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Top 10 Ways To Buy Mobile Home Parks

Sun, 13 Aug 2023 17:08:05 GMT

Here are top 10 most common ways to buy mobile home communities

Although there are many ways to find great mobile home park deals, below are the top ten common ways people use to buy mobile home parks:

1. Direct Purchase: Buying a mobile home park outright from the current owner, commonly referred to as (off-market) tends to be on the the best ways to find deals because the property has not been brought to the open market where prices can tend to be bid up by other buyers/investors. Usually involving negotiations directly with seller.

2. Seller Financing : Arranging with the seller to finance a portion of the purchase price, often with a down payment and regular payments.

3. Bank Loans : Obtaining a commercial real estate loan from a bank or lending institution to cover the purchase.

4. Private Investors : Partnering with private investors who provide capital in exchange for a share of ownership or profit.

5. Real Estate Crowdfunding : Using online platforms to gather funds from multiple investors to collectively purchase the mobile home park.

6. Owner Carry : This is another form of Seller Financing. Negotiating with the seller to carry the financing, meaning they act as the lender and you make payments directly to them.

7. 1031 Exchange : Utilizing a 1031 exchange to sell a property you own and reinvest the proceeds into a mobile home park, deferring capital gains taxes.

8. REITs : Investing in a real estate investment trust (REIT) focused on mobile home parks, which can provide a share of ownership without direct property management.

9. Lease Option : Renting the mobile home park with an option to buy it at a later date, giving you time to assess the property before committing.

10. Partnerships : Forming a partnership with experienced investors or individuals to collectively pool resources and purchase a mobile home park.

Remember, each method has its own advantages and considerations, so it's important to research and choose the approach that aligns with your financial goals and risk tolerance. It's also recommended to consult with legal and financial professionals before making any major investment decisions. If you are looking to partner with a proven operator, you can get more information here.

Part 3 of 5 Part Series- Issues: Banks

Mon, 10 Oct 2022 22:13:37 GMT

Lending on Mobile Home Parks

Most real estate investors talk about all their successes and how great an asset class is while never talking about the challenges that come with it. Over the next 5 weeks we will be discussing 5 issues that we face on a daily, weekly, or monthly basis in our business that could cause a new investor to struggle or even fail while investing in manufactured housing communities.

When you first start out buying parks you will probably be buying small assets and have a very small balance sheet. This means that you will have to deal with local/regional banks in the area where your park is under contract. The reason for this is the national financiers in this space usually do not finance any park under $2,000,000 and most likely they will want more liquid cash/more experience than what you have when you start out. These local/regional bankers are notorious for being slow, unresponsive, know very little about manufactured housing, and have been known to do their calculations wrong. For example, we were closing on a 3-park portfolio about a year ago and the HUD statement the bank sent over to the title company said we needed to wire in $12,000 as our equity portion of the closing. When we had done the calculations and we thought it was $127,000 for our portion. We took it at face value and wired in the $12,000. At almost the close of business, the banker called us up and said he had made a mistake on the HUD, and we needed to wire in the remaining $115,000. That lesson taught us that we needed to check all the calculations the bank makes as they are prone to make mistakes.

Your priority when calling one of these banks is to get through the gatekeeper. We have found that it usually takes multiple calls just to get in touch with whoever can help with a commercial loan. After you get in touch with them, make sure to have a bio on your company ready to send as soon as you get off the phone. The speed that you get that first email out usually leaves a lasting impression on the banker. Make sure that the bio is not just a word document. It should have a logo on the top with a website that they can go to and a quality color scheme throughout the document. You may have zero experience in manufactured housing but put other items on the bio that help the banker understand on why they should even consider you. Something that Jason and I never did but should have, was bring on more experienced people that you can put on your website as “consultants” that give you the appearance of having more industry knowledge than you do. That way you can reference them as a “consultant” on your project and this will give the banker additional comfort.

The next step is to put a package together for them. This package should include a write up on where the property currently is and your plans for the property in the future. It should also include a current rent roll/profit and loss statement. Also, a proforma rent roll and profit and loss statement. Do not make the package overly complicated as the banker will probably have no idea what you are talking about. Give them a clear path to follow on what you will be doing to bring the property income up and make the property look better. When the banker receives the package, set up a follow up call to walk them through the package, so it reinforces what you are trying to do. Answer all the questions that they have and lastly ask them to come drive through the property. Most of the time they will decline but if they accept, be sure to show them how you will improve the property as you drive through it. As well, take them to the surrounding area and tell them why you think the new tenants you will be bringing into the property will like the area they are living in. For example, I took a banker through a property we were going through a refinance on and showed him the additional areas we were going to put cap ex into. Then I took him on a drive of the surrounding area and showed him where a new gas station was built on a hard corner, an area of land that had just been cleared for a recreation center/soccer field and where a developer had just broken ground on a new laundry matt. All these items showed the banker that I had taken a deep dive into the area, and it also showed that other banks/investors were pouring money into the area.

Make sure to stay on top of the checklists that the banker needs. If you send an email with a trailing 12-month profit and loss statement and a survey, include in the email that you would like a confirmation that the banker received the data, and it was the data that they needed. I cannot tell you how many times Jason and I have sent bankers multiple emails with the same information. The faster they can check their boxes, the faster you can find out if the loan committee is going to approve your loan.

Lastly, try to meet with the banks appraiser when he comes out to the property. We have found that most of our evaluations go up tremendously when Jason or I meet with the appraiser on site. We believe this is the case because we can explain the plan to them as they walk the property and reference some comparable sales in the area that they may have overlooked. We also try to build rapport with them as we explain the plan. Bringing a human element into the appraiser’s view will hopefully remove you from being another number in the stack of paperwork they have to complete.

Part 2 of 5 Part Series- Issues: 21st Mortgage Cash Program

Wed, 07 Sep 2022 13:10:53 GMT

Part 2 of 5 Part Series of Issues: 21st Mortgage Cash Program

As I hinted in part 1 of my lecture series, there are chattel financing programs that allow you to finance new or used homes, so your capital is not drained by trying to put homes on vacant pads. Used homes can cost $30,000 to put on a vacant pad and if you have 10 vacant pads that can cost you $300,000 which could be the down payment on another property. Using these programs can be very beneficial as they will take the capital constrain off you but there are some issues we have run into that we wanted to make you aware of.

We use the 21 ^st Mortgage Cash Program. There are other programs out there, but we have not used them yet (such as Triad and Northpoint). I would encourage all our readers to do their homework before choosing the 21 ^st Mortgage Cash Program. 21 ^st Mortgage is a sister company of Clayton Homes, which manufactures mobile homes. Clayton and 21 ^st Mortgage are both owned by Berkshire Hathaway which the Oracle of Omaha (Warren Buffet) owns. You can finance both used and new homes through this company.

Let’s say you would like to fill a property up with new homes to try and upgrade the look and tenant base. We love the look of new homes and would agree with this approach. There are two options with the Cash Program. Option A is you are allowed to finance the cost of the home, freight, set up, and the skirting/steps/utility hook ups/HVAC with them. That means you can finance 100% of all the costs with them. The catch is the Cash Program forces you to finance the tenant through them. This means they must have a down payment of 5% if their credit score is above 600 and 10% if their credit score is below 600. For those of you that have parks with everyday working-class Americans, you will almost never find an applicant that has a credit score of 600. Always assume the 10% down payment. This is going to limit a large amount of your tenant base because while a lot of your tenants make enough to pay the monthly payment, they will never be able to put down the $4,000-$5,000 it will take to get into the home. The upside of this is the normal cost to finance a home through the Cash Program is $100 per month for every $10,000 of financed cost. This is going to alleviate the monthly payment because a $50,000 home will be $500 a month plus your lot rent which we will say is $300 a month. That means they can pay $800 a month for a $50,000 brand new mobile home. In most of the markets we see mobile homes rent for $750-$800. As well, the Cash Program has much stricter requirements for tenant screening than most park owners do. For example, felony convictions, drivers license, social security numbers (think about this if you are in a majority Hispanic population), valid proof of income (until you own a park you do not understand how many people never get paystubs/get paid under the table). The point being you will severely limit your tenant base by putting them through this process. As a park owner you must think about speed and cash flow. This option may limit both.

Option B is the Cash Program finances the cost of the home, freight, and set up, and you come out of pocket for skirting/steps/utility hook ups/HVAC. The Cash Program allows you to screen your own tenants and decide what down payment and monthly payment the tenant makes if you pay them directly. We feel this option gives you much more control over your tenant base and allows you to be nimbler if the market changes regarding your monthly payment you are asking for. Our normal “rent to own” brand new mobile homes require a $2,000 deposit and $1,000 a monthly for a payment.

Some other things to keep in mind, the Cash Program charges 3 points for the origination cost on any home orders under 5 and 2 points on any order over 5 homes. The interest rate they are charging right now is 8.0%. You or your group must have a minimum net worth of $2,000,000 to be accepted by the Cash Program. Make sure to ask your representative about the calculations for the Supplier Fees and Carry Costs. The math behind these two calculations is very confusing and I would go into it, but I would have no one reading this by the time I got done explaining it. Always make sure your community is likely to be approved prior to relying on this program because they have changed many requirements since we signed up (minimum spaces, minimum number of vacant pads, quality of the property, area of the property etc).

Part 1 of 5 Part Series- Issues: Putting Homes on Pads

Tue, 26 Jul 2022 22:38:25 GMT

Written by: Tyler Lekas-MHCI Group

Most real estate investors talk about all their successes and how great an asset class while never talking about the challenges that come with it. Over the next 5 weeks we will be discussing 5 issues that we face on a daily, weekly, or monthly basis in our business that could cause a new investor to struggle or even fail while investing in this asset class.

You may have seen a broker list a mobile home park saying, “HUGE UPSIDE IN THIS PARK TO FILL VACANT LOTS”. You may look at the proforma numbers and say to yourself “all I have to do is fill 10 vacant lots at the property and it goes from a 6 cap to a 9 cap.” Here is how to start breaking down those pads to see how profitable and easy that infill opportunity will be.

There are two routes that you can choose when filling vacant pads. One way is buying used homes and the other way is using a chattel financing program (like the 21 ^st Mortgage Cash Program which we will cover in another post) to finance new homes to bring them onto your vacant lots. The pros of the used home route are that you are going to spend less than the new homes which will make your return on the cash you put into that home much quicker. It will also be easier for residents to afford the monthly payment and that will make your lease up process much faster. The cons are you will be using all your own money to put into that home. Here are the costs that are associated with that used home and I will be putting prices that we normally spend by each of the descriptions so all you math guys/gals/Zs/theys can run some numbers: the price of the home ($5,000-$7,000), the freight to deliver the home ($2,500), the block/level/anchor of that home ($2,500-$2,750), the skirting/steps/utility hookups/HVAC ($10,000) and then the rehab of that home ($15,000-$20,000). You can see by the numbers above that this can get expensive. If you are spending $30,000 a home and you have to fill 10 vacant lots, it may cost you $300,000 which could be your down payment on anther property. If you are syndicating a deal, you have to think about the preferred return on that $300,000 and how that will effect the IRR (internal rate of return) of your syndication.

