Lessons Learned From Over 1,000 Mobile Home Park Deals Reviewed

Frank Rolfe has been reviewing mobile home park deals with potential mhp buyers for over a decade. It’s the similarities and correlation between these properties and their respective values that is the topic of this event titled “Lessons Learned from Over 1,000 Mobile Home Park Deals Reviewed”. He’s discusses a variety of factors that serve as macro and micro clues that a deal is attractive vs. not something any buyer should pursue.

Since Frank is known as “the human encyclopedia of all things mobile home park” ~(New York Times 2014), he should be able to answer any question you may have on the mobile home park industry and how to invest in this unique real estate niche.

Frank includes 2 of these reviews with a ticket to the upcoming Mobile Home Park Investor's Boot Camp. At the event, you will learn from the culmination of Frank and his partner, Dave Reynolds, experiences in the industry covering the A-Z of the business including how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate the strange business of mobile home parks. Together, they built one of the largest organically grown portfolios in the country starting with just a single park each.

Lessons Learned From Over 1,000 Mobile Home Park Deals Reviewed - Transcript

Welcome, everyone, to another MHU Lecture Series event. We're going to be talking the Lessons Learned from over 1,000 Deals Reviewed. As people know, part of the boot camp is I do reviews for people of their deals. I tell them I fit's good, if it's bad, if it's worthy of working on, worthy of passing on, what kind of price I think it should be, how to negotiate the price, what the big hurdles will be, et cetera. That's one thing I think I've done more than anyone in the industry. I know right now we're fifth largest as far as our portfolio, but I'm pretty confident I've reviewed more deals for other people than anyone else in American history. It's well over 1,000, probably close to 2,000 or 3,000 at this point.

I've really noticed over the years of doing this, because I've been reviewing deals for people for about a decade and a half, that there's some commonality in things that mean a deal will go well as opposed to the commonality of things that normally are precursor that the deal will not do well. So we thought this would be an unusual topic we've not done before. We also thought we would do it in PowerPoint so you can share along with the main points. You can write these down if you like as you go. So here we go. Let's get started: Lessons Learned from Over 1,000 Deals Reviewed.

So the first group we're going to go over are the things that should basically turn you on by the deal. So these are all factors that when you see them means that this deal is a little better than normal in its attractiveness, and you should push a little harder to try and get this deal done and signed up. Things That Should Turn You On So let's start off with the first thing, and the first thing of course is an insanely low price. I don't mean the fake insanely low price that some people bring to me on a deal, where they think they're buying the park for $500,000 but it actually has a failed packaging plant for another $500,000 so it's really $1 million and therefore it's no longer insanely low. I'm talking the real deals out there, which pop up from time to time, where the price is simply amazingly cheap.

Now why would a deal be amazingly cheap? Well it normally ties back to mom and pop not really understanding what they have. As a result, they price it too low and no one stops them from that because perhaps they're not using a broker, or maybe the broker just thinks hey I hope they do sell it because it'll go really fast and I'll get a commission really fast, but a low price. Now what is a low price? Well, in today's market even though 10 CAP used to be the cover of all of our books, the truth is as we've said many times CAP rate is a reflection of interest rates. Interest rates right now are among the lowest in American history, no longer the lowest, but very close. So most of your loan products out there are priced at an interest rate that can run anywhere from a 3 point something up to about a 5. In some cases with smaller deals with smaller banks, even as much as 5.5. The bottom line is today when you're looking at CAP rates, 8 is closer to the norm than 10 would be.

But when I'm talking insanely low price, I'm talking things that are maybe twice that like a 15, 16 CAP, even a 12 CAP. I mean a CAP Based on the price with CAP-X in it. When you see a deal that's priced like that, when you see from mom and pop, they will sell you their mobile home park at a price you estimate to be a 13 CAP with all CAP-X in, you need to strike quickly because the next person that hears about that deal they are going to beat you to it. So when the price is crazy low you have to move quickly. That doesn't mean you're necessarily going to buy it. I'm not talking completion of due diligence here, I'm talking just taking it off the market, putting it under contract, giving yourself time to do the diligence on it. But low prices, yes, that is obviously always and should be a big turn on.

Another one which is pretty obvious is unbelievable financing. Now, typically unbelievable financing stems from moms and pops. We've done 12 zero down deals and you would be an idiot not to do a zero down deal, assuming there's nothing illegal about the park, has all of its permits, no environmental contamination. Then why would you not do a deal at zero down? You have no risk. You can give the park back to mom and pop if for any reason you don't like it, as long as it's non recourse debt which mom and pop typically is. So when someone is offering to sell you a park and it doesn't have insanely strong numbers like number one, but yet it has insanely strong, unbelievably good financing, you would clearly want to jump on that like crazy. Because once again, the next person who hears of that financing they are going to pounce on that property. So you've got to move quickly when you see unbelievable financing.

Now let me say that's not just seller carry. Unbelievable financing can also come in other shapes and forms. The best of the most unbelievable financing I see is when a small town bank gives you a 30-year fully amortizing fixed rate loan. Now why would they do that, you might say? What bank would be that crazy? Well, some small town banks see a mobile home park as kind of residential real estate and so without you asking they stick it with the residential rate loan pool, and the next thing you know they give you a 30 year coupon book. When you see a deal like that, you've got to pounce on that. You will never get 30 year fixed rate, low interest rate date ever from a mom and pop, conduit, or Fanny May and Freddy Mac. The longest any of those would go would be 12 years traditionally. But sometimes those small town banks will pop that thing onto a standard home loan format and when you see that you've got to move fast, because you will not see that very frequently. 06:15 In fact, I've only seen over the last 25 years that happen probably 10 times, and every time someone has called me and they've obtained this kind of debt, I tell them they have to do their hardest to get that deal closed, because that is such an incredibly rare commodity.

