In 1996 I ventured into the mobile home park business with my first buy being a dilapidated old park built in 1951 called Glenhaven. I knew nothing about what I was buying or how it operated. Essentially, I was turned on by the scarcity (you don’t see that many mobile home parks out there), the highway frontage on Interstate 35E, and the incredible seller financing with a 2.5% down payment. I also knew that the park had a $2,000 per month negative cash flow after debt and one of the toughest tenant bases in southern Dallas. But buying the thing with only $10,000 down was just too attractive, and I pressed forward without any clue what I was getting into.
The first part of the story went well. I evicted those who would not pay the rent and generally cleaned up the property aesthetically, from painting homes and fixing decks to cutting down dead trees and patching potholes. And these improvements were appreciated by the residents who rewarded me with taking better care of their own homes and yards. The closure of another mobile home park downtown resulted in me importing enough homes to fill the park, and it was now looking like a real money maker that I bought for a song.
Then winter set in and, minding my own business, I received a call from the manager that the natural gas had gone out. I immediately thought that somehow they must not have received my check for the gas bill and, finding the gas company number, I called and sat on hold. When I reached the right department, they explained to me that my account was current but that somebody had detected a gas leak and that my gas had been turned off as a safety precaution. They told me to call a gas plumber to get it fixed. That’s when things got even worse.
Standing out in the 20° cold with over 80 families depending on me to provide heat, hot water, and the ability to cook, the gas plumber gave me the bad news. The gas line was so corroded that it could not be fixed – the whole system would have to be replaced. The cost would be around $400,000 and take months. I suddenly realized that I had really screwed up in buying the mobile home park and the only solution was to give it back to the seller and lose my $10,000 plus all the time and effort I had put into making the property nice again.
Fortunately, the former owner had a plan. He knew the system was failing (and didn’t tell me) but had a backup concept: to retrofit all the lots to propane gas with individual tanks. And that’s what I did. But it still took over a month to complete. In the interim, I had to deal with terrible feedback from residents, the cost of installing the propane, and the general terror of having gotten into something without knowing all the facts.
I later learned that what I had purchased with Glenhaven was a “master-metered” natural gas system as opposed to the normal natural gas system in which the gas company owns and maintains all the lines. I had literally walked into a landmine with absolutely no warning. And I learned from my mistakes and never did it again (although it was too late and I had already bought another smaller property with the same ending that I had to deal with).
As with anything in life, it is essential that you know what you’re doing before you jump into something. While the mobile home park industry appears simple on the surface, there are some giant pitfalls if you don’t know all the details. And these few but deadly items can destroy your investment. They include:
- Master-metered gas systems
- Master-metered electrical systems
- Private sewer treatment (packaging plants, lagoons, and septics)
- Well water
- Too high a density of lots
- Using mobile home rent (and not just land rent) in your calculations
- A location in too small an area – or with too low home prices – that results in low demand
- Anything less than “legal non-conforming” permit status
- Certain types of floodplain
- Environmental contamination
- Easement issues
And the list goes on based on the type of mobile home park you are buying.
The bottom line is that if you intend to actually buy a mobile home park, you’ve got to educate yourself on all those important details that can make or break your investment. That’s possible today with our Mobile Home Park Investor’s Boot Camp, with the next class being from June 24th to 26th. It’s a three-day immersion weekend on the correct way to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn around, and operate mobile home parks and it’s 100% virtual (so no travel time or cost) and 100% live (with Q&A throughout).
Would I have taken such a class before I bought Glenhaven? Absolutely. It would have saved me 100 times the price of the class by avoiding things like master-metered gas.