The second way is to use a financing program who will finance the entire cost of the home, delivery, set up and skirting/steps/utility hook ups/HVAC. This sounds like a great option as you do not have any capital outlay. The issue is that new home orders are severely backed up, the cost of new homes are far more expensive than used homes and the process to qualify for these programs is very difficult (again we will discuss the 21 ^st Mortgage program in another segment). We are spending about $43,000 per new home that is coming into our properties, and we order our homes from Tennessee, so the freight is $6,000 vs $2,500. We still have to do the skirting/steps/utility hook ups/HVAC and block/level/anchor. Our additional debt per home is $59,000. Assuming you order 10 of those homes that will add an additional $615,000 in debt to your balance sheet. You must think hard about that because when one of your tenants’ (not if) defaults on one of these homes you will have the capital to carry the note until you can find a new resident.

Make sure you do your due diligence on the vacant lots. If there are utility hook ups already there it will cost less than if there are no utility hook ups there. Do not ever listen to an owner or broker who says, “that lot hasn’t been used in 5 years but all you have to do it run water/sewer and put an electrical pole there.” We have had to dig 100-foot trenches to get sewer and water to our homes because we did not do our DD prior to purchasing the property. This cost us thousands more to get that home set up and additional time. We upgrade most of the electrical boxes from 100 to 200amps because the new homes must have 200amp boxes to support the electrical usage in the home. Make sure to see how many amps your electrical box is at a vacant lot or if there is even one there because putting a new pole, box and underground wires will cost you more money. The point being, make sure on the site visit of the property you check out each vacant pad and do a deep dive into the utilities there and the current HUD regulations in your state.

Lastly, for everyone who just read this post and said, “After reading that I do not want to deal with those headaches”. Well, we have a solution. We are currently raising capital for a fund that accepts accredited investors. We have 4 properties under contract in 2 states. To give you a sneak peek at one of our deals we have under contract its 122 spaces and we have it under contract for $2,100,000. This comes out to $17,200 per pad which is well below replacement cost. Our proforma numbers have this asset at a $5,050,000 valuation in the next 5 years. We would love to take all the management headaches off your plate while sending you mailbox money.

If you are interested in learning more, we invite you to schedule a call to further discuss. Schedule Call Here

To Visit our site and download our company overview and investor presentation deck. You can download here

We wish you much success,

MHCI Group, LLC

Jason Postill & Tyler Lekas

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Investing in Mobile Home Communities: Advantages, Challenges and Responsibilities

Thu, 15 Oct 2020 18:14:16 GMT

How to Determine if This Sector is Right for You

In this two-part series, LoopNet is providing an overview of the mobile, or manufactured, home community sector — one of the least understood and most intriguing real estate asset classes. Part one focused on the history and evolution of the asset class and considered the opportunities that exist for small private investors. Part two, presented below, centers around key investment criteria, relative strengths and challenges and approaches to responsible ownership.

When we left off at the end of part one of this series, Frank Rolfe, a private investor who is one of the largest owners of mobile home communities in the United States and the co-founder of Mobile Home University, was about to detail his key investment criteria for mobile home communities. So, without further ado:

Investment Criteria for Mobile Home Communities

Rolfe noted that the first mobile home community he purchased, in 1996, taught him what to avoid in communities going forward. Based on that experience, he delineated the five most critical items that he believes investors, particularly those new to the sector, need to consider:

Infrastructure: Rolfe says that good infrastructure is paramount. He cautions against private septic or wastewater systems and wells, in particular, and he encourages investors to seek out communities with municipal water and municipal sewer access. Similarly, he is generally opposed to master-metered gas or electric systems, which essentially require a mobile home community owner to become a private utility. Managing mobile home communities’ energy use is particularly challenging given that modern manufactured homes utilize considerably more power than the older homes did, which can put a strain on existing systems and lead to costly repairs and upgrades

Density: According to Rolfe, the ideal density for a mobile home community is about seven units per acre. That enables the operator to put the largest possible double-wide or single-wide home on every lot. Some older communities have densities between 10 and 15 homes per acre, which is not ideal, but workable. However, some communities exceed 20 homes per acre. At that density, it won’t be possible to replace outdated, vacant units with modern homes, as they will be too large. In addition, you could run afoul of the local fire marshal. Technically, they require a 10-foot separation between homes for safety, and they possess the authority to shut down the community if the density doesn’t allow for that distance.

Location: As with any real estate investment, location is a pivotal consideration when evaluating a mobile home community. Rolfe prefers to focus on communities that are either in upscale suburban locations — mostly populated with detached homes, in well-regarded school districts and featuring vibrant retail amenities — or in urban settings that are experiencing a renaissance and undergoing gentrification. He suggests that investors should avoid rural locations, or suburban locations that aren't in good school districts.

Age of the homes: Rolfe believes it is important for investors to consider the age of the existing homes in the community. Homes that were built prior to 1976, i.e. pre-HUD, are less than 14-feet wide, which makes them rather claustrophobic; they also lack modern amenities, such as washers and dryers. Accordingly, if a lot renter vacates one of these homes, it will need to be replaced, rather than repaired and renovated. If the park has a preponderance of pre-1976 units, this could create significant expenses for an investor in the future. On the other hand, Rolfe was quick to point out that you don’t want all of the homes in the community to be brand new, either. Brand new homes are, most likely, still being paid for, which means there’s a greater risk of the occupant defaulting on their mortgage, which would leave the community owner with an empty lot, or even mortgage payments, depending on how the loan was underwritten. Rolfe believes that the ideal scenario is a community populated by relatively modern homes that are already paid for.

Economics: Rolfe suggests that the cap rate on the community should be roughly three points higher than the interest rate on the investor’s loan, assuming 70%-80% leverage. According to Rolfe, this spread will usually enable an investor to garner a cash-on-cash return of approximately 20%. On more desirable properties, Rolfe noted that you may need to factor potential upside from rent increases into your model in order to reach the recommended cap rate threshold.

While Rolfe’s criteria may serve as a framework for investors, it’s worth noting that other sources adhere to somewhat differing investment principles. For instance, Mike Conlon, CEO of Affordable Communities Group, said that, like Rolfe, he initially avoided mobile home communities that lacked access to public utilities, but he eventually revised that position, “because everything’s fixable.”

Conlon went on to say that location is his primary concern when evaluating a mobile home community. “I’m always going to buy a park that’s within 20 minutes of a major metro. And the reason I do that is my belief [that] all multifamily, whether apartments or mobile home parks, is about jobs.”

Nonetheless, he acknowledged that there are opportunities for investors in mobile home communities located in smaller, more tertiary markets. In those instances, Conlon suggested that it’s important for the investor to have firsthand knowledge of the local market and be comfortable with the area’s long-term employment prospects. Entering into a situation where a single employer — a local factory, for instance — is responsible for the majority of the jobs in the area could be precarious.

In general, Conlon’s view of the overall market was a bit more cautious than Rolfe’s. “It’s a tough market right now and there’s obviously a lot of advantages … with mobile home parks, but the prices are way higher than they used to be. It feels a lot to me like ’07, where even mobile home parks in Florida got way too [expensive] and people made mistakes.”

Nonetheless, everyone in the industry that LoopNet spoke with, Conlon included, remained largely, if guardedly, optimistic about the future prospects of the sector. If anything, as Conlon observed, the industry seems poised for growth. “New homes that we’ve brought in are all sold out for three months. We don’t even have them on the ground yet, and we have deposits; people who are downsizing [from conventional houses] are coming to us to buy these new homes,” he said.

Michael Nissley, executive managing director and national director of the Manufactured Housing & RV Group at Colliers International, put it even more succinctly: “I’m very bullish on the mobile home park industry.”

Harker Heights, TX (Frank Rolfe)

The Advantages of Investing in a Mobile Home Community

In articulating the relative advantages of investing in mobile home communities compared to other real estate assets, Rolfe referenced Warren Buffet’s moat analogy, in which a moat represents the circumstances that protect your investment.

“We’re the moat kings. We’re like a castle where there’s a moat, and there’s another moat behind that moat and then another moat,” Rolfe said.

More specifically, based on LoopNet’s reporting, we identified five primary advantages to investing in mobile home communities: limited maintenance and personnel costs; decreased turnover; the unlikely benefits of a bad reputation; significant upside potential; and a contrarian attitude.

Limited Maintenance Expenses and Responsibilities

Conlon began his foray into the real estate industry by investing in multifamily apartment complexes. Within a few years, he had acquired approximately 500 units, but he struggled to grow his business beyond that threshold, largely because of the maintenance-intensive nature of traditional multifamily assets. In 2005, he purchased his first mobile home community, and a year later he sold the apartment complexes and plunged headlong into investing in mobile home communities, which he says are simply “a lot easier to manage.”

To illustrate the minimized maintenance burden, Conlon told LoopNet that, of the 43 communities that he owns, only four of them feature a full-time maintenance employee. “In apartments, anything over 60 [units] required a full-time, certified [air conditioning technician], and those guys were tough to maintain and hold, so that was a big issue for us. We didn’t want to be beholden to those people, so the mobile home park makes it much easier from that perspective,” Conlon said.

Rolfe concurred with Conlon’s perspective. “It is just land rental … You don’t have to get involved in the homes, you don’t have to fix toilets and things. The stuff that people hate about [maintaining] apartments, we don’t have to [deal with], because we just rent land.”

Less Turnover

One of the most significant costs that owners of traditional multifamily complexes contend with is turnover. “By nature, apartments are more transitory, and they have anywhere between 40% and 50% turnover on an annual basis,” Conlon said. Conversely, Conlon told LoopNet that the annual turnover in his mobile home communities is approximately 15%.

“Mobile home parks tend to be [populated by] more long-term residents. The resident typically owns their home, so … they’re sort of invested in the property and they tend to stay longer. And you can develop a community that way,” Conlon said.

Norm Sangalang, a Senior Vice President with the CBRE National Manufactured Housing & RV Resorts (MHRV) Specialty Practice, concurred with Conlon. “At a stabilized occupancy level, the continuity of [mobile home community] occupancy is highly consistent and very durable.”

The relatively low level of turnover directly impacts an investor’s returns. As Conlon remarked, “Turnover costs you money, because you have to change the unit, fix up things, whatever; the lower the turnover, the better.”

When a Bad Reputation Is a Good Thing

Investors in mobile home communities need to possess a certain boldness; a willingness to venture where other investors might fear to tread, and that’s part of what makes the sector potentially rewarding.

As Rolfe put it, “The U.S. media has such an entrenched stereotype they have built about how terrible trailer parks are that most people won’t even look at investing in them.”

This bad reputation has also significantly constrained new development in the sector, which decreases the potential for unexpected competition. In fact, Nissley noted that many municipalities have even attempted to reduce the number of existing communities. He estimated that Miami-Dade County was home to as many as 500 mobile home communities at one point; today, he approximated that less than 75 of those communities remain. While Nissley acknowledged that some of those communities were destroyed by hurricanes, he believes that many were the victims of municipal agendas.

That phenomenon is not limited to Miami-Dade County either. According to Rolfe, “Supposedly, there’s about 10 [mobile home communities] built per year, and there’s about 100 torn down [in the United States], so we’re actually an endangered species.”

Significant Upside Potential

Lot rents at mobile home communities have trailed inflation by a considerable margin over the last 50-60 years. “The average lot rent in America is believed to be about $280 per month, and the average lot rent in 1960 was $500 a month in today’s dollars,” Rolfe said. That creates potential upside for investors.

