How To Make Great Deals With Smaller Mobile Home Parks

There are roughly 44,000 mobile home parks in the U.S. – and the majority of those are smaller rather than larger. So how do you make good deals with small parks? Frank discusses the A to Z of small park buying and operations, including case studies on the small parks that he and Dave have owned. Owning mobile home parks is all about making superior returns on investment, and if you can do great with small parks, then why not? If you are looking at trying to buy parks in the 10 lot to 40 lot size range, then this audio should definitely be of interest.

If you want to learn skills to succeed with mobile home parks, attend our Mobile Home Park Investor's Boot Camp. You'll learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks. The course is taught by Frank Rolfe who, with his partner Dave Reynolds, is one of the largest owners of mobile home parks in the U.S. To learn more, Click Here or call us at (855) 879-2738.

Making Deals With Small Parks Transcript

Welcome to another MHU lecture series event. Tonight we have a very special event. It's one we've wanted to do for a while, but other topics kept popping up so we're perhaps a little more timely, but tonight we're going to talk all about small parks. We're going to discuss what they are, what the good things are, what the bad things are, some case studies of different parks that we've owned in the past and did a whole bunch of additional thoughts we think people need to know about the ins and outs of buying small parks. When they get done, we're going to open the lines up to Q & A and we're not going to have any limitation on it. Although, just for safety's sake, we attached a wire to Brandon and if he falls over asleep, it will potentially turn the recording mechanism off so we can't go on for 24 or 48 straight hours, but we definitely want to get all the questions addressed.

If I sound a little winded, it's because I had to go down and print of, yet again, more sheets of questions that have come in via email, so I had to run downstairs, three flights of stairs and back just now so I guess I got my exercise in for the day. We have some emailed questions, but we also will have live questions so if you're saying, "Well, I didn't email my questions in." That's okay, we'll do live questions as well as emailed questions, so let's go ahead and get started and let's start of first with, you know, what is a small park? If we're going to talk about small parks tonight, I think we should first start off with the definition of what the heck we're talking about.

A small park in our world is defined as park that has typically around 10-40 lots and also has a price point of under half a million dollars, but really, in the real world, that's a very broad definition. In the real world, it's probably mostly deals that have a price point of $250,000 and under. That, to us, what a small park would be. It's probably to measure based on overall price, even the number of lots, because as those who have been to the bootcamp on Los Angeles know, it's not hard in L.A. to have a $200,000 mobile home park would just be two lots because the rents are so high there.

Now, let's talk about small park deal we've done in the past and how those turned out because I think it gives us A, some credibility to the purpose of the whole call and then B, some idea of what these deals look like. I'm going to start off with the second deal I ever did. It was located in just north of fourth ... Northwest, an area called Lake Worth, Texas and it a was a 16 lot park with a little rickety frame house and I bought it for $65,000 with $5,000 down and the seller carried the paper fully amortizing at an interest rate back then at what would have been 6% or 7%, which was right in line with banks prior to the great recession in quantitative easing.

This was a park that I purchased which had no rent roll because the owner of the park had inherited the park and had no interest in it at all. In fact, they found it kind of scary. They were probably upscale and they just ... The whole idea of owning the park that they found to be atrocious. I mean they just ... They'd never wanted it. It was left to them. They, therefore, had nothing in it, but they couldn't get rid of it fast enough so the sales pitch was $65,000 with $5,000 down and they would carry the $60,000 on recourse.

What happened with that park was I re-established the rent roll. It had some vacant park owned homes so I fixed and got them back in service. I even got the house in the middle of it fixed and back into service. At the end of the movie, I sold the park. I can't remember the exact selling price, but I want to say it was around $150,000 as I recall. Somewhere between $125,000-$150,000 so it was basically equivalent to twice what I had paid for the park. Of course, the good ending is it has phenomenal leverage to it, but that's a typical small park deal.

What's so typical about it? A, it's weird. Love the small parks that are sold that are very quirky bases. The pricing is typically out of the small parks, many small park deals are extremely compelling. A lot of seller financing involved. If you also look at my park and this was probably park number ... Maybe it's park number eight. When I bought that park, there was only one other park in the city of Lake Worth, so Immediately went to that seller and said, "I would like to buy your park," in which they told me to go screw myself, but I would call them periodically. I would call. I would send them letters and then one day, they called and they said, "I'll sell you the park."