Moving on to number 3, huge single family home prices. I don't mean $150K, I don't mean $120K as we know $100,000 and up is very important to create that contrast that makes affordable housing desirable. I'm talking when the home prices are wickedly high. $200,000 would be on the low end of super high homes. We've seen markets for homes are $300-, $400-, $500-, $600,000. There's markets out there where the homes are almost $1 million. When you see that kind of single family home price, you better believe the demand for mobile home parks will be absolutely off the charts. There's no way you can go home with a park, just an average old park, if every home around it is running $300- and $400,000 and up.

You'll find the apartments will be roughly equivalent. They'll be off the charts. $2,000 a month rents, and that means that mobile home park is an incredibly desirable jewel for people who want to go to those schools, want to live near those fancy shops and restaurants but just don't have the money to buy those expensive homes. Also don't forget that the best zip codes in America all share one thing: high home prices. I've never seen on MSN of the top zip codes in America for desirability that did not, if you go to best places and entered that zip, feature extremely high single family. So the bottom line is when you see those expensive homes, I don't care what state it is in, I don't care what condition the park is in, you need to put that under contract quickly because that is an incredibly good sign for your mobile home park.

Number four, park lot rents well below the comps. This is a very common feature, and some people don't appreciate why it is so desirable. Here's a top secret: most of the value in mobile home park investing today is based on lot rent. Sure, we can have the residents pay their own water and sewer but that's a onetime thing, and it never occurs again. And we can fill vacant lots, but once we've filled them again it's a onetime deal. But raising rents is the well you can always come back to because mobile home park lot rents are so insanely stupidly low. In fact, they're so stupidly low they were studied for a while by Charles Becker from Duke University. He was an economist who chose to study the mobile home park industry. Then I think he stopped a few years ago because there's so much negative politics regarding anything with mobile home parks today, that I think people would figure that he must be landlord friendly even though he really wasn't, or he wouldn't write such economic treatises. But he wrote one on why our rents are so stupidly low.

He figured it was from mom and pop quantitative easing, where they just didn't understand business and they never raised the rents in keeping with inflation. By so doing, they took mobile home parks that started life off at $500 a month adjusted into today's dollar, and they're offering the same product for often half of that price. You can find markets all across America where the lot rents in a park is pretty decent, pretty nice. It can often only be 50% of all of its peers. When that happens, that is an incredibly profitable park to buy. I'm talking the situations not where you're just $20 less than the market or $50 less than the market, although that's still good. I'm talking those occasions where you are a $250 rent in a market of $400. So when you see a deal like that, when you have a massive differential between the lots, you want to tie that up as fast as you can.

Think of it this way. If you can buy that park in a manner where it will just simply appraise and you can just barely make the note payment a month on the current lot rent, you're going to pocket every dollar beyond that lot rent. If you were to model that, if you have an 80 space park and you can raise the rents $100 to get them towards market, that's about $8,000 a month that goes in your pocket. That's in fact the fastest way to make $100,000 with one mobile home park is to buy a park that's 80 spaces occupied, at any price where you can cover the note and then just ride those rents up. So that's again, that's another super important item.

Next one, huge test ad results. I'm not talking the usual norm. The norm is about 20 to 30 ten-day calls on a park, and that's pretty much the average, so I'm not talking that. I'm talking when you're more 60, 70, 80, 90, 100, those kinds of calls. What's happening now is there are so many people looking for affordable housing it would be hard to do any wrong. You know that if you go in and run it like a good business, and do effective marketing, you'll be completely full. You'll be able to raise your rents aggressively over time in line with market. And if you lose any customers along the way you can get more because there's so much demand for what you're doing.

What's the highest we've ever seen? We've had several test ads we've done that broke the 100 mark. Now, when you're breaking the 100 mark it's really kind of a waste because in those parks typically you might only have five or six vacant lots. Once you're full you can't do anything more. Again, there can be excess. It's like a car you can only drive in America, the fastest speed limit I know is 80 mph and that's on the little highway thing that runs from Joplin, Missouri down towards Tulsa. I think it's called the Indian Nation Turnpike. But even then, at an 80 MPH speed limit and assuming you go five over the speed limit so you set your car on 85, there's no purpose if your car will go 185 because you can't ever use the extra horsepower. So when we see super high test ad results, the canon to remember is that means this market is so insanely desirable that everyone in town wants to live there. That's going to hearken back to you having excellent results in occupancy and collections.

Next, "sexy" states. Now what is a "sexy" state you might ask? That is a state that immediately grabs the attention of lenders and buyers. It's kind of nebulous. People have their own different ideas of what they consider a sexy state from a non-sexy state. The most non-sexy state out there is probably I would imagine Mississippi. I rarely meet a buyer or a banker who is clamoring for a park in Mississippi. Not that there's anything wrong with Mississippi, but it has traditionally had lower lot rents than many other properties, often as low as $75 a month. A lot of people are conditioned when they hear the word Mississippi just to assume that it's a park that has very, very low revenues.

