Creative Deal Structure Game – Old Mobile Home Park


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  • Sorry, I did not post a creative deal game on Sunday. I needed a no technology day.

    What would you do if….

    You’re out driving for dollars and see a hand-painted sign that says MOBILE HOMES FOR SALE. You turn into the driveway and discover that there is a small, maybe 24 space, mobile home park. You’ve been on this road many times before and never knew the park was there. It looks like about 10 of the mobile homes are occupied, but many are vacant. The park has some deferred maintenance. You meet with the managers/owners who live at the park. They are a nice older couple and discover they have owned the park for 30 years. They would like to retire.

    You have never been interested in mobile homes before but this “smells” like an opportunity to buy the whole park… maybe with owner financing.

    What questions would you ask?
    What information do you need to find out?
    Would you buy 1 mobile home or go after buying the whole park?
    What would your offer be? Why?
    Would you be interested in buying it to keep it or would you just get an option then flip it?
    What would your plans be for the park if you could buy it?
    Exit strategy? (short or long term)

    Remember, this is a game. Make up some numbers. Tell us what you would do.

    Hi Jackie!

    Would love to break this one down:

    1st question- How Much is the mobile home park currently bringing in every month? (say $5,000/mth – 10 occupied)
    2nd question- How Much money do they need to just leave the and have someone else take over the headaches ( They say $400,000 but really only need $100,000 today)
    3rd Question- Are They open to owner finance? ( They say they need to think about it)
    4th Question- If someone could still give them their monthly cash flow and they have no headaches and they got their $100k would they be open to owner finance?

    My Offer: $100k Down, $5k/mth no interest until paid off, Owner finance $300k (no interest)

    Using Jackie’s Favorite line of course: “Is that the best you can do?” to get to their lowest number.

    My Strategy:
    Use the existing 14 spaces to create $7,000/mth extra (say minus $1k/mth expense = Net $6,000mth extra)
    *Each Space brings in $500 buck/mth based 10 spaces occupied bringing in $5k/mth

    Raise $100k offer to private investors at 10% interest ($10k/yr =$833/mth) 10% is high but it allows me to build trust for more deals in the future.

    Use the down payment of $100,000 ( My cost $833/mth), for the down payment and give $5k/mth (from hypothetical existing rents) to owner until $300k is paid off no interest ($60k/yr) will paid off in 5 years!

    How Did I Add Cash Flow Value:
    Increased monthly cashflow from $5,000mth to $11,000 by using making unoccupied spaces occupied and paying rent (maybe some Lonnie Deals on a few or all 🙂

    *$12,000 extra minus $1k/extra expenses makes $11,000 – $833 (loan service)

    =$10,167 month cashflow until 5th year

    After 5 Year

    $5,000 + $10,167= $15,167/ monthly cash flow!!!!

    Oh Yeah… Forgot to Say…This deal is structured with no money out of my pocket!!!

    NEVER SELL $15k/month is a beauty!!!

    Then do it all over again!!! Maybe Bigger since now investors see you gave them solid returns on their capital!!

    What I Missed?
    Maybe some extra expenses add another $2,000/mth

    Still $13K Month Cashflow!!

    Manny

    Great analysis. Most likely the homes and the park will need some $$ to get it in a condition to attract good tenants.

    I hate hate borrowing $ from anyone but this park might be an exception. It might be even easier, and less expensive, to give up part of the upside or cash flow in exchange for the $ instead of paying 10%.

    There is always a need for affordable housing. A mobile home park is a keeper!

    I’ll take a crack at this one as well.

    Discussion with the owners –
    1. 30 years of owning the park – wow – have you guys enjoyed it all these years?
    2. Why would they be wanting to sell the park?
    3. What are their plans after selling the park?
    4. How much cash would they need today to accomplish or start with the answer to 3.
    5. How are they planning to fund their retirement and what income sources will they have
    6. Are they open to the idea of taking payments for their equity?

    Obtain park financials to understand NOI, expenses, leases, who is paying and who isn’t.
    What could the rents be at current occupancy?
    If park owned homes, do the owners have the titles?

    Additional Due Diligence Items to consider
    1. Check with local municipalities. I have looked into parks that have had vacant pads inside them. If the pads were vacant for over a year and in some cases, if no power/electric bill for over a year, then the city/county would not allow another home to be brought into the park.
    2. City sewer or septic systems – what is condition? If septic, this can be tough
    3. Be able to get titles for MH’s in park.
    4. Can the vacant sites be used for converted to RV slots with electric and sewer hook up

    Entrance and Exit Strategy – I would not be taking title to this one. I don’t have experience with park management/rehab and don’t have time to do so. I’d rather create a great deal with terms and wholesale / sell an option to another investor. I’d be making my assignment fee in the different between the down payment paid and the down payment due to the sellers
    1. Negotiate terms with existing owners.
    2. Negotiate Park price based on a cap rate of greater than 10%
    3. Assignment Fee in the range of 3 to 5% depending on how low I was able to negotiate the down payment, brining the end buyers down payment.