It was the original builder. He was an engineer. His wife had died. He was in bad health and he was just like, "I don't have time to jack with it." He had always dreamed of bringing it back to life. Apparently, when he built it, it was a landmark property. It was around the edge of a lake and he thought, you know, I guess we he was doing his engineering career, but he didn't manage it very well. Over time, people ran off and he never did a thing with their homes and he didn't even bother mowing it later on in life. It was a complete pit, but it's kind of like those deals you see on American Pickers, where the guys got the old, rusted, beat up car, but he dreams of one day rehabbing it and then when the person gets super old and they suddenly realize they're never going to rehab it, then they just think, "Aw, may as well get rid of it because I'm never going to achieve my dreams," so that's what happened on that one.

I bought that property, as I recall, for around $110,000, is the price that serves my in my memory banks. That one worked out really well. I took the abandoned homes and I either trashed them or rehabbed them. I went out and bought some brand new homes that would fit the spaces, which were very, very tiny. I had a couple organic move-ins of people who had their own home and then I sold that park, as I recall, for about $250,000 after holding it for probably about half a decade so it was again about twice what I had originally bought it for, and like the first park, it also included seller financing, which was nice.

Now, the next two parks are parks that Dave did that were small parks. First park, just to show you that not all small parks turn out good, was his very first park ... No, no. Not his very first park. Probably in his first handful of parks in Kit Carson, Colorado, which if you've never been there, it's an absolute pit. There's nothing in Kit Carson, I was driving to some of our parks and I saw the sign "Kit Carson" so I thought, "Oh, I've got to go see Dave's park." I couldn't actually find his park because it's apparently off the main drag, but I can tell you there's nothing in Kit Carson but a water tower and a trucker diner thing and that was about all the civilization I could find and Dave would tell you it was a bad buy. Terrible location, minuscule population, no metro. This is back before Dave really knew what makes parks work and that park lost $10,000, so it was a nine space park. He bought it. He found the market completely unsupportive for anything because there 's no town in Kit Carson. Sold it for $10,000 loss.

Dave's other smallest park deal was a 17 lot park in Kansas. That one, his experience was very similar to mine. He bought it for $70,000, he raised rent, filled some lots, and sold it for $130,000, so again, about twice what he had paid for it. That one, unlike mine, did not come with seller financing because he didn't need it. He found a small time bank that was more than happy to do the deal and so he just used a bank loan on it, so those are some of our small parks. They range in size from 9 lots to 24 in all different shapes and varieties. Now, you know, it's not just then when we still own some small parks.

We have a park in Austin, which is small. I think it's under 20 lots. We have other parks in the portfolio, the current portfolio that we bought, which are again in the 20s and the 30s in size, so it's not something that we would not do again. We still very much like small parks and as we've morphed over time, we've now had the desire to add a lot of small properties on because you were trying to perfect the portfolio. For what we're doing, but we still like small parks, we still look at small parks, so, pretty much, I guess it's fair to say, we've been buying and operating small parks now for twenty years.

Now, what are some of the things all these deals had in common. If you were to tie a thread together and say, "Okay, what do those four deals all have in common?" Number one, an incredibly low price. That would be definitely the takeaway, and each case, buying the things for a penny in the dollar and a fraction of construction cost and we think that's a big reason people should buy small parks is because you can get, often, the best deals after in small parks. Why? There's much less competition.

Number two, three of those four cases, the park came with seller financing and there's a very real reason why, which we'll go into in a moment on the pluses and minuses of small parks, but that is the ... When you get under a certain dollar figure, it makes lending really hard, bank loans really hard, because if you're a banker, and let's say you're buying a park for $100,000 and you want to borrow $80,000, and just put yourself in the banker's shoes. They look at that and say, "Oh gosh, well, that park only represents, as far as a loan, the same a mortgage on a house and it's not as safe to me as a bank, as a house loan, because house loans, I would never be criticized on if I'm a bank officer and, therefore, I don't want to a tiny loan on a mobile home park, so it's really hard to get a bank who will play ball with you.

