, what money do you use for this if outside investor money is tied up with the initial investment (down payment)? 2) If there is an unexpected major expense that the park owner is responsible for (I understand that with the right due diligence this wouldn’t happen but nothing is 100%), do you go to your lender or your investors? What has worked best for you guys in the past?

novicemh -1) We over-raise the capital we need at closing.  Our most recent closing raised a total of $600k.  We only needed $450k, so we returned $150k to our investors at closing, sent $300k to the seller (our down payment) and kept $150k in our bank account to purchase mobile homes to infill the property and take care of any 'surprises.'2) First we’d go to the bank, second we’d go to our investors.  -jl-


Just to piggy back on some other questions, so hypothetically if someone invested $100,000 and, so make the math easy, the property produced $16,000 of annual income. The investor would receive their $8,000 (8% coupon) and then they would receive an additional $4,000 as the 50/50 profit split in year one. Is this correct? If so, are you saying that this extra $4,000 would essentially go towards paying back the $100,000 principal? So if this property was held for 5 years, essentially the investor would only receive $80,000 back as their principal investment and then anything else would be split 50/50?

Thanks for clarifying.

moore -You are correct with your example above.  The properties ‘mature’ into a 50%/50% split of profits as we return investor’s capital back to them.  In the long run we are no longer paying the 8% preferred return because the capital has been returned and is no longer still in the deal.  Same as Frank & Dave structure their partnerships.Best,-jl-