Mobile Home Park Investing Newsletter

Well, Christmas is here again. Unbelievable. It seems like we just got done writing the songs for last year’s Frank & Dave Christmas Show, and now we have to write more. If you missed last year’s show, you’ll not want to miss this year’s, as we’ve got even more songs and skits in the works. We’re also planning on playing Santa Claus by giving out some extra items, in the spirit of the holiday season. One is the latest update on our never-ending Frank & Dave book, which follows our exploits and even we don’t know how it ends. We’re also giving out – free of charge – our annual CD Update, which goes over all the information in the courses that has changed. Watch for emails on all three of these items in the days ahead.

And we’d like to take this opportunity to thank each and every one of you who have been part of our mobile home park investing family. Here’s to a Happy New Year and a profitable 2014!

We are often asked “so how do you buy a mobile home park?” While this question would be like asking a NASA engineer “so how do you land man on the moon?,” there are some key issues that many people overlook and can have just as disastrous an ending as the retro-rocket on the lunar lander not firing. So here are the key drivers to buying a mobile home park properly.

Know what you’re doing

It’s amazing how little thought goes into some mobile home park purchases. Some people literally by the park and then set about learning what they just bought. I was once a bidder at an auction in which the mobile home park had a failed sewer system which would cost $500,000 to replace. The most any educated buyer could pay would be $500,000. To my amazement, the winning bid was $1 million. I went up to the buyer after the auction and asked him if he thought the park had any significant problems. He told me that he didn’t know anything about mobile home parks, but he drove through it and it looked fine to him. So he basically overpaid by $500,000. Who in the world would waste money like that? If you’re going to get involved in any activity, the smart person learns everything about it before they joint in.

Don’t over-extend yourself

If you have $100,000 in cash, then don’t buy a park that requires $100,000 down – you’ll have nothing left over for any unseen contingencies. We get these calls all the time; the person who spent their last dime on the down-payment and now can’t afford to fix the potholes and want to know what banks make loans on things like that. The truth is that real estate loans are based on having, normally, a first lien on the property and, once you already have a bank in the first lien position, no bank is interested in putting further money at risk. Before you buy a mobile home park, make a list of all the capital required and, if you don’t have it ready to go, assign the contract to someone else or cancel the deal.

Keep your deal volume extremely high

Any good gold miner in the western expansion knew that the formula for success was to sift as much dirt through their filter as possible – the more dirt, the more likelihood of hitting a gold nugget. The same is true for mobile home parks. If you want to hit really great deals, you have to look at a lot of them. At a minimum, you will probably have to look at 100 deals to find a really good one. If you are only looking at a few, the odds are definitely not in your favor.

Don’t fall into the financing trap

The length of the loan is very important. Many sellers want to carry paper for a few years, and then have a balloon. This means that you have virtually no time to fix up and stabilize the park before you are having to hit the streets to find a new lender. If you fail, you could lose the entire park. It is critical to give yourself plenty of room to hit the right cycle and sell the park if financing is not an option. We start working all renewals two years ahead. You would be amazed by how many people call us in a panic, having just started the financing process 30 days before the note comes due.

Do phenomenal due diligence

Benjamin Franklin said “diligence is the mother of good luck”. What he meant was that you forge your own destiny based on how well you analyze the deal and remove the element of risk. Every park we buy goes through a standardized analysis of every component, and failure of any one area normally results in termination of the deal. We would much rather cancel a deal than have a deal cancel us. General Montgomery – the leading British general of World War II – said “I never get involved in a battle I cannot win”. That’s the correct attitude for due diligence.

Mitigate all risks

There are very few risks in buying a mobile home park that you cannot determine and minimize. There are physical risks like open manholes and uneven sidewalks. There are risks in utility lines not working, like a collapsed sewer. There is risk in being to raise your rent due to market forces, and risk that the seller has lied about the expenses. But you can solve all of these risks if you really spend time thinking through what could go wrong. A good park buyer leaves nothing to fate, and has an action plan for every contingency that can happen after closing.

Conclusion

So how do you buy a mobile home park correctly? The key component is to “think like a man of action and act like a man of thought”. The important term there is “think”. It is shocking how many buyers get involved in buying a park while spending less time analyzing their property than they do buying a watch. Buying mobile home parks correctly is a very serious business, and you owe it to yourself to get serious about it. There’s no reason you can’t do well, if you only apply scientific thought to every part of the process.

I was treated to a tour of the mom & pop owner’s house of the park we purchased in Glenn Heights, Texas. They had been given around 6 months to vacate the house upon closing, and we had just received access to look inside. Although its size was uniquely large, what really caught my attention was the indoor lap pool and the indoor entertainment area that was separated from the pool by sliding glass doors. I would estimate that this area would seat at least 100 comfortable – it’s larger than the outdoor seating at a restaurant. But still, that’s not the most over-the-top house I’ve ever seen that came with a park.

That honor has to go to the house we came upon in north Ft. Worth during one of the Boot Camps. I was so impressed by it that I had to do some further research to satisfy my curiosity. And it’s truly one of the most impressive mom & pop mansions in the U.S. It’s a Tudor mansion with an interesting history that just happened to have a mobile home park built around it 30 years later, on its grounds.