There’s also the potential for long-term development opportunities in some regions. Nissley commented that some investors approach mobile home communities as a land investment, with the added benefit of an existing income stream. “Some people view mobile home parks as a land bank, and there’s a few investors in this business that just look at it that way. And their analysis [involves] a bit more than just the going-in cash flow and how can they improve the cash flow. They’re looking at the broader market; they’re looking at land prices; they’re looking at likely zoning for that particular area, and land use and density.”

Market Resilience

While LoopNet is hesitant to label any asset class as recession-proof, mobile home communities might almost warrant such a designation (emphasis on “almost”).

“During good times and bad … manufactured housing seems to be weathering the storm very, very well,” Nissley remarked.

In fact, according to Rolfe, the industry verges on contrarian, and can often perform better during intervals when the broader economy is experiencing economic distress. “Our sales pick up when people are doing poorly and they need more affordable housing,” Rolfe said.

Nissley went on to say that the sector’s stability is a feature it shares with multifamily and single-family homes — it fulfills a fundamental need. “Being primary housing, where someone lives, from a default perspective, you’re probably going to get rid of your boat, your car, possibly your office, before you get rid of your house.”

Nissley continued, “From that perspective, affordable housing is probably among the safer places to be in this market.” Nissley further observed that the CMBS data from recent market corrections supports this thesis, with mobile home communities and multifamily complexes outperforming other asset types.

The Disadvantages of Investing in a Mobile Home Community

The preceding benefits notwithstanding, mobile home communities, like any investment, come with their share of risks and challenges. Based on LoopNet’s reporting, the most notable potential issues that investors should be prepared for are the cost of replacing homes, skeptical (at best) municipalities, sketchy record-keeping practices and a degree of culture shock.

The Burdens of Home Replacement

According to Nissley, the most significant change in the mobile home industry over the last 20 years, from a community owner’s perspective, is the manner in which new homes are brought into the community. In the event that there is an existing empty lot, or a vacancy develops, the capital expense of purchasing new mobile homes or refurbishing existing units has often shifted from the lot renter to the owner of the community. “The number one thing that requires additional capital to this industry and that changed the business model was the need for an owner/operator of parks to fill [lots] or rehab the homes in the parks themselves, with their own balance sheet.”

While initiatives such as 21 Mortgage’s CASH program (discussed in part one of this series) endeavor to minimize this burden, they still require the owner/operator of the community to advertise the home and show it to potential purchasers. Further, in the event that the homeowner defaults on their mortgage, the owner of the community becomes responsible for the mortgage payments and upkeep of the home until they can secure a new purchaser.

Sangalang noted that the lack of robust financing options for mobile homes fosters this paradigm. “The purchase of individual manufactured homes has a much smaller pool of lenders, which is a proportionally much smaller percentage of the overall housing market. The scale of traditional housing loans provides a broader and more competitive lending market that leads to higher efficiency,” he said.

While Conlon sees a value-add opportunity — i.e., the ability to increase cash flow through improvements — in bringing new homes into a community (as outlined in part one), Nissley notes that investors need to proceed carefully. “The liability of maintenance and repair of a park-owned home can sometimes exceed your revenue, if you’re not careful.”

Uncooperative Municipalities

Mobile home communities are often subject to challenges from their local municipalities. Accordingly, Nissley says that it’s critical for prospective investors to grasp the zoning regulations and general attitude towards mobile home communities in the municipality where they are investing. In particular, Nissley says that investors will need to understand the difference between mobile home communities that are conforming and those that are nonconforming.

Conforming means that the property is legally zoned and currently operating as a mobile home community. However, over time, particularly in urban areas, some mobile home communities have had their land use or zoning changed by the municipality. This is because, possibly due to urban sprawl, the municipality no longer believes a mobile home community is appropriate for that area. Even if a park is technically zoned appropriately, or at least was at one time, it is considered legally nonconforming if the zoning or land use changes. While the existing homes are grandfathered for their current use, a community owner could be restricted from making any changes to the community, such as adding amenities or moving in new homes.

Rolfe suggests that the real issue that local governments have with mobile home communities isn’t necessarily the product type, but the lack of tax revenue that mobile home communities generate compared to other uses, such as office, retail or single-family housing. Regardless of the reasoning, Rolfe says that investors must ensure that their certificate of zoning and all required permits are in order to avoid any municipal complications.

Increased Research and Due Diligence

While the lack of consolidation in the mobile home community sector can create opportunities for investors, it also presents challenges. Finding communities to purchase can require some digging. And, even once a potential community is identified, investors shouldn’t expect that all of the records will be straightforward, or even available.

Because many smaller, or so-called “mom and pop,” owners don’t have any debt on the properties, they aren’t required to produce reports or keep computerized records. Even rent rolls could be hard to come by. “It’s not uncommon to ask the seller, ‘can I see your financials’… and it’s basically a spiral notebook with numbers written in purple crayon,” said Rolfe.

“Sometimes I’ll take over a park, I’m buying one right now on the west side of Charlotte, where there aren’t any records, there’s no leases, everything was sort of done in cash … that’s the type of thing you’re going to run into occasionally,” Conlon said.

Such obstacles are by no means insurmountable, but they do require particularly astute due diligence on the part of the investor.

Culture Shock

It’s a delicate issue, but it would be disingenuous not to acknowledge that mobile home communities are different than most other real estate asset classes that a typical investor may consider.

As Rolfe pithily noted, “The average American never goes into a mobile home park.”

Nissley observed that mobile home community ownership, more often than not, “comes with hardship.”

Rolfe went on to say, “It is a strange industry, and it takes a while to get used to it. There’s some degree of culture shock for anyone entering the industry, myself included. Unlike most other real estate sectors where you feel like you kind of, sort of, understand it, unless you’ve lived in a mobile home park, you don’t.”

Conlon cautioned that, “You need to understand that it’s a group of people that’s pretty much been kicked to the curb their whole life, and they can be sensitive about certain issues, especially rent raises.”

Or, to frame it from another perspective: mobile home community ownership comes with a unique set of responsibilities that a prospective investor should be aware of.

La Costa Mobile Home & RV Park, Lovejoy, GA (Mike Conlon)

The Tenets of Responsible Mobile Home Community Ownership

The responsibilities of a mobile home community owner will vary depending on the particular community. Some communities are completely NNN, with pass-throughs for every expense, up to and including real estate taxes; while other communities are full-service, with the owner/operator involved in every facet of the community, including ownership of the homes themselves.

In most instances, though — assuming the community owner has no responsibility for the actual mobile homes, and they are just collecting lot rent — Rolfe indicated that the following items typically represent the core areas of responsibility for a mobile home community owner:

Providing an uninterrupted flow of utilities, including water, sewer, electric, cable television, internet, etc.

Maintenance of roads

Providing sufficient ambient lighting throughout the community

A well-maintained entry and signage

Enforcement of community rules and zero tolerance for the breaking of laws

Annual permit renewal (in some states)

Snow removal throughout common areas, including entrance/exit (if applicable)

General common area maintenance

It’s worth noting that Rolfe is a somewhat controversial figure within the industry, with a penchant for sometimes speaking indelicately about the sector and its customer base. However, in LoopNet’s interactions with him, Rolfe, as well as Conlon, emphasized the unique responsibility mobile home community owners assume.

“If we are anything, we are a solution, not a problem, because we are the only folks providing actual affordable housing in the U.S. … we are the only nonsubsidized affordable housing that exists,” Rolfe said.

Conlon said that he has developed a playbook for when he acquires distressed communities that is focused on creating a sense of camaraderie at the properties. This typically comprises removing any tenants whose behavior is detrimental to the community; repairing or replacing aged homes; and installing new amenities, including soccer fields, playgrounds, etc.

Rolfe echoed these notions, “We put in a lot of picnic tables, a lot of grills, a lot of playgrounds. We took old, abandoned facilities in parks … brought them back to life, made them into community centers. We had a park in Iowa where we put in a library with computers.”

Conlon reduced his basic philosophy to a single sentence, “Keep reinvesting in your community; that’s the number one thing you have to do.”

Rolfe felt similarly, saying, “As long as you go in with a positive attitude that, ‘as long as I’m in the business, my goal will be to profit from making things the best they can be,’ that’s a winning strategy, because then everyone’s happy with the end product. The residents, the city, the future buyer, the banker, the appraiser — that’s the only way you can get universal happiness.”

Blackstone to Buy $550M MHC Portfolio

Thu, 15 Oct 2020 18:14:10 GMT

The asset manager is in talks to acquire 40 parks from Summit Communities.

Blackstone Group aims to grow its manufactured housing portfolio by acquiring about 40 parks for $550 million, in a major vote of confidence for one of the most resilient commercial property sectors.

The New York-based firm, considered to be the world’s largest commercial landlord, is in exclusive talks to purchase the properties from Summit Communities, according to a Bloomberg account citing people familiar with the matter. Blackstone would acquire the assets through its longer-hold, income-oriented vehicle Blackstone Real Estate Income Trust (BREIT).

Most of the 40 parks are located in Florida. Sun Communities Inc., a real estate investment trust, also bid on the portfolio, according to the report. Blackstone’s prospective deal is not yet final and may fail to materialize.

A source confirmed to Commercial Property Executive that the deal is in the works and added that the properties will be operated by Treehouse Communities, a top operator with dozens of manufactured housing communities across six states, primarily in the Sunbelt. Blackstone plans to spend tens of millions of dollars upgrading the housing stock and enhancing the common area amenities, such as pools and clubhouses.

NICHE ASSET HEATS UP

The deal would significantly expand Blackstone’s footprint in the manufactured housing space. The alternative asset manager, which has a real estate portfolio valued at $329 billion, is said to have paid roughly $200 million to pick up seven parks from Legacy Communities earlier this year. Most of the parks are located in Florida and Arizona.

In 2018, Blackstone snapped up 14 manufactured housing communities in Arizona and California from Canada-based Tricon Capital Group for $172 million. Even including the new deal with Summit Communities, however, the firm would own less than 1 percent of the existing manufacturing housing stock across the U.S.

With the pandemic aggravating the affordable housing crisis, manufactured housing communities have proven to be both a viable housing alternative and a relatively safe and stable investment option. JLL reported that $821 million worth of manufactured homes traded during the second quarter, up 23 percent compared to the first quarter, even as deal volume slumped across other property sectors.

Mobile Home Park Investing for Beginners

Thu, 15 Oct 2020 18:14:08 GMT

You're about to discover what every beginner should know about investing in mobile home parks (MHPs) or now more commonly referred to as Manufactured Housing Communities (MHCs). You'll learn the 2 types of deals, the 4 key demand factors and why you should invest in mobile home parks. You'll also find out the top 3 misconceptions about this commercial property type, 5 major things to look out for before you invest, 3 big pitfalls to steer clear of, how and where to find the best deals and the 3 most common ways to finance your first mobile home park. MHPs often fly under the commercial investing radar but they can be terrific investment opportunities for individual investors like us. Here is mobile home park investing for beginners:

PART 1: 2 Types of and 5 Figures that Demonstrate Demand for Mobile Home Parks

Land Only
Land and Mobile Homes
8.6 Million Mobile Homes in the United States
50,000 Mobile Home Parks
60 Million People Earn $20,000 per Year
$1,000 per month is the average rent for an apartment in the United States
8% of United States Population live in Mobile Home Parks

PART 2: Why Invest in and 3 Misconceptions of Mobile Home Parks

Growing Demand for Affordable Housing
Stable and Predictable
Limited Competition for New Parks
Potentially Higher Returns
Misconception # 1 - Crazy Lazy People live in Mobile Home Parks
Misconception # 2 - Mobile Homes can pull out at anytime
Misconception # 3 - You can't get loans on Mobile Home Parks

PART 3: 5 Tips on What to Look For and 3 BIG No-Nos

Increasing Population Areas
Stay Away from 5 Star Parks
Seek Out Mom and Pop Owned Parks
Minimum 10% Cap Rate
Best deals allow for easy rent increases and cost reduction options abound.
No-No # 1 - Hurricane Zones
No-No # 2 - Park Owned Homes
No-No # 3 - Operating Permit Status Issues

PART 4: How and Where to Find Mobile Home Park Deals

LoopNet.com
MHCIGroup.com
CIMLS.com
MobileHomeParkStore.com
Multimarketbroker.com
Direct Mail Campaign
Of the deals you look at, 20% will be potentially good deals, 30% deals will be marginal deals, 50% will be over priced.