The reverse of that are places like California. Why is California a sexy state? Well, mainly because the lot rents there are higher than any other state. It's not uncommon for example in places like Los Angeles to see rents that run $2,000 up to $5,000 a month. Same with Washington state. Utah also has had a very good track record of high rents and desirability, as has Colorado, as is Florid. Of course in Texas, it's hard to beat Austin. People saw the deal we sold here not too long ago at an insanely low CAP rate, insane amount per space, almost $100,000 a space. That is typically what you get when you're in a state that people get all kinds of excited about. Being in a sexy state, if you find a deal, any deal that is priced appropriately, in California you'd want to tie that up instantly because there just aren't that many. Sexy states are another important item.

Next, perceived but false problems. What does that mean? Well, if the problem is real then it may be a very good buying opportunity. If mom and pop believe that their packaging plant is failing, and in fact it is failing, okay that's not too great. But what about if they think their private packaging plant is failing but it's actually not? How about the situations, for example, where the well has gone bad but there's city water right out on the street and you don't have to worry about the well, you don't have to fix the well, you can just attach to the city's water and the problem is solved? The mom and pop never even know that because they never even check to see where the water is.

Or how about a city that says you can't use those vacant lots, don't even bother to apply, we'll never approve it. Yet it turns out the mom and pop just wasn't asking the right questions. You can have maybe a municipal lawyer go to them and they immediately say, "No, I'm sorry, we were wrong, yeah you can use those lots." We had a case once of a park where the owner thought the sewer lines were failing, and it turned out all it was is they were filled with roots, and he was not using a plumber who was capable of cutting the roots out. Obviously the plumber wouldn't tell him he didn't have the equipment to do it, so he was coming out and Roto-rooter'ing every few days for no possible reason and was loving the money. The guy paid out about $100,000 in Roto-Rooter bills, and he just though the sewer lines all had to be replaced.

When you can find these problems and mom and pop are convinced are a fact, and yet they're false, they don't realize that those problems really can be easily remedied, you can get a really great price. Because it's an enormous hit on the perceived value of the park. Case in point, the park that we bought in Kentucky, the guy had a $5,000 a month water leak and he was convinced it was not to be solved. His plumber told him he could never find the leak and they were probably all under the roads. You'd have to rip all the roads out, so he just decided rather than rip the roads out if he could ever find the leak, and then put the roads back, he would just tackle it $5,000 a month into his budget. That error cost him the valuation of that park of about $700,000. The sad truth was we brought in America Leak detection during due diligence, and we found none of the leaks were under the road and in fact it was just a finite number of four or five leaks. So when you see those kinds of issues where mom and pop think they've got some kind of life or death problem, and in fact they don't, that's always an excellent sign that you're going to be able to get a really, really good deal on that.

Number eight, institutional "bones." Now what do I mean by institutional "bones"? I mean that the basics of the park are in such a manner that they would quality for institutional debt. As we all know, institutional debt which also means probably future institutional ownership, you will then get the lowest CAP rate possible, because the CAP Rate is a reflection of the interest rate. Institutional properties, it can go through CMBS or Fanny Mae/Freddy Mac. They get the low rates, they get the 3.5 or 3.8 rates. That means their CAP rates will be lower than any other kind of property.

So what makes a property have institutional bones and an institutional future? When you see a property that has 100 lots or more, you now have something that theoretically is going to be attractive to an institution at some point in its life span. Not maybe immediately because it's currently all screwed up, it's got some vacancy, lack of private ownership, looks terrible. But you'll be able to mold that over time into something that's extra valuable because low and behold it's got 100 lots and up. That's what most institutional buyers go out and tell all their brokers are looking for. They want deals 100 lots and up, so that's a big deal.

Also, HUD properties from the 60s. Let's go over what that means. The US government got very active in mobile home parks back in the 60s, later 60s. What they did was they had a program where they would finance you if you would build a mobile home park from scratch, but the catch was you had to use their guidelines. You couldn't just go build any which way you wanted and then get them to finance it. No, no, that would not happen. You had to meet their directives, their plans. So these properties were therefore overbuilt for their era. They typically feature concrete curb and gutter, often concrete sidewalk, roads that are very, very well built, over built, extra thick over any that you'll ever see. Great designs, the roads are typically curving, very pleasant. Also there's always a clubhouse and in the clubhouse they required a commercial kitchen, capable of having a communal meal for the whole park. A commercial his and hers bathroom, typically a laundry, and normally a swimming pool. Now, over the years a swimming pool typically has been filled in and often that clubhouse has been abandoned. But those roads are still there and the overall design is still there, only it looks much better today than it did in the 60s because all those trees that were twigs at the time, they've now all grown so everything is looking really good. You can bring those properties back to life and they look spectacular. So when we talk HUD properties, that's what it is. It's the ones built on that government program from the 60s.

Finally, the very existence of a club house/pool or things that are over the top as far as an amenity. Even though we know that the residents don't really use the amenities worth a darn, the lenders don't always know that and they give extra special treatment to the properties that have such features as a clubhouse and pool, because they believe that marks something that is worthy of institutional debt. So when you see these type of items, that's a park you should try and buy harder than most because if you can get it done, you'll be able to sell that at the lowest possible CAP rate and have the highest, largest pool of buyers, typically extra wealthy buyers on the institutional stuff.

