Mobile Home Park Investing Newsletter

The Brexit vote was a powerful declaration of the unhappiness of the British people. They seemed to be voting not because of economic concerns with the EU, but out of just general anger at the state of the nation and its path forward. Similarities with the U.S. election are easily noted. There is no question that we are in unprecedented times regarding national and international chaos and upheaval. But the good news is that mobile home parks are the ultimate contrarian investment – the only form of real estate that has higher demand when times are terrible. Will Brexit lead to world depression? Possibly. But in any time of duress, some assets do better than others. And mobile home parks are the best hedge to world collapse that we know of.

It’s scary out there. The U.S. is the epicenter of litigation for the entire world – there are more attorneys in America than in all of the other countries of the world combined. So what are some of the extreme methods that park owners can use to battle lawsuits and insurance claims?

Language in your lease that precludes class-action status

In 2011, the Supreme Court ruled that a business can put language in its contract that effectively precludes a class action lawsuit. Here’s the link to that case, which explains the rules in greater details Prior to this decision by the Supreme Court, no matter what you put in a contract, the lower courts would still ratify the class action suit. But this decision is a game changer for those who don’t want their tenants to have that option. Consult your attorney for the details.

Require mediation in the event of a dispute

American courts can be insane (remember the OJ jury?). So how can you circumvent a corrupt and undependable court system? The answer is simple: require any disagreement to go to arbitration. Arbitration allows for a decision to be rendered without all the cost of legal fees, and without the untrained and excessively ridiculous judgements that juries can sometimes create. Ask your attorney about including language in all of your leases and contracts that require arbitration be used to resolve any disagreement, as opposed to the court system.

Be careful with park managers and maintenance men

Many park owners think that their tenants are the source of their potential litigation problems. But the truth is that your employees are just as dangerous. Employment litigation is rising far faster than slip and falls and property damage from falling trees. There’s no magic bullet to this issue, except that you need to make sure that all employees be properly vetted and all employment agreements be in writing and fully approved by your attorney. The most common forms of employment litigation right now include suits for overtime pay and racial or age bias in hiring, as well as workmen’s comp claims. Get your attorney involved before you hire your first manager or maintenance man to make sure you get off on the right foot – and stay that way.

Carry a ton of insurance

Of course, one of the best remedies to a litigious America is simply good, old-fashioned insurance. You need to carry it for every possible risk, and in large amounts. Umbrella policies are relatively inexpensive, and raising your limit from $500,000 to $5 million can change the entire playing field on litigation risk for your park. Talk to your agent to decide the right amount of insurance for your park.

Conclusion

Despite the fact that America is lawsuit-crazy, you can still sleep soundly at night if you use a proactive strategy to deal with the risks. Run these ideas by your lawyer and insurance agent and see if they’re helpful.

No sooner was it announced that Northstar was under contract to a Canadian public company for over $2 billion, then comes the news that YES is selling to a Singapore sovereign nation fund called GIC. So basically what’s happened is that the #3 and #4 players on the Top 100 mobile home park owners’ list both found buyers in a very short period of time. It’s also interesting to note that both buyers are foreign companies. Apparently, the interest in U.S. affordable housing is going global, and that will expand the market for mobile home park portfolios going forward. We feel that consolidation is good for the industry, and we welcome the addition of these overseas investors. It’s an exciting time to be in the mobile home park business.

We recently received another award from 21st Mortgage and Clayton Homes, the “Platinum Builder Award” for hitting $1 million in sales. We have been the largest originator of CASH home sales for a couple years now, and the largest purveyor of CASH homes in the U.S. So why do we put CASH homes on so many vacant lots in our parks? There are several reasons:

• It makes us a ton of money. Every lot we convert from being vacant to occupied makes us $20,000 to $40,000 in value. Every 30 homes or so that we do with the CASH program makes us around $1 million in equity.
• The ability to fill lots with 100% leverage. No other manufacturer offers a program to fill lots that requires nothing our pocket. If the program works in your park, you can effectively fill all your vacant lots with $0 of your own money.
• A great product that customers love. Clayton builds a terrific home that everyone finds attractive. The Clayton section is the highlight at any home show. They employ the best designers in the business.
• Great customer service. We enjoy working with CASH because they are professional, and we appreciate that. And our customers appreciate their timely response to warranty repairs and payment questions.