    I think another creative way would be to contract/close a good seller finance deal in the 10-12% cap rate and resell on terms with an AITD Wrap at an 8-10% cap rate and a balloon payment due from end buyer in 3 to 5 years.
    That way, you can make money at closing, make money in the middle, and make money at the Refi.

    Jay

    good list of questions. Some old parks have one central electric meter. Some have individual meters at each lot.

    I remember looking at a park one time that was on well water and had constant problems. So municipal water is always better.

    If I ran into an opportunity like this, I’d be thinking about converting the whole place into an RV park if zoning would allow it. A lot of people are living in an RV today and moving from town to town to find work or just to keep their costs down.

    anyone else?

    What would you do if you ran across an opportunity to buy an older mobile home park?

    Structure a term deal and flip it.

    So this is very close to something I am looking at now. Here is the breakdown (perhaps I should have started a new thread, but I think it fits nicely here)

    -5 acres
    -24 lots
    -21 paying tenants (taxes and lot rent all paid up) of $350/mo
    -3 vacant lots (no empty trailers)
    -city water & city sewer & electric billed all directly to tenants
    -park was not in compliance with the city and will need some work done to bring it back into compliance including 6 trailers that are located in a floodway
    -several trailers that can be moved from the other side of the park to the interior portion of the park
    -bigger issue is the main water line in the park was not compliant with the current regulations and park must upgrade to a 6” water main (rough order of magnitude guess is $100k to fix the water line)
    -gravel roads through park and due to the flood zone that goes through the park, the city is requiring the ownership to keep the roads gravel
    -onsite park manager helps out as needed
    -long term tenants–most over 10 years
    -income 90k/yr
    -expenses 20k/yr
    -asking 425k
    -owner late 70s and selling his last two parks (I believe he owned 8 total)

    The owner claims isn’t interested in owner carryback financing, but that was a conversation from months ago, so maybe he is now. Obviously he isn’t hurting for cash. I think he lives in Florida so I can’t stop by to see him 6 states away.

    My plan is to brainstorm questions for the city (need to find a point of contact there), the owner and get estimates on the repairs/code violations. Moving a trailer I would think would be $2-3k each, although they aren’t moving 50 miles away, maybe 50 yards. The water main scares me. I don’t have $100k to drop on something like that let alone a huge down payment on this park. I have used the above questions from everyone above to make sure I am not missing anything. I’d like to call the owner later this week and build the relationship (as best I can on the phone) and ask him the questions.

    I would really like to own this park and feel the size is perfect to start with. I currently don’t have a financial friend that could afford the 100k-150k+ for down payment and repairs. I also don’t want to walk away from a challenge as I recognize I can’t wait for the perfect opportunity.
    Any ideas?

    Thanks!
    Greg

    Greg

    This sounds like a great opportunity.

    Always ask yourself, “What would Jack Miller do?”

    option 1 – find a money partner or private lender

    option 2 – control without ownership.

    All sellers want cash. But one of our many jobs as creative real estate investors is to show them how they can get what they need without getting cash. Show the benefits of selling a different way (like installment sale). Show the benefits of them maintaining ownership and just letting you lease the park with an option to buy later – perhaps when there is a better tax advantage.

    With that in mind, what if you got an option to buy the park with seller financing and favorable terms. CONTROL. Then you sold 50% of your option to the person who would put up the cash in exchange for you doing all management and maintenance. If you have an option contract, you have something valuable to sell. Anyone who needs to do a 1031 exchange FAST would be a good candidate. Contact all 1031 facilitators to see if they have a client that is a good fit.

    It would be even better if you could convince the seller to let you lease the park with an option to buy later. Then you don’t have to split profits with anyone.

    Every seller wants cash. But often, for investment properties, what they really want is to not have to deal with it anymore. You can be the solution.

    Greg,
    I have a number or potential investors over the last four years that have come to me in the Rockford area that have said they would be willing to lend cash for good investment opportunities . It may be a possibility, do not count on it but may be a possibility in a given scenario.

    Jackie,
    These are great ideas–I think the tax code changing in 2021 is almost a certainty. I will use that for sure when I talk to the owner. I will also start writing up 3-5 potential offers to get my brain working.

    Don,
    Would be great to get some names and numbers. I’ll drop you a note so we can connect on the phone.
    Thanks!

    .
    Re: finding a private lender: I received an email just this morning from these people:

    https://privatelenders.com/

    Do your own due diligence on them. Looks interesting.

    –Dee

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