Since that's just a reality, most sellers on these small parks assume, on the front end, they're going to have to carry the paper. Number three observation in all four cases, the parks were very near our homes. Now, you might say, "Why is that so essential?" Well, the problem is, is we'll talk about here in a few moments, travel costs is a real problem with a small park because if you have a $200 space park and it costs you a $1,000 to visit it, then your travel cost is a tiny percent of the park's revenue, but if you have a tiny park, it costs you just the same, right? Same airfare, the same hotel, same rental car bill, whether your car is 20 lots or 200 lots. It's really hard for small parks to absorb that travel expense, so they typically work better if not near your home then at least it's accessible by car.

Number four, in all cases, city water and city sewer. Why is that? Well, most of the small parks that we see out there are very much typically in urban areas, in the heart of things with city water right out front and city sewer right out front and most small parks simply do not have enough land mass to even have private water or private sewer so there's really no room to drill the well and there's no room for the septic or the packaging plant or what have you.

Item number five, the rarely master metered gas in the small parks have, been in all cases of ours, we had no master meter gas or electric, which can pop up, which we'll talk about here in a few moments. Item number six, they were all great locations. Well, I think Kit Carson, no. Not a great location, but the rest were all metros of 100,000 plus with decent median home prices of $100,000 and up and apartment rents what would equivalent today of a $1,000 a month, so all the bells and whistles on the locations. All the reasons we'll go over that would make you buy a big park also fall true for the small park, so you don't want to mess with that.

Finally, in all cases, we were able to then sell those properties, still with upside left in theM, so still is a good deal for the next buyer, because we bought them so amazingly cheaply, so, because again, when you go to sell the small park, just as you were looking for a great deal, the next buyer will be so you have to have a really, really ... A lot of things you can improve on. A lot of ways to push the numbers at a really, really low price to make it work.

Now, let's segue into what are the strengths of small parks? Well, these are the strengths. Number one, they allow you to start small and learn the business as you go. You know, for a lot of people, myself included, Dave included, it's really hard to just go out there stone cole and buy a 150 space park for $4,000,000. Number one, takes a whole lot of capital. Number two, you don't really know what you're doing, so most people would rather experiment on something small, get their feet wet. Learn what they're doing, and then expand from that, which is certainly not a bad way to approach life in general, so small parks allow you to start out small and learn everything before you advance to a larger deal.

Number two, there's much less competition for deals in small park land, so whereas on a larger park, a 100 space plus park, you might have quite a few people interested. Often, in these small parks, you're the only one, so when you're talking to mom and pop, you're the only buyer they have to look at and so that's very advantageous on getting a good price because there's just a whole lot less competition, which leads us in to item number three: great pricing. I would never buy a small park unless you're getting a really, really great, impressive, compelling deal on it.

As Steve Jobs would say, "An insanely great deal," so pricing is key. You would never want to pay full retail for a small park because the whole point of buying a small park, one of the things it comes with, typically, is a really attractive price. Number four, seller financing. Most small parks, when you buy them, they come with seller financing, which is fantastic so you definitely want seller financing. It's an important part of the deal and you probably see more seller financing in small parks than any other subset of parks.

Next, the locations can often be phenomenal. Amazing. Things you never would expect. I'll give you some examples of things I've seen. I was just in Austin recently and there's a very small park not far off of Sixth Street in Austin. Completely out of place, completely inappropriate. Probably from a city administrator's perspective. Probably blows the mind of PNC, but nevertheless, there it is. Now, why would it be there? You might say, "Why the heck would there be a tiny mobile home park in boom of Austin. Well, these small parks typically are really old. Most of them date probably date to the 1950s.

I've looked at some that date to the 1930s. Bare in mind that by the 1960s, they brought out that HUD development program so a lot of those parks by the design were 100 pads plus, so really the hay day, the highlight of the small park industry was back in the 50s. Well, if you picked the right city in 1950 and it built around you, you should have a pretty darn amazing location. There's a tiny mobile home park right by the Dallas Arboretum. There is a tiny mobile home park we looked at once right next to a high rise in downtown Houston so these small parks traditionally have really amazing locations sometimes and that simply out of sheer luck because they were right in the heart of town, and additionally, they don't have a big enough land mass to be redeveloped.

If you had a 100 space park in Houston next to a high rise office building, you would obviously be gone. Someone would have bought it and built a high rise building, but if you have just a tiny little park, there's not enough land there to be build an office building so no one knows what to do with that use and over time, you can literally be in a giant cavern with high rise buildings all around you.