For more information on this program, call Candice Doolan at 800-955-0021 ext 1735 or email her at [email protected].

The Mobile Home Park Investor’s Boot Camp returns to Chicago on July 15th to 17th. Learn the correct way to identify, evaluate, negotiate, perform due diligence on, re-negotiate, finance, turn-around and operate mobile home parks, both in the classroom and in the field. This immersion weekend, in all things mobile home park, is the only one of its kind in the U.S. And this year we’re holding it on the “Miracle Mile” on Michigan Avenue, so you can bring the family and let them enjoy some of the best museums, stores and restaurants in the U.S.

For more information and to order your ticket, visit the Mobile Home Park Boot Camp information page.

MHU has been around for over a decade, and one of our hallmarks has been that we do things differently. So what is it that makes us special?

It’s a hobby, so we can say what we think

One item that makes us different is our adherence to the truth regardless of who that offends. We have been banned from speaking at industry events for using the terminology “mobile home park”, and we’ve been criticized by our peers for showing people how to, among other things, obtain loans. That’s OK with us, as we would prefer to have a clean conscious than to cater to the corrupt goals of some industry veterans. We are also known to spend as much time talking about what can go wrong with a mobile home park, as opposed to what can go right. That’s because we’re firm believers that if you watch out for your downside, your upside can take care of itself.

We enjoy teaching – and always have

As a hobby, Frank taught public speaking at the college level, starting as a Junior at Stanford, and then at Southern Methodist University in Dallas for 23 years. Meanwhile, Dave was teaching accounting at night at the local junior college in Cedaredge. We like to teach – and we were doing it years before MHU ever existed.

It’s organically grown over time

MHU has grown from a couple tiny paperback books into the largest collection of writings, videos and articles in the industry. It’s been added to slowly, based on what we thought was needed and what feedback we received. Even today, we keep adding to the pile of information, with our monthly newsletters and constant re-writes and additions to our books and courses.

We know what we’re talking about

Probably the most unique part about MHU is that we are the 5th largest owners of mobile home parks in the U.S. Most industry “experts” can be summed up in the old quote “those that can, do – and those that can’t, teach”. In our case, our day job is buying, turning-around and operating over 200 parks in over 25 states. That’s where our information comes from; real-life experience from properties we own. That’s why we are able to pack so much information, statistics and case-studies into everything we write and speak on.

Conclusion

MHU is a labor of love. And that’s what makes it truly unique. We hope you enjoy the information as much as we do in producing it.

The steamboat Arabia sank in 1856 in the Missouri River. It was discovered in 1988 by a group of fortune hunters, who were in search of its cargo. To unearth the ship, they had to bring in a 100-ton crane and dig a hole around ten stories deep. Meanwhile, 20 irrigation pumps were installed around the site to lower the water level and to keep the site from flooding. These pumps removed 20,000 gallons of water per minute from the ground. That was an incredibly hard effort to reach their target, but exactly the type of effort you need to find a great mobile home park deal or two.

Create massive volume

To find a great deal, you need to look at a lot of raw material. That’s true of everything in life, from panning for gold to finding a good deal on a Model A Ford. You have to build your deal funnel to maximize property flow. It drives us crazy when somebody calls and says “I can’t find a good mobile home park deal” and we say “where are you looking?” and they say “I called a couple brokers”. You need to call 100 brokers, you need to make an offer on 100 parks on-line, you need to call 100 park owners. Think BIG.

Identify decent raw materials quickly

You need to evaluate every deal based on five factors: 1) infrastructure 2) density 3) economics 4) age of homes and 5) location. We call this system “IDEAL”. You must know what each of these means, and what the parameters of acceptability are, before you can be an effective shopper. You need to be able to look at a mobile home park and sum it up quickly so you can put it in the pile of “I’d buy it at the right price” or “I wouldn’t buy it at any price”.