PART 5: 3 Most Common Ways to Finance Your First Mobile Home Park

Bank Financing
Seller Financing
Seller Financing with Note Assumption

Are Mobile Home Parks A Good Investment?

Thu, 15 Oct 2020 18:14:02 GMT

If you haven’t been paying attention, Mobile Home Parks are the single hottest asset class in the US.

Because mobile homes are thought of as a hassle and an eyesore for city officials, no one is able to get a mobile home building permit any time soon. That fact combined with the increase in demand for affordable housing due to the economic downturn has created a perfect storm for mobile home parks.

Not only has the increased demand and stagnant supply created a rare opportunity, the assets themselves are cash flow machines. As you probably assume, mobile home parks tend to be mismanaged by typical “mom and pop” owners who have owned the park for 40 years, rarely raised rents, and have let hidden expenses eat up their profits.

As you may know, commercial real estate is sold based on a multiple of income called the “CAP Rate”. CAP Rate is an expected rate of return on a real estate investment property based on the Net Operating Income that the property will generate if purchased in all cash.

Because commercial property values are based on income, if you are able to increase rents and decrease expenses, the value of your property increases exponentially.

Let’s take a look at the numbers of a typical deal you could find in this industry…

The lots are currently being rented for $250 each month, but the market rates are closer to $325.

The property manager is making $60,000 each year, and the market shows the property manager should be making closer to $28,000.

There is a mobile home park that contains 150 units and 100 of them are occupied (66.66% occupancy).

Let’s say that mobile home parks in the area are selling at 10% CAPs, and you have $10,000 a month in expenses.

$250 x 100 (lots) = $25,000 Monthly Gross Income – ($10,000 monthly expenses) = $15,000 Net Monthly Income x 12 months = $180,000 Net Annual income.

$180,000 / 0.1 (10% CAP) = $1,800,000 Property Value

So, let’s say you purchase this property at a 10% CAP for $1,800,000.

The first day you own the property, you will fire the property manager making $60,000 per year and hire new one at $28,000 per year. Even though replacing a property manager won’t cost you anything, it will have an immediate effect on your property’s Net Operating Income.

$60,000 – $28,000 = $32,000 increase in Annual Net Operating Income

The next step will be to begin to raise the rents. Because you want to be conservative and not cause too much tenant turnover, you take 18 months to raise the lot rent from $250 to $325.

+$75 per rented lot per month = $75 x 100 (lots) = $7,500 x 12 (months) = $90,000 increase in Annual Net Operating Income.

$180,000 (previous Net Operating Income) + $32,000 (from decreasing management expenses) + $90,000 (from increasing rent) = $302,000 new Net Operating Income

$302,000 /0.1 (10% CAP) = $3,020,000 New Property Value at a 10% CAP

The property value has now gone from $1,800,000 to $3,020,000 in less than 18 months.

Sound too good to be true?

It isn’t.

In fact, we didn’t even factor in what happens to the property value if you are able to get the vacancy rate from 33% down to 10-20%. (The numbers look even crazier!)

The truth is, there are hedge funds, asset teams, families, and other individual investors just like you finding deals like this every day.

Don’t miss out on this incredible opportunity to be involved in America’s #1 asset class.

7 Powerful Benefits To Mobile Home Park Investing

Thu, 15 Oct 2020 18:13:56 GMT

That’s the response I tend to get when I tell folks I’m looking to buy a mobile home park this year.

And I totally get it. A couple years ago, I would have said the same thing. But times have changed, and so has my opinion on mobile home parks.

You see, after the real estate crash nearly a decade ago, real estate investments were easy to make. Nearly every property was a good deal and great money could be made.

But that was yesterday.

Today- the real estate market is tough.

Single family homes are being scooped up by homeowners attempting to get their next home before interest rates rise. New investors are learning about the power of real estate investing and buying up most “nasty houses” as well as the small multifamily deals. And hedge funds and large institutional investors are grabbing all the larger apartment complexes at prices that simply don’t make sense to savvy real estate investors.

So real estate investors have a choice: they can sit out and wait for the next real estate crash or they can get creative and find opportunities in this current market. Of course, there is nothing wrong with sitting the next few years out, but I love the action too much to stop.

So I’m opting for option two: finding opportunities.

One such opportunity that has recently caught my attention is mobile home parks. And for clarification: no, I’m not talking about buying mobile homes. I’m talking about the entire park, where the residents own (or rent) homes and I lease out the land.

So, why are mobile home parks one of the best investments left in America? Below are seven powerful benefits to mobile home park investing.

1. Lower Cost Per Unit

When investing in large multifamily properties or single family homes the cost per unit is high.

But mobile home parks allow a person to jump in and acquire more units for less money. According to Lanoie, “MHPs offer the lowest cost investment per unit of any real estate asset class with potentially higher risk adjusted returns”.

Most park owners own the land, not the housing units themselves which means that the cost of the investment is typically going to be a lot less in comparison to the number of units owned.

You can easily expect to pay $100,000+ per home or apartment unit versus paying as little as $10,000 per lot in a mobile home park.

2. Lower cost for repairs and maintenance

One of the factors that makes me the most excited about mobile home parks is that I don’t have to work with contractors. To put it bluntly, I hate dealing with contractors. When you’re working on single family homes and multifamily properties, dealing with contractors is a daily hassle.

However, by not owning the actual homes that your tenants live in, it means that the mobile home owner is responsible for the maintenance, repairs, and updates for their residence, not the landlord. While the mobile home park owner is still going to need to account for the expenses of the upkeep for the park, it will most likely be significantly less than what they would pay for the upkeep of the homes.

3. Spread Out Risk

Because mobile home parks allow investment companies to acquire more units for each investor dollar (as discussed above), the risk for loss decreases. In other words: with more tenants, the risk is spread out more. For example, let’s say you own four single family houses, and one of the tenants forces you to evict them and you are left with $20,000 in expenses. Bummer. There goes five years of profit from your entire portfolio. While those kinds of situations are rare, they do happen.

However, when you own a large collection of units, the high cost of those freak occurrences are spread out across your entire portfolio.

4. The Demand is High

Due to numerous factors, the demand for mobile homes inside well-managed parks is ever increasing. According to Lanoie, new mobile home parks are not being developed due to government zoning, gentrification, and zoning changes.

However, while home prices are climbing to historic levels, incomes for many Americans are not rising. The need for affordable housing is only getting stronger.

Lastly, baby boomers on fixed incomes are retiring in record numbers creating a greater demand for affordable housing that will only continue to grow. “10,000 Baby Boomers retire each day with an average social security benefit of just $1,294 per month. 75% of retirees have less than $30,000 in their retirement accounts, and the bottom 50% have zero measurable savings.”

More and more lower income Americans and retirees are looking to mobile homes as their chance of still being a homeowner.

5. Less Tenant Turnover

As a landlord of numerous single family and multifamily properties, I know that one of the largest expenses for a property owner is tenant turnover. Cleaning their unit, needing to track down a new tenant, and the lack of income during the vacancy can take thousands of dollars per unit out of the investor’s pocket each year.

But when a tenant owns their own home and simply leases the land turnover drops dramatically.“It can cost a tenant $5,000-$7,000 to move their home out of a park and thus 98% of mobile homes will remain in the same location after the second year.

75% of owners expect to stay in their Mobile Homes for 5 years or longer, and a large percentage expect to never sell.”

This means that there is very little turnover and thus very little risk of losing tenants and going through the pain of finding new ones. When tenants choose to 'vacate their homes,' often the owner of the MHP may acquire a new asset that, with a few upgrades, can be sold to a new tenant. The penalty for moving also gives landlords increased leverage when it comes to raising lot rents.

6. “Mom and Pop” Owners

Many mobile home parks are simple “mom and pop” operations. While investors and corporations are starting to catch on to this lucrative industry, most are still small time enterprises. This is great news for potential mobile home park investors for a couple reasons.

One reason is that many of these owners are retired or will soon be entering retirement age and this makes them interested in cashing out of their business. So despite the fact that the demand is high, you can still currently find MHC owners who are interested in selling.

Secondly, many of these owners are not professional landlords. Often times these owners face difficulties in bringing new homes and new tenants into their parks. They also may not have been exemplary with operational standards and income potential. This gives you the ability to buy the parks at a reasonable rate and then upgrade them and/or improve management, thus increasing the current tenant experience and attracting new, stable, long-term tenants.

7. Less Competition

Mobile home park investing is the best kept secret in the real estate investment industry.

This is great for investors who are looking for a great deal and don’t want to compete with the flood of new investors, homeowners, and institutional investors fighting for scraps with traditional real estate investments.

What are the Downsides to Mobile Home Park Investing?

As I've been venturing into this business, I've quickly discovered that mobile home parks are a different sort of animal from traditional multifamily investments. One of the constraints in the MHP sector is the small investor trying to invest directly without an established team or systems in place.

Even with the emergence of the Internet as a tool for research and acquisition opportunities, the manufactured housing community sector remains highly fragmented and inherently localized by nature.

So should you invest in mobile home parks? For me - the answer is an obvious and definite "yes." What about you?

Stocks vs. Real Estate

Thu, 15 Oct 2020 18:13:51 GMT

(The Harsh Truth)

The SEC was formed in the aftermath of the stock market crash (Black Tuesday) that kicked off the Great Depression to protect the investing public and restore confidence in the market by providing investors with more reliable information and complete disclosures.

So if the SEC is charged with protecting the investing public, why does it let companies sell a worthless stock?

WALL STREET’S DIRTY LITTLE SECRET IS THAT AS LONG AS IT SLAPS A WARNING STICKER ON ITS STOCK, IT CAN SELL ANYTHING IT WANTS.

Here’s the latest example:

Last week Hertz filed with the SEC to sell $500 million of its common stock (the offering has since been withdrawn).

In its filing, it included the following disclosures:

Hertz said that equity holders won’t see a recovery unless those with higher priority, such as the company’s debtholders, are paid in full.

And that, the company said, would only happen if there is an astounding change in the progress of COVID-19 and a significant turnaround in travel trends.

Incredibly, Hertz warned potential buyers in its offering that it’s almost certain that the shares will become worthless.

So why does the SEC permit companies like Hertz to sell a worthless stock? Because its disclosure rules permit companies to sell securities as long as they’re truthful.

Hertz was truthful. They said that if you bought their stock, it was going to be worthless at some point.

So why would investors buy worthless stock? Because nobody reads the prospectus. Many investors will never know about the nitty-gritty details of what they’re buying.