Next item is small parks traditionally come right out of the gate really, really ugly, but they're really, really ugly with things you can fix with sweat equity. Right? They're typically not super capital intensive. They don't normally have city water, city sewer, no amenities to speak of, so traditionally, other than the sign out front and maybe a little vinyl fencing, you're not putting a whole lot of dollars in, but you might be putting a whole lot of sweat into it, so for people who do not have a lot of capital, here's an opportunity to take an asset and fix it using your muscle power and determination with a push lawn mower and an edger and that's kind of refreshing because the cost is not really measured in dollars. It's sometimes measured in time and energy.

Also, small parks typically always come with city utilities and two reason, again, which I can't emphasize enough. Number one, they're typically right in the heart of everything. I don't think I've ever seen a rural tiny park. You just don't see tiny parks in the middle of nowhere, so typically, a tiny park, even in a smaller town will be right on the main drag with city water and city sewer. The other reason is you simply have no room for private utilities so even if you wanted to build a giant packaging plant, you'd never be able to do it because there's just not enough room. There's not even room to build the private utilities on. Finally, and this goes without saying, when you're doing small parks, you have much lower risk simply because the dollars are smaller.

Look at Dave's disastrous entrée in the Kit Carson, Colorado. Seemingly the armpit of the west. Dave lost $10,000 on a nine space deal, so he lost about $1,000 a pad. He was able to survive that $10,000. He learned from it greatly. It saved him hundreds of thousand if not millions of dollars of doing something equally goofy as far as a market going forward, but what if on that first park in Kit Carson when he was learning the business, it wasn't a ten space park, but a 100 space park? What if he lost $100,000 on that park? That could have been a game changer. He might have never bought another park. Might have been the end of the Dave Reynolds story, so, again, another plus just as my first bullet point was you can start small and learn the business, you can also exit in a small way if anything goes wrong because you just don't have as much money up. On the second park that I bought with $5,000 down and non recourse note of $60,000. I could have walked out at any time and all I would have lost was $5,000 plus whatever else I put in in the form of improvements.

Now let's move on to the weaknesses of small parks. The first weakness is the opportunity cost of your time because it takes you about as much time to manage and visit and talk to the manager on a 20 space park as it does to a 200 space park so there's definitely one weakness there. It's just literally the efficiency of your time. Should you take the time you were going to spend on the small park and instead buy medium or large sized park, and that's something that many people who buy small parks grapple with is, "Gee, is this the best use of my time?"

The second one is it's small parks, it's impossible to import park managers and so you're stuck with what's on the park. When you have a 100 space park, you can import a manager. By import, I mean you can run an ad, "Wanted Mobile Home Park Manager," and put it out there on Craigslist and some other websites and you'd get calls. You'd get resumes, you could find somebody. You might find a magical gem. Someone who's nearly retired. He used to manage apartments and would just be the best manager of all time, but you don't get that chance on tiny parks because there's not enough dollars to bring anybody in so that's a huge issue for many people on those tiny parks. You just simply can't go out to the market and get management talent.

Third item is that when we look at the scale of the park, is it really that it worked for you based on your goals because if you have a 20 space park and you raise the rent $20. IN a 100 space park, that's $2,000 a month in your pocket, but on the 20 space park, it's $200 in your pocket, which is still great. I mean I'm all for $200, but again, if you're trying to replace your day job. If you're trying to create an additional income stream, it would pay your kids college tuition. The small parks, you'll have to buy a collection of them to do that, so it's the scale issue would be I think the third negative.

Fourth negative is for the very reason that it was hard for the person you bought from to sell for cash, you have the same problem so when you go to sell your small park, less people are going to want you to try and carry paper and if you don't want to carry paper, you're going to to have to be able to ... For them to get a bank loan, so that's something that was good on one side, but bad on the other. Additionally, when you go to buy your own park, if the seller won't carry the paper for whatever reason, it's harder for you to get a loan so you can't get a loan broker on a typical small park deal, not going to happen.

Then, finally, on the weakness side, the park really needs to be something you can drive to, because again, you can't really rack up a whole lots of travel cost on a small park because there's just not enough lots to spread that around. Now, where do you find small parks? Let's talk about that for a moment because it's a little different than the larger parks. Over the last ten years, 50% of the parks that we've purchased have come from brokers. Typically pocket listings and then it's about another 10% or so that come from online and probably 20% cold calling and 20% direct mail so that's probably our break down as far as new deals, but when you're looking at small deals, there's rarely a broker involved because there's simply not enough commission.