Stabilized parks with upside. This is always an important item when doing a deal review. When you see a park that's at roughly 80% occupancy, that is what banks call the stabilization rate. Now, not all of them. Some go down to 75%, but nobody goes 50%. So when you see a stabilized park that means right off the bat you can get a loan when you buy it, even a good loan, even a Fannie Mae/Freddy Mack, or CMBS conduit loan. So that's a good thing.

Now also, it needs to have good pride of ownership, and some parks do. Some mobile home parks don't meet the typical stereotype. You drive through the park and you're in wonderment how the people take care of their property. That's a great sign. And good infrastructure. What are we talking there? We're talking paved roads, concrete or asphalt two car parking pads or at least on street parking that's properly striped. City water, city sewer, no master gas, no mastered electricity, the types of things that all buyers seek. When you see a property that has these attributes day one, not at the end when you get done you can build many of these things but it has it on the front end, that's a great sign because that means you will be able to buy that property and take it from there, but you can get nice good debt on the front end. When you get good debt on the front end, it also saves you from the concerned if you can refinance it later when mom and pop's note comes due because it's already past lender scrutiny. Stabilized with upside parks to us are probably the highest return for the level of risk. You can buy a big old turn around park, a heavy lifting turn around park, but you have a lot of risk because it’s not in the condition that you can get a loan on it until later in the movie, unless you can buy from mom and pop and they have a five year balloon. You're always under the gun can I get it ready within five years so I can make the balloon? Well, that's a good question. Maybe you can, maybe you cannot. You don't have any of those concerns when you have that stabilized with upside property.

Finally number 10, really fancy neighbors. Now I'm not talking just the location. We already went over high home prices. Sometimes in that high home price neighborhood, you'll find a mobile home park but it's not in the best of locations. It's typically in fact the worst location imaginable. There was a mobile home park that's since been torn down in the area of St Louis called Creve Coeur which is a very high end neighborhood, but it was right up against the side of the interstate with a giant retaining wall. Not really favorable. And I've seen other ones in nice neighborhoods where nice general neighborhoods but it's tucked way next to the you know just the worst parts of the town, where you take your stuff, your garbage to be made into scrap metal, that kind of stuff.

But sometimes you'll see parks that have really fancy neighbors. For example, we bought a park once in Indiana and what I loved about the park is as you approached the park there is brand new office buildings there. Nothing makes you feel more confident on that park than the fact that as you approach it you don't see a mobile home park, you don't see low end housing. Instead, you see this beautiful office building , so immediately you think wow, this park is amazing.

We've also had parks with high end retail. I don't mean just the old strip center that's got the hobby shop on the corner. I'm talking stuff that has actual really high-end boutiques, home ware, or furniture. Once again, it just screams class. Bear in mind, mobile home parks are all they feature one thing people don't typically think of a mobile home park as being an upscale thing. So when you have these really fancy neighbors, it just makes you seem all kinds of special.

We've had parks where the single family subdivision, the nicest one in town, is either across the street or next-door to the park. Now, it must bug them to death that they look out on the park when they pull out of their driveway, or the fact that their friends instead of turning left accidentally turn right into the trailer park. But to the mobile home park, this is the greatest neighbor of all time. Normally, that upscale feature will spill out onto your appraiser, onto your bank, onto your future buyer. So when you see parks available that have very, very fancy neighbors, again that should be a real turn on that you need to move quickly to try and turn that thing up. Things That Should Turn You Off

But now, just as I gave you that list of 10 things that should turn you on to give a little extra effort to move quickly to tie it up, let's go over things that should completely turn you off.

This is the big one, because this means you've totally wasted your time and that's where you have no permit. Now, no permit can come in two kinds of varieties. There can be the "I have no permit" and yet you go to the city and you find they actually do have a permit, or you're able to bring in an attorney who can argue it and turns out you can get the permit. I'm talking the kind where you call the city, the country, or the state and they tell you no, you have no permit, and you will never get a permit. And you talk to your municipal lawyer and he says no, you have no prayer, this park has never had a permit.

Remember, you have no grandfather unless the park was built legally to begin with. So if the park was built without a permit, if it was built illegally on the front end it is forever illegal. It does not matter how many years it has been there.

Another variety we see where there's no permit is the kind where the park was abandoned for greater than six months and therefore lost its grandfathered status. It ties to a park I looked at in Abilene years ago that Dave also looked at, and I don't know probably every buyer in America looked at. 100 space park in Abilene, Texas for $100,000. Everyone knew this park, everyone had seen this park, and everyone had the same ending. They called the city of Abilene and they said no you can't reopen that park because that park has lost its grandfathered status. They were completely correct. Not only had it had no home for six months, but did not even have an active sign for six months, so therefore they had actually abandoned the use and the park was forever lost. There's another case where you have a park and it has no permit.

A third variety is where you have a SUP - special use permit - and it was built legally under the special use permit, but the special use permit has now ended or is ending soon. Once again, they have no permit. The guy that built the park promised that he would end the park at the end of that special use permit. Those special use permits can be any duration the city chooses. Can be 20 years, it could be 50 years, but the bottom line is you don't have any leg to stand on in your argument that in fact you are actually legal. So when you find a park with no permit, don't even bother. Don't even waste 10 seconds on it. Once you've confirmed it truly has no permit, talk to the city, talk to the zoning administrator and get the story of why it doesn't have a permit, but if it's not something you can rectify don't waste your time because it doesn't matter how low the price, it doesn't matter how good the financing, how fancy the neighborhood, without a permit you have nothing. You'll never get a loan, you'll never get a buyer, and they will wake up one day and they will shut you down.