Even as news of the stock sale was splashed across the Internet and Jim Cramer talked about it on CNBC, there were certainly going to be enough investors - who would never hear about the details or if they did hear about them would choose to ignore them - that would snap up all $500 million in shares. Most will see the low price and assume they’re buying at bargain prices.

$500 million in worthless shares would have sold in one day.

That’s because most mainstream investors don’t think long-term. They’re not thinking about when the stock becomes worthless. They’re hoping to flip it in a couple of days if the price jumps.

That’s the problem with Wall Street and why it lacks integrity.

Wall Street doesn’t think about any investor’s long-term financial health. All they care about is getting money in their coffers to keep the sham going today. Meanwhile, the SEC shrugs its shoulders. "Well, they warned you in the prospectus."

Nobody reads a prospectus and that’s why worthless companies can and do sell a worthless stock.

There are always going to be enough suckers to fill a capital need. And that is one of the biggest problems with Wall Street.

The companies raising capital are a bunch of snake oil salesmen and the investing public is a bunch of speculators. That right there should tell you everything you need to know about Wall Street volatility.

If nobody is investing for the long-term, investors will jump on and off the bandwagon at the drop of a hat. Before you know it, a specific stock will be worthless, or worse yet, the entire market will be down 30, 40, 50%.

Why play in the Wall Street sandbox where there’s no integrity?

WALL STREET DOESN’T CARE IF YOU MAKE MONEY OR NOT.

IT JUST WANTS TO MOVE MONEY FROM YOUR POCKET TO THEIRS AND AS LONG AS THEY SLAP A WARNING STICKER ON IT, THE SEC WILL ALLOW IT.

The SEC allowing companies to sell a worthless stock is like the FDA allowing pharmaceutical companies to sell death-inducing drugs as long as the appropriate warnings are on the label.

Why not avoid all this and just invest in something where the company you’re trusting your capital with has your welfare in mind?

Savvy investors prefer the private markets over public markets because most investors in the private markets invest for the long-term.

Moreover, alternative cash flowing assets such as real estate have long lockup periods that prevent the type of runs that crash markets.

Not only are private investments resistant to market volatility, but credible private investments will put the investor first and the managers will make themselves available to investors before they commit to giving them confidence in what they’re investing.

The private markets are not like Wall Street where the investor is last in line.

The right private investments will provide transparency and more importantly, put their money where their mouth is by taking care of the investor first by giving first dollar profits to the investors through preferred returns.

Then when the preferred returns are satisfied, next dollar profits are split between the investors and the managers.

Finally, when assets are liquidated, the investors are once again first in line when profits are first distributed to them until their capital accounts are zeroed out - in other words, when the investors have gotten all their investment capital back. Only then do the managers see any profits.

Protect yourself against Wall Street’s lack of integrity.

Rethink your investment strategy by considering the following:

Seek out private alternative investments.

Seek out experts in their alternative asset segment in specific geographic locations to maximize returns and achieve true diversification.

Seek out private investment opportunities that put the investor first.

Investing with intention,

How to Buy Real Estate With a 401(k)

Thu, 15 Oct 2020 18:13:49 GMT

Diversifying assets to include real estate can help you spread risk across a mix of investments. Whether buying investment property for direct use or for rental income, your 401(k) might be a funding source. The way you use a 401(k) for real estate investments determines any tax or penalty consequences you may face. It also can leave you with less money to fund your retirement.

Loan

If your plan rules permit loans, your 401(k) can help you finance a real estate purchase. According to the Internal Revenue Service, you can borrow as much as $50,000 or half of your balance, whichever is lower, including any outstanding loan balances. Unless the loan finances your main home, you have to repay it within five years to keep it tax-free; 401(k) loans to buy a principal residence can be repaid over a longer time period -- up to 15 years -- if your plan allows. The interest you pay adds to your 401(k) savings, but cannot be listed as an itemized deduction on your tax return.

Hardship Distribution

A hardship withdrawal from your 401(k) can help you cover home purchase-related expenses. As with loans, plan guidelines dictate the availability of a hardship distribution option. Unlike loans, 401(k) hardship distributions reduce your savings: They cannot be repaid, increase your tax liability and, if you are under age 59 1/2, trigger a 10 percent early withdrawal penalty. They also restrict your ability to continue deferring income into the 401(k) for at least six months. You must limit your hardship withdrawal to your contributions. For example, if $1,000 of the $16,000 in a 401(k) is interest income, only $15,000 is available for a hardship withdrawal. Nor can you make new contributions -- and have them grow -- for at least six months.

401(k) Rollover to a Roth IRA

You can avoid the 10 percent early withdrawal penalty and restrictions imposed on a 401(k) distribution by rolling over as much as $10,000 that you've earmarked for building or buying your first home into a Roth IRA. However, because 401(k) funds are pre-tax contributions and Roth IRA contributions are post-tax, you must pay income tax on the money transferred to the Roth IRA. That means increasing your federal withholding, which will reduce your take-home pay.

Self-Directed 401(k)

For investors who want real estate as an investment choice for their retirement savings, a self-directed 401(k) allows them to buy land, commercial property and residential property and have any income generated grow tax-free. Self-directed 401(k)s are do-it-yourself retirement plans; you, not a broker, manage the plan. In addition to being savvy about the real estate market, participants must abide by limits on the types of transactions they can undertake. Self-directed 401(k)s cannot involve property bought or sold to relatives or property in which the participant lives, and participants cannot influence the fair market value of any purchase made through a self-directed 401(k). However, they can use non-recourse loans -- loans without personal guarantees -- to buy investment property that costs more than the money in their self-directed 401(k).

Make Passive Income w/ Mobile Homes

Thu, 15 Oct 2020 18:13:37 GMT

How to make passive income with mobile homes, just like Warren Buffett.

Guest:Brant Phillips

Figuring out how to make passive income is critical for everyone. It’s really the only way to have a real-life today. It’s the only way to stay ahead financially and enjoy some measure of financial security and peace.

This has become even truer and more urgent in the wake of the COVID-19 pandemic which shattered the economy and has sent at least tens of millions of workers to the unemployment office. A catastrophic tragedy, which has also put a massive dent in many individuals’ retirement portfolios.

Listen into this podcast episode to find out how this pro got started in real estate investing, how he flipped his way to the Inc. 5000 list of fastest-growing companies. Then, how he found a highly profitable niche for cash flow and how to make passive income which has generally been reserved for the wealthiest billionaires and biggest funds.

This is for you whether you are just looking to get started in real estate investing, need to get your money out of the stock market before it dives even further, or your current real estate strategies just aren’t delivering the truly passive income you expected.

WHAT ARE THE ADVANTAGES OF INVESTING IN MOBILE HOMES?

Having done countless single family home deals Brant found there really wasn’t any passive income in it. Whether you are wholesaling, fixing and flipping, or acting as a landlord it is quite active investing. Mobile homes can be far cheaper per unit, have less competition, may be more common in your area and are in high demand as a form of affordable housing.

WHAT IS HAPPENING IN THE MARKET RIGHT NOW?

2020 started off with an incredibly strong real estate market. A bullish space where new records were still being set, billion dollar deals were being done, and though property prices were high, investors and home buyers just couldn’t grab enough deals. Then, the coronavirus arrived… And the game changed.

WHY DO BILLIONAIRES INVEST IN MOBILE HOME PARKS?

Multi-billionaire investors like Warren Buffett and Sam Zell are also some of the biggest mobile home and mobile home park investors and lenders. As are more ex-Wall Street traders and big hedge funds.

They can produce strong cap rates and lots of cash flow. Park owners also often only own and manage the dirt. It doesn’t get much easier than managing dirt. The tenants frequently own their own mobile homes and take care of their own maintenance and utilities.

HOW TO MAKE PASSIVE INCOME IN REAL ESTATE

Step 1 – Find easy to manage assets

Passive income relies on easy to manage assets and those you can hold long term, without relying on finding deals every day to make money. Mobile home parks are a great example of this.

Step 2 – Optimize for cash flow

With mobile home parks you can charge ground rent, finance homes to residents, add laundry services and other features for more income.

Step 3 – Find great managers

Some will still need to manage your properties. Find great local boots on the ground to take care of your out of area assets. Take yourself out of the equation, and use professional third party management, so you can act as a business owner, and work on the business, not in the business.

Summary

Passive income is incredibly important. While there are many types of real estate and real estate investing strategies, not all really deliver on this. This can be quite common in the single family home sector. Make sure you check out how Brant made the switch to mobile homes to make passive income really happen.

Action Steps for Finding Mobile Home Park Deals

Use real estate software

Build your network of commercial real estate brokers

Optimize your SEO to get found online

HUD “Evidence Matters” Dedicates Spring 2020 Issue to Manufactured Housing

Thu, 15 Oct 2020 18:13:31 GMT

The U.S. Department of Housing and Urban Development (HUD) has dedicated its Spring 2020 edition of “Evidence Matters” magazine to factory-built housing. Containing useful research and commentary sourced from third parties and HUD, the issue affirms the resilience, quality and affordability of manufactured homes.

The issue also provides validation from HUD’s own research team that “a variety of demand, regulatory, zoning, and other barriers, however, have limited the reach of this promising affordability solution,” serving as a call-to-action for policymakers and Congress to move forward in making changes to help the industry overcome such hurdles. The publication affirms MHI’s long standing message that “There is a continued need for factory-built housing to become an even greater source of affordable housing.”

Evidence Matters is a quarterly publication by HUD’s Office of Policy Development and Research (PD&R), to support policymaking that is evidence-based. Each quarterly issue focuses on a key theme, and this quarter’s focus on factory-built and manufactured housing is timely and impactful as we continue our advocacy before Congress and policymakers to ensure manufactured housing can help the nation to overcome the affordable housing shortage through innovation and efficiency. As we emerge from the pandemic, more than ever before, families will be looking for safe, affordable housing that allows them their own space, free of shared-walls and cramped quarters. Ensuring greater access to manufactured housing has never been more important. HUD’s publication provides important validation that will support our advocacy efforts.

HUD leads off the issue with the Editor’s Note, which touts the resilience and innovations that manufactured homes offer:

“The factory-built housing industry is constantly evolving to meet the changing needs of its customers. From disaster resilience technology that makes manufactured homes safer in the event of natural disasters to energy-efficient innovations that help reduce energy costs and environmental impacts to labor innovations that lower housing costs to make homeownership accessible to more people, the factory-built housing industry adapts rapidly to benefit individuals, families, and communities. This issue highlights some of the innovations in this industry as well as some of the challenges that are hindering its expansion.”

Using internal and third-party research, HUD’s publication recognizes that “the construction of new factory-built housing not only offers an affordable housing option but also presents the opportunity to add units with improved energy efficiency and resilience to weather and natural disasters.” Some highlights include:

“In addition to its affordability benefits, factory-built housing can incorporate advances in energy efficiency, thereby using resources more responsibly and reducing residents’ utility bills.”

“Attention to the materials and design of manufactured housing can improve not only energy efficiency but also disaster resilience.”

“Research shows that the performance of new factory-built housing is comparable to that of site-built housing.”

“For example, in their review of factory-built housing in coastal areas, Fenner et al. state that “owners and construction companies have found that prefabricated construction allows the rebuilding of homes affordably, efficiently, and quickly. In addition, new prefabricated units can be as wind- or earthquake-resistant as site-built buildings, minimizing the effects of strong climate events.”