If the deal is a $120,000 mobile home park, let's say the commission of the broker in that case is 5%, it's only $6,000. They're not really going to work that very hard. They tell people not take those deals even on as a listing. Typically, it's a small town world. You're going to be looking at a whole lot more of online and cold calling and direct mail, but not so much the brokers.

Now, beyond that, without the brokers, I'd say it's still pretty much evenly set between direct mail, cold calling, and online, but I just wanted to point that it's really hard to call up your good friend that Marcus & Millichap would say, "Hi, I'm trying to buy parks that are under $200,000. Because they just typically don't take those. In fact, when sellers call them up and say, "Hey, will you list my park," and I tell them how big it is and the dollar amount, they'll typically say, "Nah, I don't take listings that small." I talked to one broker once, he took small listings, but he was charging a 10% commission on them and that made it really hard to get listings, right, so now you turned it around and say, "Well, okay, why don't you just charge more?"

Well, at some point, it's too big of a percent s the overall sales price. So that makes that a little different. Now, let's move on to some other thoughts of things I want to go over with everyone before we go into questions and things about small parks. The first one is that ... You know when you're buying a small park. You've got to assume a much larger expense ratio. Right? Now, you know in Bootcamp and our course, we talk about the industry norm, which is 30%-40% of revenue. 30%, if the tenant pays their own water, sewer, and 40% if a park has to pay it, but when you get a small park, you have to remember that there are a lot of expenses that are fixed.

To travel is a big one. Assurance has minimums so suddenly a lot of different expenses that were variable before when you get low enough they become fixed. Whether you've got one lot or ten lots so to compensate for that, we typically add an extra 10% on. Kind of a small park surcharge, so if you're looking into the park where the park pays water/sewer, your expense ratio is in fact not 40%, your expense ratio is more along the lines of 50%. If the tenants pay their own water/sewer, instead of being 30%, you should probably make it 40% so that's one important tip I wanted to give you.

Number two, you've got to be really careful about the city permit. Your whole relationship with the city is important on small parks and that's because they're typically in areas that you don't normally find parks and the city manager and the residents and the counselor are very, very touchy about some of these locations. There's one here in Missouri that I've been to and it's over in an area called Frontenac. Now, Frontenac is a very expensive neighborhood and this tiny little park and I'm talking a park ... I don't think you can exceed 15 lots. It's at the back. It's just a strange location. You actually have to go down a dead end street that runs up against the wall that's a sound wall to high way 64 and here's this little park and right behind a bunch of giant custom homes, so the home right next to the park is valued at $700,000 and so you have the big house there, the big yard, and then the yard has another treeline and over the treeline is this little trailer park a nd the city has been trying to get rid of that park forever.

The neighbors have tried to buy it to tear it down, the city has tried to buy it to tear it down. The city's tried to condemn it, but no matter what they do, the owner fights them in court and typically wins because it's a very valid argument. They're trying to get rid of them because they frankly don't want to have those people living on Frontenac. They don't want trailer park people in their city. They don't want them over the treeline and that's really hard to defend in court. You can't really as a city, you can't say, "Hey, we just don't want to have people with lower incomes in our city," so, so far he's prevailed every time and the park is still there, but I'll give you another example very near and dear to my heart was the story of my park in Lake Worth, that second park I bought, the 16 space park with little house.

To tell you the sage of that, because again, I think it's very representative of what you have to sometimes worry about with these small parks, so here's the story. I have mobile home park. It's a very small park. It was built probably in the 19 ... Late 40s and it has a very unique location. We're talking unique locations here. It is directly behind a 7-Eleven, which fronts Jacksboro highway. No one really knows it's there because over the ensuing half a century, all those bushes and trees that the former owner planted grew into a virtual jungle, so picture a mobile home park that is three sides jungle and one side faces directly into the back wall of a 7-Eleven, so you get to the park, you drive and then you get 7-Eleven and you can take a ride and that's it, so no one sees the park. It's been there for literally half a century and no one knows it's there.