Number two, the seller just bought it and now wants to turn around and sell it. Now, when we buy from moms and pops, typically they all have the same methodology. They typically built the park from scratch or they might have been the person who bought it from the original mom and pop, and they normally owned it for decades. Now they're selling to retire. We know this to be true because typically not only was their name on the title 30 years ago, but additionally they're getting up there in age, so it makes logical sense. The story completely ties together and therefore you don't have l of concerns.

But sometimes you find the seller where they've only owned the property for just a year or two. Well, that makes you wonder what is the real problem here? Because most people don't buy a mobile home park jus to own it for a year or two. That just doesn't sound very attractive, right? Why would you go through the effort and the trouble to buy a park to try and resell it in a year? Well, you might want to do if you're trying to flip it because you bought it cheap and now you can sell it higher. That's an option. But even then, you wonder how much of that park is actually value they've created and how much of it is simply Bondo. Bondo is a cheap way to do body work on a car; it's like a goo you put it on there, you just sand it down rather than the painstaking way of actually fixing that body panel of the car that was bent in. Often, when someone turns around to flip those parks they haven't really done a very good job. They've just kind of patched it together. Didn't really renovate the parks homes, didn't really screen the tenants very well, didn't really fix a lot of the issues that you'll then have to fix.

So when you see a park that is suddenly being sold and the guy has only owned it for a short period, you have to immediately recoil to some degree and say okay, what's really going on here? Because it may well be that you are walking into a trap if there's something you do not know about the market. Maybe the problem is that everyone there just can't qualify to buy a home and they brought in some homes and they can't find anyone and they had to fill a bunch of lots, their note is coming due, and so they're going to try and hand off that ball to somebody who does not realize that the property is extremely flawed. So just be very, very careful when you see that a seller just bought the property.

Number three, extremely high density parks. Now, let's talk about density for a minute. We all know the dream density is 7 units an acre, but you're never going to get it in real life, because all the parks you're going to see are at least old enough that they never built it at a 7 density. Normally, the parks we own have about 10 to 12 units per acre. Some could even have 15. But at some point in the movie, you have so many units per acre that you can't fit modern homes on them. Then you've achieved a real, real problem.

Normally it's not even just the length, it's the width on the really dense parks. Modern homes are 14, 16, or 18 feet in width. The old style park densities only allowed for 8 or maybe 10 feet in width. The problem is nobody wants to live in that stuff anymore. The room sizes are claustrophobic and no one even manufactures it. On top of that, as far as length goes if I can't get at least a 46 ft home on the lot, I can't get a two bedroom/one bath. I know that one bedroom/one bath don't sell well at all, so as a result that space is not going to work for me.

Finally, if you're high density you have a thing to worry about beyond the city inspector, beyond the zoning official trying to shut you down. You have a new sheriff in town called the fire marshal, and the fire marshal has the ability, it's a health and safety crisis, to go ahead and shut you down or make you remove every other home so you have enough spacing that if one burns the rest won't go. But there's en more problems if that wasn't enough to make you sour on high density. Don't forget the fact that those parks typically have in them nothing but old homes, 1960s and 70s homes. Because by the 80s, the homes were too wide to fit. Each of those homes as the customers gradually over time die or run off, and you then get the home back, they're almost impossible to sell. No one wants to live in them anymore. They also will need a ton of capital to rehab them.

So although density Is not a bad thing and all the best locations have the higher density, there's certain cases where even the great location is impossible because the density is too high. Now there is an alternative which I will throw out. You can buy a property and you can go ahead and combine two lots together, and market it as a property with extraordinarily large lots in some cases. But the problem you're going to have is a 50 space park that you reconfigure that way is now only 25 space park. Then the question is can you buy it so low that you can actually do that and make the numbers tie.

Number four, a big turnaround project with extremely short financing. I get this call all the time from people. They find me on the internet and they call my number, and they always say, "I've gotten myself in trouble. My loan is coming due and I haven't found a replacement bank." I'll always say okay, well how much time do you have? And they'll always say typically a week, two weeks, four weeks. Well, that's a disaster because they procrastinated so late they can't get a loan. But on top of that sometimes they couldn't get a loan if they'd had a year or two ahead, because they never got the job done to make it where the property was bankable. They bought it with seller financing, with this big dream that they would eventually get it bankable, but they failed in the mission typically because they were unable to hit stabilized occupancy.

Now the problem is the seller note is coming due and they can't repay the seller, because there's no way they can refinance the property. How do you get around that? Well number one, pick your battles wisely with due diligence so you don't get involved in deals that don't work. But on top of that, you've got to make sure that seller note is long. Long enough to allow you to not only fix the property but then season it for a little bit before you go out to get a loan.

Let's just work backwards on what we're talking here. Let's say you give yourself a year to get that new loan. That gives you months to find a bank, if you fail months more. Even safer, let's say two years but for the sake of this let's just say you give yourself only one year even though a little longer would be better. Let's say you want to season the numbers for a couple years before you go off to do that, right? So now we have one year to go out and get the loan, plus two years so that means I've got two years of stabilization. So I have to finish the project and then wait three years. Well, if mom and pop is only going to give me a three year balloon on their note, I don't have anything because I can't get the project done in one day so that won't work. I'm going to need to have at least five years on almost any property to truly feel good about that seller note. Even then, I'd rather have more. I'd rather have seven years. I'd rather have 10 years. So make sure, based on the property and your turnaround plan, you do not get yourself into a bind where basically you're going to lose the property because they're going to take it from you.