For years, MHI has advocated to keep manufactured housing front-of-mind for Congress and policymakers at HUD. The focus on manufactured housing by HUD’s research team is a positive development as we continue to work with HUD to overcome impediments to the industry, such as regulatory barriers, zoning, availability of financing, and ensuring the federal building code supports innovation. The publication argues, “to fully realize it’s benefits, however, policymakers need to understand and address the persistent barriers facing the industry, such as prohibitive regulations and zoning, community opposition, and financing challenges that restrict the construction and siting of factory-built housing.”

Article written and from https://www.manufacturedhousing.org/

Using 401k & SDIRA for Real Estate

Thu, 15 Oct 2020 18:13:27 GMT

Real Estate IRA

The Checkbook IRA is increasingly recognized as the ideal vehicle for real estate investment. With this retirement plan, account holders have two powerful advantages for succeeding in the real estate market.

The Powerful LLC Platform

As a Limited Liability Company, you will be completely in charge of your retirement savings. You are the decision maker who controls the types of investments you make and when you make the move to do so. Forget about the complicated process of getting approval from a custodian. Account holders can now elect to invest as they wish.

The Power of Checkbook Control

As any real estate expert would tell you, a potentially profitable opportunity doesn’t just wait around and successful investors are those who can move quickly. With checkbook control, you will be able to complete transactions just by signing a check. Catch the perfect deal before it’s gone!

Access the full spectrum of Real Estate

With a Real Estate IRA, you are now able to choose among all types of real estate products available. Whether it is a secured return from rental payments, or a big earning from a foreclosure home, the choice is all yours. Real Estate IRA allows the investor to freely pursue any real estate investment they prefer.

How a Real Estate IRA LLC works

In order to set up a new IRA account, you will need to work with a registered custodian. With a Real Estate IRA from Sense Financial, you will be paired with a custodian who specializes in self-directed IRAs.

The next step is to transfer your previous retirement savings into the new Real Estate IRA account.

Then you will need to have an investment platform for your IRA. We will set up a special purpose Limited Liability Company (LLC) for you.

After that, it’s time to capitalize the new LLC. This means your custodian will have your funds from the IRA invested into the LLC.

The invested funds will then be wired into the IRA LLC checking account that you set up previously at your preferred bank.

From this checking account, you can now start writing checks to fund your investments.

The Real Estate IRA is the ideal solution for investing in real estate using your retirement fund.

How to set up a Real Estate IRA with Sense Financial

You will be surprised just how simple it is to set up a self-directed account via Sense Financial’s streamlined process. You will be able to start investing in real estate after just a few easy steps:

First, get in touch with one of our IRA professionals. We will be happy to assist you with any question and to help you decide if a Real Estate IRA is the right way to build your retirement nest.

Once you’ve decided that a Real Estate IRA is the best solution for you, we will start the process of creating your Checkbook IRA and assist you with completing the required forms.

After all forms are processed, you will be able to set up your Real Estate IRAs checking account at any bank of your choice.

That’s it! You are now ready to invest in real estate. If you would like to speak with a registered custodian, click here to fill out the short form and a representative will be in touch shortly.

Why (and How) You Should Be Investing in Mobile Home Parks.

Thu, 15 Oct 2020 18:13:26 GMT

A look at why mobile home parks are one of the best investments in all of commercial real estate, and how to discover a park worth investing in.

Did you know that it’s estimated that roughly 5.6% of the U.S. population—17.7 million people—presently live in mobile homes? Demand is high, and the commercial real estate community is taking notice.

Between their low maintenance, high returns and overall affordability, there’s a strong argument for investing in a mobile home park. Read on to learn why and how you should be investing in one of the CRE industry’s hidden gems.

Investing in Mobile Home Parks

Before we dive in to why and how to invest in mobile home parks, it’s important to understand how they operate.

In general, a mobile home park owner simply rents out small pieces of land to others. Investors can purchase the entire mobile home park and lease each pad to residents that either rent or own a mobile home.

Mobile home parks provide affordable housing for low-wage earners in the U.S., and with that, also provide stability to owners in the case of a declining or depressed economy.

The kicker is that, not only are mobile home parks in demand, but they provide clear returns.

So much so that mobile home parks have the highest cap rate of any real estate niche, at roughly 7-10% nationally.

But despite their returns, only about 20% of mobile home parks in the country are professionally owned, leaving the remainder of the market up for grabs by investors looking to begin or diversify their investment portfolio.

Benefits to Mobile Home Park Investments

There are a number of other benefits that come with investing in mobile home parks, no matter what market they’re in. Let’s dive in…

Low Cost Per Unit

Mobile home parks allow you to acquire more units for less money. It’s the lowest cost investment per unit of any real estate asset class.

Most park owners own the land, and not the units themselves. This means the cost of investment is typically a lot less in comparison to the number of units.

For example, you might be spending $100,000 + per home or apartment unit, but as little as $10,000 per lot in a mobile home park.

Low Cost of Repairs and Maintenance

Not only are repairs usually affordable, but investing in mobile home parks usually requires a low involvement.

The owner of the mobile home is responsible for maintenance, updates, and repairs to their residence, not the landlord. While the mobile home park owner must account for upkeep of the park, it is significantly less than upkeep in an apartment building.

Low Risk

Investing in mobile home parks is a lower risk decision. The risk of loss only decreases with more individual units. When you have more tenants, the risk is more spread out.

When you own a large collection of units, the high cost of occurrences, such as eviction or random expenses, are spread out across a large portfolio and are less of a hit.

High Demand

As we mentioned earlier, demand for mobile home parks is high. But, new mobile home parks aren’t being developed often due to government zoning changes.

This means the demand for mobile homes in well-managed parks is increasing as the need for affordable housing continues to grow. Baby boomers on fixed-income are retiring with little savings, and mobile homes are a good solution for the affordable housing deficit.

Low Turnover

A huge expense for multi-family properties is tenant turnover. Cleaning the unit, tracking down a new tenant, lack of income during vacancy all take away thousands of potential monthly income.

However, mobile home parks have low turnover because it costs the tenant thousands to move their home out of the park. Most mobile home park owners plan to stay for at least 5 years. This means that turnover is low, and there is little risk.

If tenants do decide to vacate, they often sell their mobile homes which allows the opportunity to increase the rent of that lot.

Less Competition

Many of the mobile home park owners aren’t huge investors with a ton of capital. Instead, most are simple operations with owners that aren’t professional landlords.

This allows you to purchase at reasonable rates, then create improvements and new value that will attract long-term tenants.

Mobile home park investing is also great for investors who do not want to compete with the huge volume of investors looking for traditional real estate investments.

How to Find Mobile Home Parks

Mobile home parks are highly localized investments. Most investors have to have a strong knowledge of the area in which they are looking to invest in a mobile home park.

Finding good data on these parks can be extremely difficult, and recognizing indicators of a likely sale is important. The most motivated sellers are typically at parks that are run down or not operating optimally. This requires some hands on effort to get the park up and running with efficiency again but can be well worth the investment.

No matter your role in CRE, however, there are tons of resources to help you find mobile home parks either listed “for sale” or off-market.

Will Mobile Home Parks Be the Hottest Real Estate Investment of 2020?

Thu, 15 Oct 2020 18:13:24 GMT

Bryce Robertson, your "Real Estate Mate," purchased his first mobile home park in 2015 with a net worth of -$50,000, with unseasoned credit and a mere $2,000 in the bank. Once Bryce closed that see...

Mobile home parks are arguably likely to be one of, if not the, hottest investment classes in 2020. Tons of new and experienced investors are jumping on board to take advantage of this previously misunderstood investment.

Why? Because mobile home parks have proven to be one of the highest yielding and reliable investments—especially when compared to similar-kind investments (i.e., self-storage and multifamily properties).

That said, in previous years (especially pre-2018), the mobile home park space was much less investor-populated. Metrics were far different than those that we are seeing today. To help you navigate today’s mobile home park market—so you can take advantage of this exciting asset class, too—I’d like to share with you:

How mobile home parks changed my life

Why mobile home parks are getting so much attention

What the mobile home parks space looked like prior to 2018

What has changed post-2018

Let’s dig in.

How Investing in Mobile Home Parks Changed My Life

I excitingly (and humbly) achieved financial freedom through mobile home park investing in a mere 2.5 years. Today, I also have time freedom and location freedom (Financial + Time + Location Freedoms = True Freedom).

I have so much gratitude for this asset class. It’s been a catalyst for me to live a self-designed, free lifestyle as I expand my generational legacy of wealth, consequently helping many others along the way.

I wasn’t always a mobile home park investor, though. In fact, I used to be a blue-collared worker—a steel fabricator/welder to be precise. I grew up “Down Under” (in Australia). At the age of 17, I was at a crossroads. From what I observed at the time, I had two choices:

Complete high school, proceed to university, then move on and get a J.O.B.

Get a job as a blue-collared worker.

(Later I found out I had an abundance of choices within my reach that at the time I was not privy to.)

Deciding was easy for me, as the thought of continuing schooling was daunting. I foresaw extreme boredom and dissatisfaction if I chose that route. It’s not that I didn’t like education; in fact, I’m obsessed with growth and education. I just wasn’t a fan of traditional schooling, which I felt held me back from my creativity and full capabilities.

I wasn’t excited about option No. 2, either. However, it seemed the less of two evils, so I chose one of the top-paying blue-collared professions: steel fabrication and welding.

For the next 17 years, I was dissatisfied with the career path I’d chosen. And the more time went on, the more my dissatisfaction increased. Yet, it was (at the time) the best way I knew to make money, so I kept on along that path, working my way up “the ladder.”

Fast forward several years deep into this profession, I was so physically, mentally, and spiritually burnt out, that an alternative career choice was the only thing that could lead to feeling satisfied again (for me and for my wife!).

In the land of opportunities, I explored the top three ways to make money:

Stock market

Owning a business

Real estate

Trust me, as a man who's traveled to over 60 countries and owned businesses on three continents, I can honestly and confidently say that the United States of America provides such abundant opportunities and low barriers of entry in real estate and business that, as an expat, it's like a kid landing in a candy shop of never-ending supplies!

It’s easy for me to see why foreigners consistently come to the U.S. and crush it. I’m now a U.S. citizen and proud of it!

After trying my hand at all three money-making opportunities, I found I was spinning plates and having mediocre success. It became very clear that real estate was the best option for many reasons. But there were so many ways to make money in real estate, it was challenging to know where to start.

I knew I had to laser focus on one asset class, and one asset class only, if I was to have the highest possibility of success. So, I looked at as many real estate investment types as possible, including real-life profit and loss statements for each of the main asset classes, and noticed an unfair advantage that mobile home parks had over other asset classes.

Due to the incomparably high cash flow while owning a mobile home park and disproportionally large equity payouts at the end of a mobile home park investment cycle, it became clear very quickly that this type of investing was a wise move.

Additionally, I had a discussion with my mother-in-law, who had firsthand experience as a mobile home park tenant. She proceeded to tell me she owned her mobile home in the park, and regardless of her ownership of that home, still had to pay $1,000 a month in lot rent to the park owner/landlord. (This was a California-based park, hence the high lot rent.)

The national average for affordable housing mobile homes runs around $250-$300 a month). At my mother-in-law’s, I ran outside and counted over 100 homes in that community and quickly did the math:

100 x $1,000 = $100,000 a month in revenue

I was sold and decided to go all-in. I became thoroughly obsessed with mobile home parks, reading every book and taking every class on the topic that I could.