As a result, it's very peaceful. Life is bliss. Nobody cares. Never seen an inspector. No problems, no letters, no citations. The inspector never even goes in the property, doesn't even care. It doesn't matter, and then something terrible happens. I think it's good at the time. I'm all excited about it and it's my own doing. What happens is they announce they're going to widen Jacksboro highway. Now, if you own property, the fronts are highway. The announcement that they're going to double the size and build a new bridge over the lake would be cause for celebration, right? You'd say, "Wow, this is great. They're going to double the highway, which is going to bring in lats of traffic and much higher property value. This is fantastic," and then right behind that, they announced, "We're going to be build a new Home Depot. We're going to build a new Walmart."

Well, I'm just giddy with excitement, what an incredible luck out. I bought this little tiny park and now they're going to make the whole town fantastic not knowing what was about to occur. So one day, here I am minding my own business and I get a call from the manager that there's an inspector coming through the property writing up citations, going crazy, and I thought, "Well, that's kind of weird," and the manager also tells me, "Hey, did you know they tore the 7-Eleven down?" "I didn't know that." What had happened here was they had torn the 7-Eleven down and for the first time ever, everyone in the entire town could see inside the mobile home park. They could see all the old flat roofed, ancient, mobile homes with all the dreadful looking automobiles of all my residents who had no money so they all had one window broken out with a trash bag taped over it.

This park showed absolutely terribly, and now, you know, someone who has suddenly opened the curtain and expose the Wizard of Oz and it's a disaster, so I call the city inspector and I said, "Hi. My manager says you were in the park," and they said, "Yeah. Oh my god, you have so many violations," and I say, "Well, jeepers, I've owned that property now for, I don't know, half a decade and you've never even called me." "Yeah, I know." "So why are you?" He said, "I'm following orders," and I said, "Okay, do I ask who the orders are coming from?" He said, "I don't want to get involved. They're just coming from the city," so I called the city administrator and I said, "What's going on, city manager," and he said, "Well, I'll just tell you the truth. We want you out of there. Here's the story. We've expanded the highway, we've brought in some big box retail. We have a lot of great things happening in our city and you are a disgrace. You are making us look bad. Everyone that come s looking, scouting locations drives by your horrible looking cesspool of a property and makes them not want to come to our town and I am going to get rid of you."

I thought, "Well, that doesn't sound very encouraging," so I, of course, threw out the old grandfathering thing and he said, "Well, yeah, I hear you and I understand grandfathering it all, but that isn't going to stop me from nitpicking everything in your property all the time, and there's a whole lot wrong with it and you know it," so I thought, "Oh, boy. Okay, this is not going as I had planned," so I called my lawyer in Dallas who's the best lawyer I've ever used. I still use him and said, "Okay, what do I do? The city manager wants me out of the town. The park is incredibly old. There probably are a million violations of something," and he said, "Man, if I were you, I would go to that guy and I would try to work out some win/win solution to it because that is a tiny property. You cannot afford to start jacking giant legal bills or wipe the entire revenue out," and of course he was completely correct.

I went to the city manager and I said, "Hey, city manager, have I got a win/win opportunity for you," and he said, "What do you got?" I said, "Well, here's what I will do. If you will call off the inspector and that's assuming any citations at all, I will go ahead and put that property on the market. Not as a mobile home park, but as commercial property and I will let you choose and manage the realtor and I will set a reasonable price on it and you have to rezone it to whatever zoning I need to get the highest price on that thing, which I think is commercial so I would now would have a commercial corner and so if you'll do that, I will sign an agreement on that and we will proceed on that," and the city manager didn't even have to give it any thought.

He said, "That's a winner. I will get ahold of the mayor and the council. We've got a deal." I did everything as requested. We set a price, we picked a broker, they made up a package. The city rezoned it commercial. They went out there with only a few matter of months, had a buyer, and the movie was over and the interesting wrinkle to this was those mobile homes that I had, I had another park not too far away that was ... Even though they were not HUD code, let them in. They didn't have any HUD code ordinances, so when he happy, and he was, I was able to move those homes to another park, which took it up to almost 100% occupancy so I didn't lose anything on the homes, and then to make it extra, extra good, it wasn't that far from the other park so most of my residents moved with the homes so that was a happy ending. A few didn't because it wasn't the same school district, but that's how it ended.

