Potential monthly income?!?

mobile home university
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Hi everyone! I have really enjoyed following along on this forum. Just a quick background. I have a job that takes me out of the country and away from my 4 young children and wife on a regular basis. I’m about fed up with the corporate ladder and I am hoping to get into MHP investing. We only need about 6000-8000 monthly in order for me to quit and begin investing full time. Can anyone give me even a rough estimate of how many parks I would need or how long this would take to become a reality. Any personal stories or experiences would help SO much at this time of soul searching!

Thanks.

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Your best shot would be two different park types. Assume you could find a 100 space mobile home park that is fully occupied at a 10% cap rate, which can cover its note payment and expenses. Then assume that there is an extra $60 per month per space that you can create through a combination of increasing rents and cutting costs. That would give you $6,000 per month in cash flow, which hits your target. To pull this off, you would have to find just the right park that is “stabilized with upside” – which are the same type of parks that we buy. You will also have to have enough down payment to buy it – so probably $300,000 or so. The other option would be a major turnaround park that has more in monthly cash flow upside, but far greater work and risk to get it. Such a park would be less down – traditionally with seller carry – but could cost a lot in repairs. For example, a 100 lot park with 60 occupied, that you can increase the cash flow $100 per lot through rent increases and cost cutting. We’ve done those deals, too. Those would be your two best attack plans.

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Here’s my estimate of what size operation you might think about:

For a stabilized park, assume you can get 6% bank financing at 30% down on a 30-year amortization schedule – although maybe you can do somewhat better. You’ll be paying $4.20 per $1k of purchase price, per month. ($700 financed per $1000 price).

By definition, at a 10% cap rate, you’ll be earning $100 per $1k of purchase price, per year, which is $8.33 per month.

This means you would be netting a cash flow of $4.13 per month per $1k purchase price. To get a cash flow of about $6k per month you’re talking about a $1.5M park (~$450k down)

Keep in mind that many parks come with park-owned homes which cannot be financed so you have to account for them & pay for them separately. You should apply the cap rate to the land-rental business only (not the home rentals!)

Here’s another way to look at it:

The net income of the park will depend on the lot rents & profit margin. Frank & Dave advise using a gross rent multiplier of 0.7 to find the net income (0.6 if utilities are sub-metered), although if you are learning, probably 0.6 is better to be safe.

As an example: $325 average lot rent x 70 occupied (rent-paying) lots = $22,750 per month of gross income, times 0.6 is $13,650, minus $6300 for the mortgage, leaves $7350 per month.

So you should be thinking of parks in the $1.5 million range, with gross income of $20k per month or so (lot rent only).

However, as you start out keep in mind that you want to get a good deal that will allow you plenty of room for error. Even so, it is possible to find parks that are cash-flow positive from day 1, and with some management can produce better returns than the net income on which you based the purchase price.

Keep in mind that some of the mortgage payment is principal paydown, so this builds your equity (slowly) although it doesn’t help your cash flow.

Anyway that’s my 2 cents,

Brandon

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Thank you both for your comments. This is a lot to digest but I am excited to head down this road to freedom from the daily grind. Thanks. Keep the comments coming if you have them.

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I can relate with you because I work a corporate job full time while also managing my mobile home parks. However, my regular job is somewhat flexible and I travel very little - I enjoy the job for the most part. My plan for the future, like you, is to step away from the job and be able live off of income from the investments.

If you haven’t read through the Home Study course, then you need to start there. Understanding this business and the associated risks is key. You don’t want to jump into owning a park and then realize that you either 1) hate being a landlord or 2) realize you bought the property wrong and are now stuck. Also, analyze as many deals as possible, so that when a good deal presents itself, you can recognize it very quickly. Keep educating yourself and networking with others on this forum too. Best of luck!

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Don’t always assume that park owned homes cannot be financed. Some banks (especially the smaller ones) might consider that income (although not capped at the same rate as the park itself). We just sold a park in which 25 park owned homes were part of the deal and the bank financed the whole package. I believe lenders may be slowly changing their perspective as they realize that POHs are becoming such a core part of this business model for many park owners.

Bret

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Bret,

I’m interested in hearing more about financing park-owned homes – what bank / what part of the country was that? Recourse or non? Were the homes newer or older? What percentage of the purchase price was allocated to the homes & what was the rest of the deal LTV?

If you like you could start a new thread on this topic.

Thanks!

Brandon

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Bret,

Thanks for the advice. I too would be interested to hear about what bank was used. Ideally, I would like to find a place with low park owned homes BUT that’s not always possible, or rarely possible I guess.

Ryan

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Ryan,

I too have the same dream. A couple thoughts about quitting the corporate job cold turkey and investing full time:

  • It was very nice thing to have an income while investing in my first large investment. Sometimes the cashflow didn’t turn out to be what I thought it would be right away. (some months were negative in the beginning) For this reason, earned income can be used to subsidize a property to profitability.

  • Going full-time too soon can make a landlord lazy. Why? You have nothing else to do, so efficiency can be wasted. Aka…the people that knock on doors and write tenants a monthly receipt which is a total waste of time. Keeping your day job will force you to be as efficient as humanly possible with operations because you won’t have much spare time to waste.

  • Real Estate investing is boring. What do I mean? After the property is stabilized, the tenants pay rent. Next month, they pay rent again. Next month, they pay rent again. Pretty soon, I’m borreeed. It’s about as exciting as watching grass grow. You’ll need something to keep you off the streets until it becomes a gigantic empire like Frank and Dave’s. You probably won’t be making enough to play golf in Hawaii 7 days a week from the cash throw off 1 park.

Those are my thoughts anyway…

Nate

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