Make a ton of offers

Making offers well is an acquired skill. You get it from making a ton of them. One of the initial requirements of making good offers is determining the fair price, and then initially offering less than that price, knowing that the seller will counter with a higher amount. We created our “60/70” formula to allow for correlating prices quickly and getting offers out the door immediately. While many of these offers may be for significantly less than asking price – often up to 50% less – you would be shocked at how many sellers will knock a huge amount off the price if you only ask. If you make 10 low price offers, at least one of those will shock you with their price acceptance.

Create “insanely great” deals through negotiation

You can make an average deal phenomenal through amazing price and terms. Not only should you focus on getting a low price, but also getting the seller to finance the deal. Seller financing offers you advantages that bank loans can never offer, including:

• Low down payment (up to 0%)
• Low interest rate
• Fixed interest rate
• Non-recourse
• No credit check or application process
• Low cost of closing the loan (no third party reports, points or legal fees)

It was seller financing that got us interested in mobile home parks in the first place.

Conclusion

Great mobile home park deals don’t just fall into your lap. You have to create them through hard work and looking at a large volume of deals. Life is very fair with mobile home parks: the more work you put in, the better the results.

At one time, Dave and I drove the same vehicle: a Dodge Durango. I bought mine because my daughter wanted to be able to drive her whole volleyball team around, and the Durango was one of the only cars with third-row seating at that time, other than the gigantic Surburban. So my mission was to buy a used 1999 Durango (this was in 2005), and I wanted a silver one with leather seats.

Quantify the market

My first job was to make a complete list of every used Dodge Durango on the market. I accomplished this by printing off the listings on autotrader.com, and I ended up with about 50 of them that qualified. You can easily exceed that with mobile home parks.

Work the volume

I did not know which of these 50 Dodge Durangos I would end up with, all I knew is that I would make an offer to each one and the odds were in my favor that one would accept it. Worst case, if I could not get the price I wanted, I would know more than anyone else on Durango pricing in the U.S., and could decide what a great price would be.

Know the goal

Back in 2005, a 1999 Dodge Durango had a blue book price of $10,000. So most people advertised them for around $9,500 or so. To get a phenomenal deal, my goal was to buy one for $5,000. Of course, that sounded impossible to the average person, as they said that nobody would sell at a 50% discount. That’s because they didn’t know how to buy things well. So I sat down and cold called all 50 Durangos on my list. I had a simple sales pitch “I’ve got $5,000 cash and I’m buying a Durango today; do you want it?”

Time kills deals

I told every seller that I was going to buy the first Durango that agreed to the $5,000. Time was of the essence. This put them in the position of competing with each other for my business. The first 20 or so sellers told me to get lost. But then I called a guy who was an architect in Chicago and made my pitch and he said “I’ve had this Durango on the market for six months, and it’s blocking my garage and I’m sick of looking at it, so I’ll take the $5,000”. Within a couple days, I was in Chicago, buying the car and driving it home. It turned out to be in phenomenal condition, with all the upgrades, and I drove it without any issues for 7 years.

Conclusion

Great deals are possible when you cast a giant net, work the volume and know the goal. This is true in every form of investment. Mobile home park deals are all around you, but you have to work the system properly.

Of all the alliances you have to forge in successfully buying and operating a mobile home park, one of the most important is your attorney. There are many different attorney profiles, and you must select the one that is best suited for the task at hand. The most common occurrence, for most park buyers, is the attorney to read and protect your interests regarding loan documents and questions that come up on title and contract issues. Like anything else in life, if you chose a bad advisor, you will have a bad outcome. So how do you find a terrific lawyer well-versed in mobile home park law and issues?