It was a by designed conversion into raw land, but what the big takeaway from that is, You have to be really careful in the city's agenda when you're looking at buying a small park, because again, they're so very visible, so I definitely in due diligence talk to the city. Talk to the city manager, "Hey, I'm looking to buy an auto park over there, is that a problem? Are you happy with that? Do you have other plans for that in the future? Where are we at on this thing?" Because you don't want to have the same issues that I had on that little park on Lake Worth even though it had a happy ending, there was some pretty hairy times there and I was really concerned that the whole property we've got to be in just a big disaster because had I gotten in an legal fight, the legal fees, because it was so small would have literally wiped the park out.

Third observation on small parks: they're old. You've got to be very careful at density. The highest density parks I have ever seen are small parks. There is one in Dallas and it backs on the I-30, it's west of Dallas, and it is so dense that you can literally step from roof-to-roof and never touch the ground and walk the entire property. It's crazy. I mean from the back of the homes to the back of the other homes could not be more than three feet. I think some are maybe under a foot. It almost looks like it's one giant contiguous mobile home, not a singular double wide, but a 20 wide, so you've got to be really careful with density. A lot of these old parks, bear in mind, were built at a time where the biggest RV on the road was eight feet wide and forty feet long, so some of those lots will not hold things bigger than an 8x40 and as we all know, they don't make homes that size anymore, so be very careful on density, because again, think about properties are made from the 1930s to the 50s, traditionally.

Number four, be very, very careful on utilities. Do not, repeat, do not, unless you have to, buy a small park and private utilities. Why? You have no room to maneuver. If you have, for whatever reason, a packaging plan on a 20 space park, which would be insane, and it broke, there's nothing you can do. There's no way you can go in and replace it. There's no room. There's nothing there. Traditionally, these small properties have every square foot utilized so I'd be terrified buying one with ... You know, a small park with private utilities, I mean how would you fix the septic? Where would you dig the new septic field? How would that even work? How could you even get to the septic field, so city water and sewers are pretty much mandatory on these tiny properties. The only exception would be if it's something that was checked out of due diligence as being in fantastic working order and the location and the price was so unbelievably compelling that you just have to buy it, but otherwise I wouldn't do it.

Also, be very careful about the age of the lines. In parks that were built in the 1930s, made of galvanized metal, that's really old galvanized metal. I mean, most folks, even people on this call, have galvanized metal in their homes, but that's probably from the 60s, but you know, take that an extra three decades back, that's getting really old. I mean, it's approaching a century old and that's really old, so by all means, definitely have a plumber check out what's going on there in the ground.

You don't want to buy a small park that needs a lot of work. Why? Same reason I just told you. There's almost no room to maneuver. Where are you going to put it in? How are you going to dig the new water or sewer lines in? There's nothing there. It's so compressed. There's just simply no room to put your shovel into the ground so it's very, very tight. It's also true of master metered utilities. I would not do master metered gas or electric on a tiny park. You do not have enough spaces to spread the cost out very effectively, and again, you don't have very much room to maneuver. It's really hard to dig or do anything.

Observation number five, you've got to buy these at really compelling rates of return, so yes, I know we talk all the time about buying parks at a ten cap or a nine cap or an eight cap with room to push it. That's all great and everything, but on a really, really, really small park, you know, on a 15 space or a 20 space park, it's got to have more to life than just that. You've got to be buying them like in a 12 cap, 14 cap, just huge numbers to make it compelling enough to do because otherwise, you'll grow tired of it pretty soon. You'll say, "Gosh, this little tiny stupid park. I drive out to it all the time and I have to pay the bills every month and all I clear is x, some tiny amount," I didn't want to jack with it anymore, so you've got to make sure the rates of return are high enough that you aren't go to one day wake up and say, "I don't want to do it anymore. You've still got to have the number be compelling.

Another item. Oh, and this really ties back to that one. On the small parks, you really need to negotiate really, really hard because there's much less competition, so typically you're not negotiating against another buyer. You're simply negotiating against what the seller wants for the property so if the seller is not ... I mean if you can get a price that's compelling then that's great, but you're typically not bidding. It's not an auction, and as a result, you need to get a really, really, really favorable price. This is one time when it really helps you to be a hard negotiator. Now, if you haven't been a hard negotiator up till now, I give you a homework assignment. Watch Pawn Stars and American Pickers and just start getting in the back and forth vibe of negotiating, because again, negotiating, particular on small parks, is very, very important because you should be getting really, really, really good deals.