Once committed to and educated on this asset class, I dove in—it took three months to get my first park under contract. At the time, I had a negative net worth, unseasoned credit (as I hadn’t been in the U.S. long enough to build solid credit), and a mere $2,000 in the bank.

So, I used the power of syndication. Syndication is bringing investors and their capital into the deal, while providing those investors an opportunity to be part of a deal they would otherwise not have the time, resources, or experience to be involved in.

I had the current lender rollover the loan from the sellers to us, the buyers; three months later, the deal closed.

Once I saw what I’d created from nothing via mobile home park investing, I was downright addicted to this asset class. I continued to expand my mobile home park portfolio, and as mentioned, attained financial freedom 2.5 years after acquiring my first park.

Excited about this asset class, I wanted to share this hidden knowledge with others, so they too could take advantage.

Before I started seriously pursuing financial freedom, I honestly did not know it was possible—and certainly not so easy. This is why I feel it’s my duty to preach the gospel of financial freedom and how it’s so possible, even for those who think it’s not.

Starting Out as a Mobile Home Park Investor

Prior to 2018, I was one of the only mobile home park (MHP) investors at any given real estate meetup or networking event. When I disclosed my preferred asset class, I received a common response, “MHPs are profitable? I thought they were all dumps?”

But in early 2018, that changed. The cat was officially out of the bag that MHP investing was highly profitable, proven, sustainable, reliable, and repeatable. All of a sudden, there were multiple MHP investors in the room.

The dialogue changed to, “Yeah, I’ve heard MHPs are cash cows,” or, “Me, too. I’m pursuing [or I own]MHPs.”

This massive influx of new MHP investors has changed the playing field—not necessarily for the worse though—resulting in a handful of crucial adjustments that MHP investors need to make to remain profitable.

Before I dig deeper into comparing MHPs pre-2018 versus post-2018, I think it’s important to cover why MHPs are getting so much attention, in general.

I’d like to note, there are generally two classes of mobile home parks:

NOT affordable housing: Instead these are four- to five-star MHPs that people choose to live in for non-financial reasons. These parks are often gated or even guarded communities that have paved streets with curbed gutters, plus amenities such as pools or community event centers. Lot rents are typically above $500 a month.

Affordable housing: These are MHPs that people live in mostly due to economic reasons. These parks are three stars or less, with little to no amenities. These make up the majority of MHPs in America, and this is the type of MHP that I’ll be referring to for the rest of this article.

In my opinion, the sweet spot in MHPs is buying two- to three-star parks and turning them into three- to four-star parks. Of course, I’m open to buying four-star. We just don’t see that many attractive deals in that sector.

Why Mobile Home Parks are Getting So Much Attention

1. Supply & Demand

The demand for affordable housing is arguably the highest need in the real estate sector in 2020. In 2018, 38.1 million people lived in poverty in the U.S., which is a poverty rate of 11.8 percent. Low income was calculated as 200 percent of the poverty rate—those numbers too are daunting.

No matter where you get your numbers, these issues are of epidemic proportions—a serious problem we cannot turn a blind eye to. This, matched with the low supply of mobile home park inventory (roughly 45,000 parks), creates an ever-expanding supply and demand in favor of mobile home park owners. Plus, this number decreases year over year due to more MHPs being closed down and replaced by high rises than MHPs being built.

Put simply, if you buy the right park in the right market, your phone should be ringing off the hook with qualified applicants wanting to move into your park. Furthermore, with higher-than-ever interest in mobile home park purchases, MHPs are becoming easier and easier to sell, which helps with your exit strategy.

2. Annual Lot Rent Increases

It’s expected in the mobile home park space that lot rents will increase annually. It’s common to see upticks of 5 to 15 percent for annual lot rent (and mobile home rent for new tenants), and sometimes you’ll need to increase rents up to or exceeding 20 percent to get close to market rents (particularly if the sellers did not raise rents to match the market).

If cap rates and occupancy stayed the same, just by merely raising rents each year for three-plus years, park owners can create handsome profits at refinance or sale with little effort. If cap rates further compress, and if your occupancy increases along with the increased rents, then you have leveraged the formula for massive potential mobile home park profits.

3. Recession Resistant

Mobile home parks are positioned in an interesting place within the real estate sector. Mobile homes are typically the most affordable type of housing. The national average lot rents run around $250-$300 per lot per month, with trash pickup included. I like to use $300 as a more conservative average, as rents are consistently trending upward.

Depending on the setup of each park, tenants may also need to pay for utilities (gas, electric, water, sewer, etc.). Let’s be ultra conservative and say that with utility expenses included, $300 expands up to $500 a month.

What if we experience some type of financial meltdown or correction in the future? (Or right now?!)

Think about it. In that scenario, when you can no longer afford $500 a month in rent, where are you going to go? Unfortunately, you’d be led to live with family or friends, or perhaps you’d sleep in a car, or god forbid—you’d be homeless. Point being, there not many options if you can’t afford to live in a mobile home park.

Look at this situation from a macro standpoint, and where are the people who own houses or condos or rent property going to go? Well, if they can’t afford where they are now, they move down the housing rung, one or two notches.

MHPs are essentially the bottom housing rung, so that means the compression of everyone moving down from above results in even more increased demand for mobile homes with a simultaneously dwindling supply.

MHPs already perform well, and in a recession, they typically perform better. This is something to take into heavy consideration given the current and near-future state of the economy. Due to this, I know a whole niche of investors that are geared toward recession-resistant investments only.

4. Stability

Being that we are in the affordable housing sectors and that most tenants live in mobile home parks for financial reasons, the cost to move a mobile home is typically higher than the financial capabilities of the homeowner. Therefore, once a mobile home is placed in a mobile home park, it typically stays there.

If a homeowner needs to move, they more often than not sell their home to another approved tenant, leave their mobile home at the park, and buy a new one at their next location.

5. Historically Strong Cash Flow

MHPs have gained the nickname over the years of “cash cows” due to the high cash flow that has historically been produced in the mobile home park space. This is what caught my attention from day one.

If you are buying stabilized parks (roughly 70 percent tenant occupancy and above), it's almost expected to have solid cash flow straight out of the gate. Operators in comparable asset classes (self-storage or multifamily) often offer "preferred returns" to investors, along the lines of say 6 to 8 percent ROI annually.

This is not a guarantee to investors but more of an “I owe you” and declaration that investors will get paid before the operators get paid. If the preferred return (often abbreviated as “pref”) is not met in any given year, then it rolls over and adds to the next year in a cumulative way.

For example, if a specific investment offers an 8 percent pref but for some reason only 2 percent of that pref was met this year, then the remaining 6 percent rolls over and adds on to the next year’s pref. This accumulates year on year, then at a sale event, investors get paid their pref in full before other profits are split between them and the operators.

Similar setups exist in the MHP space, although it’s much easier and more common to not only hit the pref each year but to also exceed it due to the high cash flow.

I'm going to touch on forced appreciation below, which increases both equity and cash flow.

6. Large Potential Equity Payouts at Sale of Asset

MHPs have historically had high purchase caps in the double-digit range. As time has progressed, cap rates have compressed. This means those who purchased at 15 percent caps could later sell at 12 percent caps; those who purchased at 12 percent caps, could later sell at 9 percent caps; and so on.

It's getting more challenging to meet the same equitable profits as earlier years due to the recent cap rate compression, although with the right mobile home park investing business plan, and by leveraging forced appreciation, there are still plenty of profits to be had in the mobile home park sector.

7. Attractive Financing Options

Loan default rates in the mobile home and mobile home park spaces are historically lower than most other asset classes. Fannie and Freddie knew this and jumped on board to provide exceptional financing programs for three-star-plus MHPs.

Fannie even offers 30-year fixed rate options with their Manufactured Housing (Mobile Home Park) Loan Program. In addition, many other commercial lenders have competitive financing options with 4 to 5 percent interest rates, up to 80 percent LTVs, and 30-year amortization with five, seven, 10, and 15-year balloons.

The parks that larger commercial lenders won’t touch (i.e., $2 million purchase price and less) can be financed by smaller local banks. Short of any of the above financing options, many park sellers are open to carrying some or all of the financing for reasonable—and sometimes extremely favorable—terms to the park buyer.

There are also bridge loans for otherwise “un-financeable” parks that can help get an ugly deal across the finish line while you make the necessary improvements to make the park more financeable. (This is ideal for really low occupancy parks as you increase occupancy to a more desirable number.)

8. Warren Buffet’s Acquisition of Clayton Homes

Clayton Homes is the largest builder of manufactured housing and modular homes in the U.S. In 2002, Clayton earned a revenue of $1.2 billion, and in 2003 Warren Buffet’s Berkshire Hathaway Inc. purchased Clayton Homes for $1.7 billion.

Four years later in 2007, Clayton Homes’ revenue was $3.66 billion. Enough said.

Warren Buffet makes highly calculated (and historically wise) investment decisions. It was only natural that many others joined ship shortly after.

9. 21st Mortgage CASH Program

A consequent effect of Berkshire Hathaway buying Clayton Homes was the introduction of Clayton Homes teaming up with 21st Mortgage to introduce the "CASH" program. This program provided an avenue for park owners to get their hands on new Clayton mobile homes and to have them transported to the park owner's community (although transportation costs are the responsibility of the park owner).

Upon arrival, the park owner has a certain timeframe where he can market the home for sale, and then send park-screened applicants to 21st Mortgage for financing. Essentially, this means tenants get their home financed, and the park owner barely fronts anything out of pocket while getting a $40,000-plus new mobile home in their community and a new paying tenant. Meanwhile, home repairs and maintenance are the responsibility of the homeowner (not the park), 21st Mortgage gets to finance a plethora of mobile homes, and the park owner avoids the legalities that were introduced with chattel loans after the 2008 financial meltdown.

Of course, a park owner has to have some skin in the game, so we essentially guarantee or backstop the loan and take over the financial responsibility if a tenant defaults while we find another tenant. This has been a game changer for park owners and is a win-win-win for everyone involved.

Although there were earlier attempts at the same type of structure, the CASH program was introduced in a perfect time of need and has been a huge success since. As time has progressed, 21st Mortgage now will do the same structure with most of the major mobile home manufacturers, which makes this setup possible for many park owners nationwide.

There are similar-type programs available with other lenders, too.

This general business model does not work in all markets, as not all markets can support the financial requirements of tenants to pay the needed monthly payments to make these programs work. But for the majority of markets it works in, this is certainly a major bonus to the park owner.

10. Forced Appreciation

Mobile home park owners have the advantage of filling vacant mobile home park spaces with new or used homes, then filling those homes with qualified tenants. Additionally, in some cases, new lots can be added to existing parks to further increase occupancy.

At a lot rent of $300 a month, 30 percent operating expenses, and a market cap rate of 8 percent, this means each new lot that is filled with a home and qualified paying tenant adds $31,500 of overall value to the park.

$300 (lot rent) x 12 (months) x .7 (operating income) / .08 (cap rate) = $31,500 (new filled lot value)

Want more articles like this?

Match this with the low cost to park owners with the CASH program, and multiply this by as many lots as you can fill in your park, and you’ve created a low-risk/high-reward way to increase your park’s value.

(More on this later as we dig into how forced appreciation can be one of the best tactics in your profitable mobile home park investing business plan in today’s market.)

