Mobile Home Park Investing Newsletter

People ask us all the time how we are able to find so many mobile home parks to buy. It’s no secret that the key to finding the right deal is all about one single concept: VOLUME. The more deals you look at, the better the odds of finding a good one. The more deals you make offers on – regardless of asking price – the better the odds of finding a good value. Most times, if you are having a problem finding a deal that meets your criteria, the problem will be found in too low a volume of deals that are considered or offered on. The mobile home park industry is an equal opportunity effort: the more effort you put into it, the more you get out of it. Someone called me recently and said that they had failed to yet find a great deal. I ask them how many brokers they had called in their search, and they told me 5. A good effort would include over 100 brokers contacted on a regular basis, as well as constant searching of all on-line listings, and taking advantage of direct mail and cold calling efforts. Remember that most buyers are only looking for one or two parks in their lifetime, so this is not a business in which you are needing a constant flood of deals to flip to support your income goals. Those who put in a reasonable effort and work smart typically find what they are looking for. If it’s not happening for you, turn over a new leaf and put a renewed focus on enormous volume of deals looked at and offers made.

You can’t own a mobile home park without, at some point in your career, looking at an older mobile home that is in significant disrepair and thinking “should I fix this thing or just tear it down?” The answer is based on a certain methodology, and getting the methodology wrong can cost you thousands of dollars.

Start with the cost to re-fill the lot

The first stop is considering the cost of filling a vacant lot in your park. If you were to buy a mobile home for $1, it would cost you at least $5,000 to bring it in, set it, connect the utilities and skirt it. So it’s a no-brainer that, financially, any home that you can fix for $5,000 or less is a no-brainer to renovate and not destroy. And, of course, you can’t buy a home for $1 that does not need probably at least $5,000 in repair before you could attract a customer. So that minimum bar for home renovation – on a strictly financial basis – is $10,000 or so, as that’s what you’ll have to spend to re-fill that lot if you tear that old home down and make the lot vacant.

Look hard at the desirability of the floor plan

What’s the point of renovating an old home that nobody wants to live in? This is the second part of the methodology: making sure that you’re not wasting money bringing back to life something that nobody wants to live in. That would be the ultimate financial blunder – spending $10,000 on the old home, and then destroying it to make way for different home for another $10,000 cost after letting the home sit vacant for a year since nobody wanted it. The old adage is “throwing good money after bad”. So before you spend a dime on renovating an old home, you have to look at it impartially and ask yourself “is this a home that I can find a tenant for?” We have found that you reach a danger zone with old homes that are 8’ and 10’ wide, and have no large master bedroom. It’s a given that tenants are used to sleeping in queen and king-sized beds, and are unlikely to be willing to drop back to a full-sized or twin bed. We have also found that anything less than two bedrooms is completely unmarketable. So before you open your checkbook, make sure that you have at least two bedrooms and one that will hold at least a queen-sized bed.

Get several opinions on the cost to rehab

Even if you have decided that the home is worth saving based on floorplan, and that you have a budget of $10,000 to bring the home back to life, how do you know that you can get the job done for that amount? Sure, you can find that one rehab guy who says “I can do this home for $7,500” but how do you know they’re right? What if it’s simply a bait and switch, because they know that once you get $7,500 into the project they can manipulate you to double that amount other than walk off from your investment. The keys to get at least three competitive bids for the renovation, and all bids must be for the completed job, not by the hour. If the guy bids $7,500 and then comes back to you at the end and says “gee, I’m sorry but it’s really going to cost $15,000” then you simply remind him that he gave you a firm contract price of $7,500 and you guess he just lost $7,500 on the project. If he does not agree, then let your attorney handle it, and pay him nothing until it’s resolved (he’ll always settle for the bid amount rather than have it tied up in court for years).

Some things should be avoided regardless of cost

Not all mobile home renovation costs are created equal. It’s one thing to replace soft spots in the floor and put on a coat of paint, and a whole different thing when you have to remove black mold. Some repairs end up with a smiling customer, and some end up in litigation. You should probably think long and hard if the home has the evidence of black mold – or any significant water intrusion. And you should probably think twice if the home has been burned, or if the electrical system shows signs of fire hazards. Remember that you are sticking a human into that home in the end, and you have more at stake than just making a few thousand bucks. A good rule is that, if you would be afraid to live in that home, then you should not get involved in remodeling it. Replacing that home may cost your $10,000, but that’s a bargain compared to a $1,000,000 lawsuit.