When I negotiated the deal for $65,000 with $5,000 down, I thought for one mere moment I was the greatest negotiator in history because it made absolutely no sense. I was buying a little frame house, that's probably worth $50,000 and then 16 mobile home lots, and if you do the math of the replacement cost of that whole thing, you're talking $200 to $50,000 that I was buying it for $65,000, so on most great small deals, you should be just ebullient with excitement of what a great job you did as a negotiator, and if you're not feeling that. If you're not thinking, "Oh my god, I am the greatest negotiator ever," then you're paying too much probably.

Number seven I can't emphasize enough, and this is to the betterment of small parks, is that there's no advantage to scale in the mobile home park industry except for manager. What am I even talking about? Have I gone insane? No. Think about it. Water and sewer rates are the same whether you have one lot or a hundred so is trash, so is insurance, so with everything. It's all just scalable. It's all per lot, so when you own a hundred space park, you don't get any breaks. They don't say to you, "Oh, well you have a hundred lots. You pay less for water and sewer." No, there's no breaks. There's no scalable benefits to the business so as a result, small parks don't really offer any less attractive numbers than the larger ones do, so that's kind of interesting. In other words, most things in life, if you have scale, you get greater efficiency and better deals, right?

If you're Walmart buying plaid shirts, you're going to get a much better price on plaid shirts when you buy a million of them than if you bought one, but not true in the park business. The only item that is more efficient in the larger parks and the small is the manager because if you have a manager on the staff, that one manager can probably manage a hundred lots as much as they can manage 50 and they might be able to manage 150 lots, but that's the only efficiency you have, right? Now, we're not even efficient in that because we pay our managers based on number of lots, so if you pay your manager $10 a lot plus free housing, what do you have going on?

Well, the only efficiency there is that the average value per lot of the free housing. That's not much money, so small parks are not inefficient, right? It simply just falls back as far as the scale on the end result of how much money you make and if that amount of money is what you're trying to achieve, so again, to sum it up, small parks are a terrific investment if you buy them right. If you use the same due diligence metrics that you use on larger parks, so the same 30 days due diligence handbook, the same items, there's no exceptions, it's the same drivers. You still have to have the right population, the right home prices, being in a good location, good school district. None of that has changed. It's the same whether small or big, but you can just sometimes get really fantastic prices on them because there's no one competing with you and typically, it's not even mom and pop's sole focused. They don't even look at it as their life's work.

Just typically like a hobby that they had. You can also typically get seller financing, which can be fantastic, so the combination of a super compelling price coupled with summer financing, that's just the best combo in the world. You can't beat that combo. I would also add, if you look at the deals I told you on the front end, those are really high rates of return. On the deal I bought for $65,000 and sold for ... I can't remember the exact price, but let's say it's was even $130,000 with $5,000 down. Okay, that's a deal, right? That's like 12 times my money over five years. I don't know about you, but I haven't seen any deals like that out there in AG Edwards or online on MSN in the money columns so those returns can be really, really interesting when you add the low price and the seller financing.

Also, small parks, you can sometimes get unbelievable locations. Just incredible locations that you cannot replicate that you never find big parks with the same locations because these are things are so old to get those locations. You're not going to find a hundred space park in Frontenac, but you can apparently find a 20 space and under one. Now, again, recapping the strengths: allows you start small, which is very attractive to people, so you don't have to bet the ranch on the industry. You can try it small and see if you like it. See if it likes you. You can typically find deals that they all need in turn around is a whole lot of sweat equity. If you are a good chopper and a good negotiator, you can really create a lot of value because you can create the value yourself with your own street smarts and your own label an that's a big deal.

On the weakness side, many of the strengths, as you probably noticed, they're also the weaknesses, right? The weaknesses include the fact that when you go to sell it, you're going to have to have to still sell it at a compelling price. You have to have a lot of meat on it so you can sell it to the next person with still a lot of meat on it. It's also hard for the buyer who buys from you to give you cash because they'll have to get a bank loan, so again, the very reason you bought it to begin with with seller carry, you might be stuck doing seller carry on it. You have to be careful and be ready for that. Also, it needs to be a driving distance. I'm pretty confident that those of us who had small parks would agree. You really could not own effectively a 15 pad park in Maine if you lived in Arizona. It's just the problem would be that the travel costs is just going to punish your P&L.