My first mobile home park deal was $400,000 with $10,000 down and the seller carrying the $390,000 mortgage. My second deal was $62,000 with $5,000 down and the seller carrying the paper. My fifth deal was a true zero down transaction with the seller carrying the full $850,000 purchase price. Over the past 30 years we have done around 12 "no money down" mobile home park deals. And here's what you need to know about buying "trailer parks" for next to nothing.
They ARE attainable
When people talk about the concept of "zero down" deals any other real estate sector – such as office, retail, apartments, hotels, self-storage, etc. – they are lying to you. Those segments have not seen a "no money down" deal in decades. Only mobile home parks offer this option. That's because you're dealing with moms and pops who own the properties free and clear and can underwrite the mortgage if they so choose. Any seller that already has a loan on a property can't carry the paper: it's a simple fact.
They typically revolve around some common elements
"Zero down" deals all seem to have the same common elements, and once you learn to spot those you can better understand if you should have the reasonable expectation of pulling that off. These common issues include:
- Poor aesthetic condition. To initial building block of a "zero down" deal is that it is "ugly" and the perception is that a bank would never make a loan on it. Additionally, the poor visual condition makes the seller feel insecure and depressed and weak in negotiations.
- Time pressure on the seller. It is very common in these deals to have a time clock that is exerting pressure on the seller to move quickly, and that trigger is normally 1) death of a spouse 2) settle an estate 3) a sudden medical issue 4) a desire to be near grandchildren and 5) being totally burned out on the business and wanting to retire.
- General affluence – don't need the money. Most mobile home park sellers live comfortably, but some of the most prevalent "zero down" sellers have enough assets that they don't need the down-payment money. Instead, they are focused on their investment returns and see having the maximum amount at work as being the goal.
- Manager problems. Nothing makes a seller more desperate than having nobody to back them up. A bad manager – which is common in the industry – creates an element of friction that can sometimes outweigh any problems at the park. That was one of the key drivers for getting low-down on my first park: the manager was a catastrophe and had worn the seller out.
- Park-owned home rentals. Nothing drives a seller nuts more than park-owned mobile home rentals. They are the kiss of death to a seller's sanity. And they will be your undoing if you don't sell them off as soon as you buy the property.
- Location that's off the beaten path. If a mobile home park has an obvious, terrific location then the seller will be more proud of their asset and push harder in negotiations. A location that is hidden from view, or in a sketchy neighborhood or in an exurban or super-commuter town is the most common source of "zero down" deals.
- Bonding. This is the glue that holds "low-down" deals together: having a relationship with the seller in which they trust you. You can forge that bond with a single phone call or within one minute of meeting the seller. It's the magic force of a seller liking you and wiling to help you buy the property.
Don't be fooled by the "fake" low-down deals
There's little benefit to a "zero down" deal that is really a "big down" deal in disguise. Let's assume, for example, that you come upon a park that has a failing wastewater treatment plant. The seller agrees to carry the paper with nothing down but then you have to spend $500,000 to fix the sewer plant. That's NOT a "zero-down" deal, right? A true "low-down" deal has no hidden capital calls.
"When you have zero down your cash-on-cash return is infinite"
The standard unit of measure for mobile home park investment performance has traditionally been the "cash-on-cash" return, which is the amount of money you make back on your down-payment. As a result, a "zero-down" deal has an infinite rate of return. It's not really that important, but does sound good at a cocktail party.
Beware the "cigar-butt" variety of deal
Sometimes you'll come across "zero-down" deals that are being sold aggressively due to some incurable problems such as:
- No operating permit or license.
- Failed testing of private water or sewer systems.
- Environmental pollution.
- Extreme flooding issues.
- Failing master-metered gas or electric.
- Terrible location that nobody wants to live in.
- Lots too small to put mobile homes on and roads too narrow to move homes in.
You should not buy deals like that despite how little the down-payment is. They are what the late Charlie Munger (Warren Buffett's business partner) called "cigar-butt" deals that seem really cheap but have no lasting value.
Conclusion
"Zero-down" deals are possible in the mobile home park sector. Watch for them and, when found, take advantage of them. They offer the best of all worlds and can be among the most lucrative types of "trailer parks" that you can find.