Don’t sell the old homes short

We cannot emphasize enough that mobile homes are completely misunderstood when it comes to life expectancy. The truth is that, properly maintained, they never die. A mobile home is a pile of lumber, metal and plastic, which is then sheathed in metal. If your contention is that mobile homes die, then all single-family homes die, too. Recently I was inside a 1960s home that looked like it had just been delivered from the factory. It’s all about the maintenance – there’s no defect in the design of a mobile home. The whole nonsense about them having a shelf life actually comes from the industry itself. For decades, mobile homes were marketed like cars and the dealers were always promoting that you “needed to trade in that old model for something new”. As long as they’re maintained properly – and even if you do a half-way decent job – a mobile home from the 50s, 60s, 70s, 80s and 90s will last as long as a brand new one.

Conclusion

A smartphone is the greatest invention ever made when it comes to mobile home park management. Use that tool relentlessly, and you will see immediate improvement in your park’s performance. And you can do it all in one day and without leaving your house. Now that’s immediate gratification!

These are items that were seen at the entrance to two different mobile home parks we looked at recently. Both are easy fixes, yet devastating to drive-up appeal and the resulting appraisal value. Many park owners fail to realize the enormous economic impact of these minor flaws.

Small things set big first impressions

Most people set their opinion of the quality and value of a property when they first drive in. You have to nail the entry to set the right impression. In both cases here, that first impression was ruined, at one park with a big dead tree stump and the other with two non-straight, rusted signs on a rusted pole. Think of what the impact on cap rate can be from this one bad start – maybe a 10% cap rate becomes a sudden 11%, which is a huge hit on the value. It might also be the difference between getting that loan and getting turned down by the committee. And think of the turnoff it gives potential residents.

Most of the worst mistakes are so cheap to fix that there’s really no excuse

What’s it cost to remove a tree stump? About $250 or less. What about to paint the pole and replace the two rusted signs? Around the same amount. When the price to do something the right way is so tiny, there’s no excuse to not have done it. We’re not talking thousands of dollars here.

Let’s calculate the real cost of that rusted sign or dead tree stump

If you have a mobile home park that is worth $500,000 at a 10% cap rate, and your lack of creating a favorable impression causes the appraiser to change his cap rate to 11%, then the value just fell to $454,000 – which means you just lost nearly $50,000 because you were trying to save $500 or so. That’s a 100 multiple of the money you refused to spend.

Conclusion

If you own a park, stand back and look at it and spot the small things that are not perfect. If you do not fix those small things, then shame on you. You will make maybe 10 to 20 for 1 in profit from fixing those small affronts to aesthetics. In mobile home parks, little things mean a lot.

One of the unique features of a mobile home is the skirting. It’s what separates it from all other dwellings – there’s no skirting on stick-built homes or apartments. It exists because mobile homes sit off the ground, using a chassis and blocks as their foundation. It’s simple, right, so what is there to know? The truth is that the skirting expense in renovating a mobile home park can be substantial, and you want to make an educated decision.

It’s only purpose is to hide the underbelly of the home and reduce pipes freezing

The sole purpose of skirting is 90% ornamental and 10% physical, as it blocks the wind and therefore reduces pipes from freezing in the winter in really cold climates. That’s all that it does. It is not structural and has nothing to do with holding the home up. It has no mechanical parts and has no impact on how the home operates. It’s basically just a big dumb obstacle that blocks the really ugly stuff under the trailer.

Vinyl is not the only option

Because the mission is so simple, there is more to life than just vinyl. We have skirted homes with everything from vinyl to sheet metal to fiberglass roof material – and everything in between. You can let your imagination run wild. If you see it, and it comes in horizontal sheets, then it might work as skirting material. Of course, there are some things to consider. Skirting is strictly an outdoor job, so you need to use a material that is impregnable to water and the elements. That’s why wood is rarely a good idea, such as plywood sheets.

If you’re going to go cheap, go all the way!

To really do it up right, it’s time to get in your car and drive to the local used building supplies store. These are the folks that stock construction materials that were left over, or salvaged from other buildings and projects. Wander around and see what they have that might work for skirting. I once bought a ton of fiberglass greenhouse roofing material that was salvaged from a bunch of greenhouses that were torn down, and it saved me thousands of dollars over vinyl skirting.