If you can't replace their note, you've put all of that effort into that park. That park is now worth far more than they sold it to you and they know it. So what are they going to do? They're going to take it back from you because they're going to take the park that you bought from them for $300,000 and now is worth $700,000, and they're going to take it back from you and they're going to resell it for $700,000. Or they might even just keep it and think gosh, that guy was a total idiot, then they refinance it and once again they move on. So do not fall into that trap. It's a terrible, terrible trap. I call that trap loan to own, which means the note is not sufficient for you to ever clear the trees. So basically it's a suicide mission and it's a complete disaster for you, so do not do that. If someone wants to carry the paper on a turnaround that has a lot of heavy lifting, they need to give you a lot of time. Again, at least five years, I would prefer seven years. I'd prefer 10 years. I'd prefer 30 years. But it can't just be one of these one, two, or three year concepts; that's not going to work.

I will also add you'd be really smart on the front end of the loan if you went to them and you said okay, here's the deal, you want to propose a five year. Okay, I'll do five year but I want to have the ability to buy a two year extension. How do I do it? Well, I'll pay down capital on the principal at the end of five years if I need the two year extension. But I can't have it where in five years I might fall on the worst moment in American history for lending, and then what would I do? The beauty of that is it's a free insurance policy because you don't have to use it unless you need it. And if you do need it, you're not losing money, you're just paying down your own principal which is basically you're just paying money from one hand into your other hand. But that could be the key between make or break, between failure and success, is having that little bit of extra time.

Number five, master-metered gas or electric. Man, I hate that stuff. My first park what happened to me? Well, first I got battered with a master-meter gas collapse, lost all my gas middle of winter, horrible story. Re-piped to propane, miracle I wasn't all over the news. People had no heat, no way to cook, and no hot water, many of them for two months. That was a catastrophe. Glenhaven then let me down a second time. After I solved the gas crisis what happens? I have an electric crisis. This time, people installed too many window airs so they lit all of the lines on fire up in the air through too much use, which all then burned and broke in half.

What's the key to it all? If you're going to buy a master-metered gas or electric, you've got to have spectacular diligence and you have to know on the front end many parks will not survive it. Again, it's a total turn off. When someone says, "Hey I have a park," and you're hearing all their stuff, and you look at Best Places and you go wow, this has all kinds of potential. If they then say, "Of course it's master-metered gas," or master-metered electric, that should be an enormous deflator to you. So when you see those kind of master-metered utilities, you should immediately think to yourself uh-oh, this deal may not go according to plan and need to distance yourself, and not get emotionally involved in it.

Number six, low home prices and rents. Okay, this will just kill you. So if the market itself has very low single family home prices or very low rent, nobody needs a mobile home park. They just don't need you. You're not required. Unlike the town that has a super expensive home and the super expensive rents, where everybody needs affordable housing, now we're talking instead of market where the mortgage on the $40,000 single family home is $100 a month. So how are you going to compete with that? How are you going to offer someone a mobile home on a mobile home lot for $400, $500, $600, $700 a month when they can get the two story colonial house with detached garage for $60,000 in the nicer part of town? The answer is you are not. You are going to die because if you do not have high home prices, then the only people who will seek out the mobile home park are those people who are such misfits that they can't partake of those insanely low home prices. Remember, you still have mom and pop sellers of the single family home prices and renters. So just don't get involved in those cheapo markets because historically those have been a disaster for people.

Next, dirt roads. Now what's a dirt road? Well, we all know the concrete road, we all know an asphalt road. But there's another kind of road that many people don't know and that's called road base or caliche, or you might even call it gravel. It's basically when you pave a road, it's the surface you put down before you put the asphalt on top. Now, dirt roads however are the kind where the only reason there's a road is cars have gone over them so many times they've killed all the grass. It is the most unsightly, most unseemly of all road varieties. Many bank simply will not finance those parks. They will not finance dirt roads.

When you see a park with dirt roads in it, it better score really high in almost everything else because otherwise it isn't going to make it. Most banks on a dirt road park are going to require them to be paved. If you then say well, I'll go ahead and pave them, you're talking hundreds and thousands of dollars to do it. In some cases, it's going to make the economics completely crash and burn.

Now, there are a few places where you might get away with dirt roads. Those would be in the most highly desirable, sexiest states where the bank says to themselves, "I hate the dirt roads, but everything else in keeping, I'll just go ahead and do the deal anyway." Places like Colorado for example, where everyone loves Colorado, everyone loves the potential to raise lot prices in Colorado, yet they're often dirt roads because the weather conditions are so extreme that you can't really make normal roads work. But other than a few niche markets in America, dirt roads should be a total turnoff.

Number eight, Orangeburg Sewer Lines. Orangeburg is named after a product created, it's either in Orangeburg, New York or Orangeburg, New Jersey, I don't remember which one. It doesn't really matter. All that matters is it is a horribly flawed product. It looks like the center section of a toilet paper roll that if you shellacked it heavily and then try to make it a sewer pipe. You would never dream of making a pipe out of the cardboard center of a roll of toilet paper, but yet people did. And they knew at the time it was a terrible product, and if you even read their own material they only gave it a lifespan typically of a few decades. Well who wants to build a sewer system that has to dissolve within a few decades? And that's what it does. When roots break through the shellac and you inject water into the cardboard, it literally just turns into pulp. Over time, your sewer pipes dissolve.