11. Section 8 Vouchers Used Toward Purchase of Mobile Homes

For those of you unfamiliar with Section 8, essentially the government pays a landlord rent on behalf of low-income tenants. This has been used to pay rent in the apartment and mobile home park space in the past, although now Section 8 can pay toward the purchase of a mobile home.

This is a win-win for the park owner and for Section 8 tenants.

12. Proven Track Record

MHPs were once largely viewed through the “trailer park” lens. We’re all familiar with the stigma that came with that—from “Trailer Park Boys” to the stereotype of slums/slumlords to Jerry Springer guests to what was depicted in the show “Cops.”

In addition, MHPs were seemingly a wildcard investment because of the lack of solid historical data. As a flip takes roughly three to seven years, it took a while to create a solid, rinse and repeat strategy of successful mobile home park investing. Yet all the while, mobile home park investors were bringing in high cash flow and large equity payouts, fixing up and improving parks nationwide.

And by 2003, as mentioned, there was enough of a track record for Warren Buffet to join the mobile home industry. Not too long after came the 21st Mortgage CASH program, Fannie and Freddie financing, Section 8 mobile home purchase ability, and numerous large institutional buyers.

Consequently, many investors from other asset classes have jumped the fence to join the MHP investing craze.

In summary, combine all the above, and you are faced with one abundantly attractive asset class. A single mobile home park could change your life financially. Two or more MHPs could make you financially free. And five or more could not only change your life financially, but also change the financial life of your descendants for generations to come.

No wonder mobile home parks are likely to be the hottest asset class in 2020!

Mobile Home Park Investing Prior to 2018

Many years ago, mobile home park investing was like the wild, wild west. MHPs were relatively easy to get your hands on. It was common that there would only be one buyer putting an offer in or negotiating to purchase a specific park.

It was a buyer's market. You could buy a park for up to and exceeding a 15 percent purchase cap rate. Earnest money deposits were so small, they hardly even counted. Many of the parks were in the need of professional management and required much love and attention to improve curb appeal and NOI.

There were not as many mobile home park financing options, so seller financing was not uncommon. The people selling mobile home parks were moms and pops that generally lacked tight operations and proper bookkeeping, giving professional park buyers the upper hand in purchase and negotiations.

Basically, mobile home parks were abundant, buyers were few, and there were many well-priced MHPs in need of physical and financial improvement—all of which were possible to seasoned, financially advantaged park buyers.

I joined the MHP sector in 2015 when I purchased my first park. At that time, it was still common to find good value-add mobile home parks in the 10 to 12 percent purchase cap rate range. But by late 2017, it was getting hard to find any decent mobile home parks for a 9 percent-plus purchase cap rate. And post-2018, even high-risk, low-quality mobile home parks began to trade for less than an 8 percent purchase cap rate.

These “good” times (prior to 2018) won the mobile home park industry the attention that it has today, with the rinse and repeat benefits of park ownership. Since 2018, the mobile home park playing field has changed. Let’s take a further look at how and why.

Mobile Home Park Investing From 2018 to Now

As previously mentioned, momentum built over time as large institutions jumped on board the MHP investment train. Warren Buffet was a huge contributor as Berkshire Hathaway purchased Clayton Homes back in 2003, then later introduced the CASH program, providing super attractive mobile home financing options for park owners and park tenants. Many similar programs were to follow.

Financing options are abundant and are so much better than before—it’s exciting. Section 8 is on board to help low-income tenants purchase mobile homes, and there’s a ton of historical data showing the epic track record of this asset class.

All the while, cap rates had already compressed in other asset classes. It was clear that when comparing other assets like self-storage or multifamily to similarly-priced mobile home parks, MHPs proved to be far superior in financial gain—especially when matched with the increased stability of MHPs.

It was inevitable that when the cat was out of the bag (for sure by 2018), many new investors would be joining this hot asset class and many experienced investors would jump ship from their previous asset class to be part of the epic mobile home park movement.

It may have become clear by now, mobile home park purchase cap rates have compressed and consequently resulted in higher buy-in prices for mobile home park owners today and less profit spread on the table for future exits. Although this is partially true and in fact MHP purchase prices are higher than they have ever been historically, there is still meat on the bone for investors to join this asset class—as long as they are aware of how to successfully evaluate, purchase, and operate MHPs in the current market.

Despite the recent increase in prices, there are advantages now that did not exist in the past. As mentioned, abundant and attractive financing options help increase the spread between financing interest rates and purchase cap rates. This is a huge advantage, as financing terms were significantly less favorable before this asset class was proven to be sustainably successful.

Section 8 vouchers to purchase mobile homes is a huge game changer, as well. Higher quality of mobile home parks and mobile home park management, higher than ever and consistently increasing lot rents, higher than ever demand for affordable housing, and lower than ever mobile home park inventory all help park owners in today’s market.

If you are a park owner, you’ve likely taken advantage of the cap rate compression in recent years and massively profited from this market shift. I have definitely been taking advantage of this shift and, in one case, been fortunate enough to see over 57 percent annual returns to investors involved in my deals (an accumulation of cash flow and equity for a park we owned for a little over four years).

I’d like to note that large private equity funds and large institutional buyers mostly focus on the four- to five-star parks (not affordable housing), so they are not too much of our competition in the affordable housing mobile home park space. New competition is made up of beginner investors wanting to buy into the mobile home park space and seasoned investors from other asset classes jumping ship to join the profitable MHP space.

Summary

So, by now, you’re probably thinking “OK, I get it. This MHP gig seems to be totally worthwhile. But how do I profit with these recent market changes?” And, “If there is more competition than ever in the MHP space, why are you sharing how we can best profit given the current MHP market conditions?”

The answers are simple:

I see it as my ethical obligation as a mobile home park investing educator to help point out some of the main ways new MHP investors can minimize pitfalls and maximize profits.

I truly believe we live in a world of abundance, and there are more than enough MHPs for us all to profit from.

If new MHP investors incorrectly evaluate and overpay for MHPs, this will artificially drive up MHP purchase prices and further compress cap rates, making it harder for MHP deals to pencil out.

Regarding my latter point, I’ve already seen this happen in the space. Newbies have come in uneducated, or using evaluation methods from other asset classes, then overpaid and underperformed only to bring those same parks back on the market after losing their hard-earned cash and expecting buyers to pay unreasonable prices to reduce the pain of their loss.

To completely eliminate that from happening is impossible, yet if you are reading this and wanting to break into the MHP space, I’m glad you will get to know some important ins and outs to profitability—before you take down your first or next park.

I’m assuming by now you understand mobile home park investing on at least a slightly deeper level. Now that you’ve nailed down the basics of this asset class, as times and circumstances change, we too need to move with or—even better—stay ahead of the game. As with all real estate, the key to success is paying attention to the economy, the market, and housing trends and adjusting accordingly.

By Bryce Robertson

Bryce Robertson, your "Real Estate Mate," purchased his first mobile home park in 2015 with a net worth of -$50,000, with unseasoned credit and a mere $2,000 in the bank. Once Bryce closed that see...

Alternative Investment Spotlight: Mobile Home Parks

Thu, 15 Oct 2020 18:13:22 GMT

Managing a large commercial building or apartment complex sounds daunting for many investors. Everyone wants the steady return of leasing multiple units, but no one wants to manage all of those units (and tenants). What if there was a way to gain multi-unit income without as much work?

One option for commercial real estate that is increasingly attractive to Canadian investors is mobile home parks. They represent an investment that carries lower maintenance costs, low tenant turnover, smaller initial and ongoing investments and locations that are all over the map. Mobile home parks are an opportunity for aspiring real estate investors to get their feet wet in a relatively low-risk segment of the market.

Why mobile home parks?

Mobile home parks are a draw for real estate investors for several reasons. A primary draw is that they represent lower costs over time. Commercial property investments can be uncertain endeavours, but mobile home parks stand at the less risky end of that spectrum. Mobile home park owners are essentially a form of the landlord rather than owners of housing units. Each park is divided into small “pads,” or plots of land. Prospective park owners are then able to lease that land from the park owner and move their rented or owned mobile home on to the pad.

Mobile home parks are also very affordable housing for the general population and so represent an investment that is typically resistant to economic downtown and recession. This is an attractive piece for any investor to have in their portfolio since it all but assures a steady stream of income even in the most bearish economy.

Mobile home parks fill a need for the general population, especially as retirees have less and less in savings as wages stay flat over decades. They are a low-cost option that provides an attractive opportunity for quality home-ownership. Other benefits of owning a mobile home park range from enticing financial incentives to decreased risk via larger amounts of units.

Smaller initial investment

The initial investment in owning a mobile home park is a relatively cheap one. You are acquiring more potential housing units for less money than in any other class of real estate investment, meaning mobile home parks represent a chance to minimize your risk. More residents in more units mean that the hiccups of tenancy that always occur will have less of an impact on your bottom line.

The fact that you are not buying actual constructed units is also an enticing piece of the economic pie. Since you are investing in land rather than expensive constructed units, less money is needed to begin a venture. Mobile home parks also do not require expensive, premium plots of land - so you can hunt for bargains on land that will only increase your margins.

Lower tenant turnover

There is a degree of continuity in mobile home parks that does not exist in many sectors of real estate. Once mobile homeowners arrive in a park, they do not usually leave. Low tenant turnover is a huge benefit of owning a park. Any landlord can tell you that it takes significant effort to find new tenants, and mobile homes remove a large portion of this headache.

You can forget about lost rent during vacancies, cleaning vacated units, and other obligations. Tenants in mobile homes like to stay where they are, not least of all because moving a mobile home is an expensive proposition. Most owners and renters of mobile homes want to stay put. Providing them with good management and a well-maintained park only sweetens the pot for them.

Opportunity is everywhere

Mobile home parks exist all over every province in Canada. Most are run by independent operators rather than large, professional organizations. These are simple operations where services might have been minimal for quite some time. This provides an opportunity for driven investors to purchase these parks, invest in improvements and service upgrades and attract tenants who will repay the investment with loyalty and stability.

These amateur owners might not have recognized every opportunity that existed for revenue. Perhaps they were apportioning the land inappropriately or failing to provide tenants with premium services that many modern tenants expect. No matter what, there is likely a chance for investors to provide new value to mobile home park tenants.

Reduced maintenance costs

When you own a mobile home park you can essentially forget about having to deal with unreliable and expensive contractors – since you only own the land, you are not obligated to worry about repairs to units. Ask any landlord of a multi-unit building, and he or she will tell you that forgoing this daily occurrence might be enticing enough on its own.

Mobile homeowners are responsible for their units, limiting your financial liability and costs of maintenance. That said, they are paying you rent, and will expect some amenities that you should plan on providing. You can expect to organize some services such as sewer hookup and trash removal, but both the upfront and ongoing costs will almost certainly be far lower than if you had purchased a multi-unit building.

Mobile home parks are a hidden opportunity

One final reason that investors might want to look into mobile home parks is that they are largely unknown as investment opportunities. Most people likely think of commercial real estate investing as purchasing businesses or high-rises, but the truth is that the term is a large umbrella that covers many types of commercial and residential properties.

Mobile home parks have been a sleeping sector for years, which only increases the chances of finding deals and getting a good return on your investment. Large investment firms typically don’t bother with the hyper-localized and smaller dollars world of mobile home parks, creating more prospects for smaller investors to make their mark. For the right type of savvy individual with the right level of commitment, mobile home parks represent a real chance for investors to make their mark.