You can use a hybrid as needed

Now let’s get even more complicated. Who says that you have to use 100% of one material? For example, let’s assume that you find some really cheap metal material that you can skirt a home with at a salvage yard. It will block the visibility of that ugly home underbelly, but it also is not very good looking itself. And let’s assume that this mobile home is on a prominent corner, where you can see one entire side of the home from 100 yards away. It’s a focal point, and you can’t cut corners. But what if you put vinyl skirting on the visible side and front of the home, and the cheap material on the other side and rear? Don’t think that you can’t use vinyl on important sides and something else on the not-as-visible sides.

Don’t forget about the paint

One of the most important parts of making random material into skirting is painting it. You can take some old rusted pressed metal sheeting and, with a liberal use of Kilz and paint, have a showstopper. But without that paint, you have a nasty mess. Choose a color that compliments the home, but does not match it. If you look at new homes, you’ll see that the skirting is never the same color as the home, but in the same color family. White skirting is always a safe choice, but skirting at the factory also comes in tan and gray and other soft colors. Don’t reinvent the wheel – use what the vinyl companies have already chosen using expensive color designers.

One more important tip on skirting that can save your thousands of dollars

One of the biggest enemies to skirting is the lowly weedeater. When a weedeater meets skirting, the result is a hole through the skirting. This is true of vinyl, but not metal, but the secret works great on any type of surface. The secret trick is to lay down a row of asphalt shingles that has the inner edge under your skirting and extends out about 10”. In this manner, the weeds and grass cannot grow up against your skirting and you do not need a weedeater to cut it back (and knock the holes). We have seen thousands of dollars of vinyl skirting completely destroyed in a few years by weedeaters, so this is a very important tip.

Conclusion

Outside-the-box thinking is perfectly appropriate when it comes to skirting. Using your imagination can save your thousands of dollars, and using common sense can save you even more. Vinyl is great, but there’s more to skirting than just ordering boxes at full retail.

Clayton Homes and 21st Mortgage have partnered together to bring a game changing new program to mobile home park owners. If you have any vacant lots in your mobile home park or in a park that you are looking to buy, then you definitely need to be aware of the CASH program to fill vacant lots with nearly zero capital out of your pocket.

For more information you can contact Lance Hull at 21st Mortgage. You can call him at 800-955-0021 ext.1218 or email him at [email protected]. You can also contact Aaron King at Clayton Homes. You can call him at 865.380.3000 Ext. 5164 or email him at [email protected]. To visit the Community Calculator website discussed in the webinar, click here.

Disclaimer: The materials and information available from this posting are for informational purposes only and not for the purpose of providing legal advice. The contents should not be construed as, and should not be relied upon for, legal advice in any particular circumstance or situation. Further, the information presented on this posting may not reflect the most current legal developments. An attorney should be contacted for advice on specific legal issues.

Disclaimer: The information in this posting is not for consumer use and is not an advertisement to extend consumer credit as defined by TILA Regulation Z.

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I wanted to share my recent experience with Mike Renz. Jeff and I needed a Phase I completed for a mobile home park purchase late last year. I shopped around, including Mike Renz as one of my quotes, and eventually chose a local consultant to perform the work. The savings was on the order of $300, and the local guy was "local"--meaning, he should be familiar with the area databases, industries, geology, etc.

In my initial conversation with Mr. Renz (and during every presentation he's given for you), he mentioned that regardless of who I chose, if I had questions, to call him. His advice would be free of charge.

The report I received from the local consultants was pretty bad. Being an engineering consultant in my prior life, I was expecting a much higher quality report. The local guys didn't really do any consulting, and worse, made blanket assumptions, suggested scientific theories that were incorrect with no supporting data, and worst of all, erroneously listed recognized environmental conditions (REC). I called Mr. Renz--he immediately/graciously reviewed the report, talked me through his major concerns, and provided a detailed email with a list of talking points that helped me discuss the report with the local consultant. With the talking points, I was able to reason with the local consultant. The final product was a Phase I report that I felt comfortable with, and more importantly, that the bank accepted.

Needless to say, next time Jeff and I need a Phase I, we're calling Mr. Renz.

As always, Jeff and I appreciate your help and advice and your willingness to share your experiences. After listening to Mr. Renz' presentation oat the Summit, I wanted to thank you again for bringing professionals like Mr. Renz to our attention.

-Jill S.

You can contact Mike Renz at (614) 538-0451.

We did a lot of conduit loans -- and regular bank loans -- last year. A common feature of those loans was Security Mortgage Group. If you are buying or financing a mobile home park, let Security Mortgage Group get you the loan. They'll get you better terms than you'll ever be able to find on your own. That's why the win the industry mortgage broker award virtually every year from MHI. If you have any loans you need help on, you can reach Anthony or Gerry at (585) 423-0230.