The best corporate lawyer we have ever used is Dave DiMarco at Woods Oviatt Gilman, LLP. We have used him exclusively for all of our conduit loans, as well as traditional bank loans. What we love about Dave DiMarco is that he knows what we are trying to accomplish (get the loan closed quickly and inexpensively) and he can quarterback the situation and push it to the goal line without us having to bug him or worry about our progress. How many attorneys have you had to nag, or even worse, call 100 times to get them on the phone? With Dave DiMarco, you don’t have to worry about if he’s making progress – he’s typically bugging you to push you along on your part of the equation. We have given Dave some extremely complicated, time-sensitive tasks and he has successfully completed them on-budget and on-time. He also has terrific people skills and can take charge of a rogue bank attorney and bring them back around both in speed and complexity. Our success rate with Dave DiMarco has been 100%. We get calls all the time from people looking for a good lawyer, and we always tell them to call Dave. If you need a lawyer to represent your interests in a transaction, then you will be well served to call Dave DiMarco at (585) 987-2833. And, yes, he’s the brother of Anthony and Gerry DiMarco – the #1 mobile home park loan brokers in the U.S. This is a family that definitely shapes the industry.

Timmy Regan attended the Denver Boot Camp. What makes that unique is that Timmy is only 19 years old. Timmy is a sophomore at Gonzaga University in Spokane, Washington, where he is studying business administration with a focus on entrepreneurship and finance. He came to the Boot Camp with his parents, but don’t let that deceive you. He has been in the real estate business since the 8th grade, during which time he bought his first rental house for $45,000 that now appraises for $90,000. He asked great questions and was the first one there in the morning and the last to leave at night. So who says that American youth are spoiled? They must not have met Timmy.

Whether you are simply in need of an insurance quote or you have the unfortunate, yet common task of filing a claim, Mobile Insurance is ready and waiting to take your call.

They offer you the best mobile home park insurance coverage when you need it. Being able to contact them when you need them is just as important. Shopping for insurance or setting the wheels in motion to get your damaged home or your business back on track is not easy. At Mobile Insurance, they work to make the whole process easier with greater value for your money. Call them at 800 458-4320 or email [email protected].

When they built the Denver International Airport, they wanted to give it an architectural edge. The designers placed a fabric roof on it, as opposed to a standard one. It gave the appearance of a series of tents. But all the “experts” said it would never last; that it would collapse or rip off in a windstorm. Decades later, it’s still doing fine. So how did so many “experts” get it wrong?

Always ask for qualifications

The first issue is “who are the experts”? Anyone claiming to be an “expert” should have the qualifications to hold that title. With a mobile home park, you are constantly besieged by contractors who claim to be “experts” but actually have no experience at all. For example, the guy that says they are a “tree expert” but just started on the job two days ago, or the paver who is an “asphalt expert” who just happens to have just been released from prison and working at Taco Bell until last Saturday. Whenever you seek anyone’s counsel, your first question should be “what’s your qualifications”?

Get references and call them

With those qualifications – which may or may not be true – you also want to get a list of their current customers. You should then call these references and see what they say. Remember that this list has been corrupted and the unhappy customers expunged, so those remaining should be enthusiastic. If you call these references and they say “I guess the work was O.K., but it took forever to get it done” then you know that you should move on to the next candidate. Most contractors never figure that you’ll call their references, so they will actually put unhappy customers on there, or even customers who have gone bankrupt and don’t exist. We’ve actually called references who told us “this guy’s the worst plumber we’ve ever used, I can’t believe he put us down as a reference. We fired him the day after he got here. He’s a drunk and completely incompetent”. That’s valuable information.

Look for reviews on-line

With the internet age, you can also check ratings on-line, and we urge you to do so. You are probably dodging the bullet when you’re going to use the “roofing expert” and find a one-star rating, 20 negative cases on the Better Business Bureau, and a post that says “this guy ruined my house”. While some of these reviews are clearly corrupted, the sheer volume of positive or negative posts is a good bell weather.

Gut instinct

Sometimes your best feel for qualifications comes from your gut instinct. Have you ever met with an “expert” and suddenly felt that you know more than they do? The human mind is extremely complicated, and still outstrips a computer for decisions making speed. Past experiences will flavor your opinions, and if we have a bad gut instinct, we have learned that we should affirm that.

Conclusion

Don’t let anyone tell you they are an “expert”. You need to make that determination yourself. The good news is that you can do so systematically in a short span of time. Choosing the right “expert” is critical.

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.