The house was built by one of the gangsters that ruled over north Ft. Worth back in the 1920’s and 1930’s. They obviously had great taste, and built the house to impress their peers and associates. One of the significant features of the house was a nearly Olympic-sized pool (around 100’ x 50’), which was a constant scene of mobster entertaining – and a place you could always find a showgirl or two. The house remained as the center of mob activity until the gang was wiped out in the 1940’s. Then it sat abandoned until a mom & pop bought it and the additional 15 or so acres of land and built a mobile home park on it. They then lived in the house until they died. The current owners have the manager live in the house with the office in one section. The pool was filled in years ago, but the lush landscaping remains, and the house is in very nice condition.

I have always had a fascination with the homes that come with mobile home park purchases. For a history buff such as myself, it’s fun to see how people lived in different eras of American history. And these homes can be a great attraction for obtaining and retaining good managers. What manager would not want to live in a brick, custom home as part of their compensation package? In several of our parks, the brick home is worth as much as the cash compensation.

We got a call from a guy named Jack Johnson about six months ago. He was pitching a new concept to us: a company that would re-negotiate our trash contracts for a part of the amount saved. We are suckers for 100% performance driven concepts, so we gave them our blessing, assuming that it probably would not amount to much. To date, this relationship has saves us tens of thousands of dollars, and resulted in ten times more in additional property value. How do they accomplish this? We still don’t have a clue, other than they really know trash well. If you want them to look at your park or parks, give Jack a call at (817) 525-3241. You have nothing to lose and everything to gain. And it paid off big in our case. Check out this video about their services.

This in from one of our friends and fellow park owners:

QUESTION: What do an Oklahoma divorce and a tornado have in common?

ANSWER: Either way, some ol’ boy is going to lose his doublewide.

It comes as no shock that we use Kurt exclusively on all of our insurance – he’s the best in the business. But did you know that Kurt has produced some very educational videos for park owners, on the keys to successful insurance and practices at mobile home communities? Here is one about Kurt's Company.

We have used many different Phase I providers over the years. But some recent events have changed our opinion on who the best Phase I provider is, and we want to spotlight some “beyond the call of duty assignments” that have saved the day on some deals recently. One of the most important occurred on a property we were buying in Indiana. The park already had a Phase I that had been done when the owner purchased it and financed it with a well-known bank. However, at the final hours when the deal was to close and be financed by a new lender, a Phase I issue popped up that we had never seen before. A disgruntled former manager of the park had called the EPA and claimed that the park was operating an illegal landfill, in which entire trailers were demolished and buried near a barn. Although the report was suspicious, it had to be substantiated before the deal could close. So Mike Renz immediately went to the subject area and, using a device that he developed, was able to do immediate boring and testing to prove that the claim was a lie. There’s probably no other Phase I provider in America who could do that work, or do it that fast, or do such a good job of it. As a result, we are now using Renz and Associates as our exclusive Phase I provider, and we suggest you look into using them, as well. You can contact Renz at (614) 538-0451.

Most mobile home park operators have vacant lots to fill in their parks. They know they have the demand to fill the homes, and they know that they can get enough in rent to cover the costs. But the problem is financing – nobody carries the paper on the homes so you have to come out of pocket 100%, right? Well, that’s not the case anymore. Legacy Homes has brought out a new Park Finance Program that allows you to buy homes to fill your lots directly from Legacy, and they’ll finance 70% of the cost of the home including installation. We think that this will be a game changer for many operators, as they have been dreaming of a dependable financing source for their home purchases. And the Legacy product is outstanding as a home – nice floor plans, attractive colors, and great low pricing. We have been customers of this program from day one, and are excited that Legacy is now offering this program to all park owners, large and small. If you are interested in it, call Mark Ledet at Legacy at (786) 785- 9827, or contact us for a reference. We’re one of their largest customers.

If you are interested in buying a mobile home park – or just making your existing park more profitable – don’t miss out on the Mobile Home Park Investor’s Boot Camp coming up in Columbus, Ohio this month. It’s the event in which we show you the correct way to identify, evaluate, negotiate, perform due diligence on, re-negotiate, finance, turn-around, and operate mobile home parks. And we do it in both the classroom and the field – inside real mobile home parks. If you want to hear the real-life story of three people who attended the boot camp and bought a mobile home park, visit The Mobile Home Park Investor's Boot Camp page.

The first person we look for at any industry event is Anthony or Gerry DiMarco from Security Mortgage Group. These are the loan brokers that handle all of our conduit and bank loans over $500,000 – and are the largest loan brokers in the mobile home park industry. I like to get my interest rate projections from Security, as they really have an excellent grasp on lending in our niche, as well as bets on when it will become harder to get a loan. Right now, it looks like we may get by with very little changes in interest rates and loan terms until the end of Obama’s term. As long as “quantitative easing” continues in force, interest rates will remain around 1 ½ points lower than normal, and the continued recession – whether it’s Obama’s fault or not – is going to keep inflation low, which is great for a stable banking environment. So your mobile home park loans may sail right through for another few years. If you have any loans you need help on, you can reach Anthony or Gerry at (585) 423-0230.