The only reason the sewer is going through the park is they left a cavity in the earth when that pipe dissolved. It's not always round anymore. Sometimes it's differently shaped. It can be anything from egg shaped, elliptical. The problem is now when the sewage goes through, it's not going to go through very well. Overtime, they just completely collapse. So when you see Orangeburg in that listing for that mobile home park, that means you'll have to re-pipe the entire park. So what does that mean? It means hundreds of thousands of dollars to do it, and it means no financing because there's no banks that will do financing typically on parks with Orangeburg.

Now if mom and pop says they have Orangeburg, before you through up your hands you might see do they really have Orangeburg, and how much of it is left. Because in many parts of America most of the Orangeburg is already collapsed and been replaced with PVC. You might only have one street left to go. We've got parks like that where most of it is already in PVC, but there's maybe one street left to be replaced. You might be able to do that economically. But typically if it says on it whole park is Orangeburg and it truly is an Orangeburg, then that deal is normally probably not going to work for you.

This next one we've already mentioned but I cannot emphasize enough. If most of your homes are ancient, if most of your homes are half a century or more old, then that's a real giant problem. Over time, every customer you have in there will at some point probably leave. Remember the typical lifespan of a mobile home customer is about 14 years in a privately owned home. Well, that 14 years may be coming up for many of your residents. When you get those homes back, they are so undesirable that nobody is going to want to live in them. I'm not talking when you have a smattering of 70s and 80s, which is typically the norm. 80s homes are no problem at all. We sell 80s homes all the time, typically 14 feet wide, and everybody loves them. Even some of the 70s homes can have floor plans that are survivable. But those 50s and 60s homes are notorious for being the most depressing, horrible things you've ever seen. They're interesting from a history perspective only.

I was in one not too long ago and it should have been in a museum, and I would have loved to donate it to a museum but no one would ever pay to transport it. It was a late 1950s home and it was in immaculate condition. How is this possible? Well, whoever lived in it had given it a lot of TLC. They probably lived in it their entire life. Now the problem was they've now moved on and there's no one who wants to live in that, other than perhaps a museum curator or someone of HGTV's Tiny Home program, and they wouldn't even want it because it doesn't have that Tiny Home modern sparkle. So when you see a park like that, it's a good bet you'll end up with all those homes over the years, and there's no way the numbers are ever going to work. You're going to have to be tearing those things down left and right, and replacing with new homes. As we already mentioned, the density probably will not allow the new homes, so what in the world have you done to yourself? You have a time delayed disaster on your hands, so that's a huge turn off.

Finally, number 10, a price that's just absolutely and utterly ridiculous. Not the kind you can renegotiate, not the one where mom and pop want $1 million and you want to pay $700,000. I'm talking the ones where you think it's worth $500,000 and they think it's worth $5 million, or you think it's worth $900,000 and they want $3.2 million. That's never, ever going to work. Don't even get your hopes up you're going to renegotiate it down, because typically that's not where those things go.

Normally, what's happening is mom and pop have an insane idea of what they want, and they're never going to give up on the dream until it has been rebuffed so many times that they just throw up their hands and they say okay, I guess I was wrong. If it's just been listed they're not there yet. If it's been on the market for a year or two, well then you might have a shot. Then you might make a really lowball offer, and for all I know they might accept it. But typically, no one who wants $2 million for a park is going to be thinking of tying it up for $500- or $600,000. When the price is ridiculous, make the lowball offer. There's nothing wrong with that. But don't put that in your category of deals that might happen because typically those are deals that will more than likely not happen.

We have lots of stories of deals we've bought for $0.50 on the dollar, but what they all have in common is they sat around for a long time, and mom and pop had finally grown from home into moments of despair. So they took the first price that they could get that was even remotely close to what they had. Over the years, they hear the same price over and over again. They're asking $3 million and all they hear is, "Oh, I only think it's worth $1 million, forget it," so they kind of realize at some point $1 million is what it will take to sell it. You never know, you might be the first guy there when they throw out the insanely low price or what they deem to be insanely low which to you is just marketplace. But by and large, when you're making those low ball offers make them and move on to the next deal because the odds are relatively low that that's going to work. A Few Final Ideas

Let's also go over a few final ideas that I wanted to impart to everyone. Number one, time kills deals. When you see a great deal, you have to move insanely fast. Insanely fast. So when you have any of the 10 attributes we talked about on the front end, when you see the park that's got the really low price or the really great financing, or the really great neighbor, everyone else in America wants to buy that park, that's just a fact. So the minute you see it you've got to grab it and go with it. I used the estate sale analogy all the time. You see the candlestick at the estate sale, sterling silver, you think it's 18th century, you think it's worth $1,000 and priced for $10. You grab that candlestick. If there's someone else reaching out to grab it, you grab it in front of them and you run around the estate sale with it with them chasing you if you need to. But you always should have a sense of urgency when you're looking at these deals. Because even though you're thinking well, I'll sleep on it over night, well the next guy isn't so the next person that calls them is going to say yeah, I'll take it, box it up, it's mine. So I cannot emphasize enough that you have to move fast. If you want me to evaluate your deal, I can do it after you tie it up. You still have a contingency and diligence, and typically a contingency in finance. Make sure you have both. But tie the things up and then let's talk about it because by the time you call me to talk about it, the next person is already taking it and run.

Now over time, as you learn the more valuable attributes of what makes parks really desirable which we just went over, you'll gain the confidence to know when you have to move fast. But when you see deals, not average deals, not lukewarm deals, not deals you're still pondering that are really not that compelling, but the really amazing stuff, you have to move at the speed of light. Don't let any time elapse whatsoever, because if you let it elapse, if you say well I'll pitch the guy tomorrow, overnight somebody called him at 9 o'clock at night and already struck the deal, and the deal is lost so you have to move really fast.

Next, buying parks is a volume business. It just is. When you make those offers and you look at parks, don't get too emotionally involved in any one deal. Always be thinking of their next deal when you're pitching that deal, because that way you won't be depressed when you don't get that deal that you were looking for, and you can have faith in volume because that's how life works. So if I know that I'm going to make an offer on 10 mobile home parks, I know the odds are extremely good one of those 10 will work. If I make an offer on one mobile home park, my odds are not that good because I'm pinning all my hopes that I have 100% success ratio on that one. So look at lots of deals and make lots of offers. That's the key. Get very fluid on making the offers. If not making offers you can never win, because you won't have anything until you have a signed contract.

Don't be afraid to hold back on masking those offers. Every deal you look at that has attributes you like, go ahead and try and tie that up because again, that's the only way you're going to move forward is by taking those things of the market.

Also, you only need one park. You don't need a plethora of parks. Most park buyers buy just one property because they run out of capital or they run out of time, and they're happy with just the one. Many people own one park. I talk to park owners all the time and how many do they own? They just own one. Everyone does not view mobile home parks like Lays Potato Chips and think they can't eat just one or own just one. So you want to hold out for the really good ones. Here's the problem, if you tie up a property and you're not totally enthused about it, I can almost guarantee you that another property will come down the pike not long thereafter and you will regret that one you bought. It's called buyer's remorse. You see it all the time in everything. You buy that used car, and you think it was kind of a good deal but it wasn't exactly the car you wanted. You really wanted that black car with the leather interior, but they only had the blue car with the cloth interior so you took it, and three days later there's the black car with the leather interior that you had originally wanted. That's how parks work as well. So hold off until you get a really good one. Don't think to yourself well I've got to buy a park in the year of 2021 so I'm going to buy the first thing that even remotely comes close to what I'm looking for. Because the problem is you're going to regret it when the really good one pops up later. That's just a part of life.

also you've got to think like a deal maker, not a deal killer. If I was a deal killer I wouldn't own any parks whatsoever. So I can't just go around being the eternal skeptic, even though I am such an enormous pessimist. Right now while we're doing this I'm imagining my house is going to catch on fire, a meteor may hit the roof, the phone may ring with my daughter who has been in a traffic accident. I have no idea but I'm always thinking the worst. It's certainly a terrible trait so I always see the glass completely as half empty. That being said, I fully understand that I can get nowhere in life without trying hard to make things happen. It's like the old adage of the turtle, it only makes progress when it sticks its neck out.

All of us have to look at every deal out there and say what would it take to make this deal work, not man this deal is no good, I don't want it. So when you're out there looking at deals, look at them and instead of just throwing them aside saying, "Oh well, this deal won't work, it's too pricey," well go ahead and make them an offer. What's the worst that can happen? Laugh at you? Slam down the phone on you? Cuss you out? Those things really never happen, but that's about all that could happen. That's not too bad. So be more constructive in your thinking, even if you're a horrible pessimist like I am. It's worthy to make as a financial tool looking at every deal and saying okay, what would it take to make this a success. A low price might do it, amazing seller carry might do it.

I talked to someone recently, he had a way to get around high density. I thought it was extremely creative. He found a deal in California. Price was right, everything was right but talk to the fire marshal, fire marshal said no those homes are too close together. So what did he do? He went and pondered it and talked to some people, and went back to the fire marshal and said, "If I build a masonry wall as a firewall between them, would that be acceptable?" To which the guy said, "Oh yeah, that would work." So that's what he did. He factored into the price what it would cost for him to build a masonry wall between all those homes the fire marshal said were too close together. Very, very creative. That's how you become a deal maker is you think outside the box, and you never look at a deal and just cast it aside casually, but you give it a little thought to make sure that you can fix it.

Now bear in mind there's some things you can fix and some things you can't. If you've got a terrible location you can't fix that. You can't make the population of that metro area jump from 20,000 to 100,000 by staring at it and dreaming real hard. But many times, there are things that you as the buyer can do to make that deal possible.

Again, you have to acknowledge on the front end in every deal you look at what the actual points of the deal are, and then decide what can you fix and what can you not fix. For example, you cannot fix density but can you? That guy did in California, right? You can't fix location but yet can you? Can you maybe build some kind of a berm or something to hide the view of the terrible looking commercial property across the street? But this business is and has always been better for those who think a little outside the box. So if you find yourself always being the pessimist like I am, when you're deal making you've got to set your pessimism aside for the moment.

Now you can get all kinds of pessimistic in due diligence. I think perhaps the best people in the park business are eternal pessimists when it comes to doing actual diligence. However, it doesn't help you on the front end in trying to put the deals together. So if you have an optimism hat or ritual to make you an optimist, do that when you're trying to get the deals under contract, and then turn pessimistic when you start getting into the due diligence portion of it. All right, now we're going to go to questions.