Converting Rental Homes to LD's or.... not - Posted by Wayne(ID)

Posted by Wayne (ID) on April 14, 2006 at 15:50:26:


Thank you so much for taking the time to analyze this opportunity. Your input will be priceless as I gain more info. and the direction I need to proceed will become more evident thanks to you and the others on this board that are willing share their knowledge. If renting homes will cause me to LOSE my JOB and free me up to invest full time, I will definitly give it strong consideration.


Converting Rental Homes to LD’s or… not - Posted by Wayne(ID)

Posted by Wayne(ID) on April 13, 2006 at 22:41:57:

Here’s the deal.
Seller has a rental mh business.
67 units all located in parks that seller does not own.
5 units vacant at this time.
Homes range from 60’s to 80’s and all single wides.
Asking price $432,000. (just a starting place)
Monthly income at 100% (blah blah) $31,000
Monthly lot rent 12,500
Willing to carry contract w/ 100,000 down (once again only a starting place)
Located in town 30 miles from where I live.
I should have the P/L statement late tomorrow.

I have done 12 LD’s in 2 years and never dealt with rentals. My first thought is try to convert as many renters to buyers as possible. The biggest problem with renting as I see it is not owning the dirt. No matter if I keep them as rentals or sell via L/O ,I can see this is going to take a huge amount of time. I would maybe have to let that J O B go. What would the rest of you think of doing with this opportunity? What else should I be looking out for?


Re: Converting Rental Homes to LD’s or… not - Posted by Daphne Lowe

Posted by Daphne Lowe on April 14, 2006 at 14:49:46:

What you’re essentially buying is an income stream. Comparing it to owning a park is really an apples to oranges comparison. There is a risk associated with not owning the dirt, but owning a MHP comes with its own set of responsibilities. Comparing it to LDs isn’t fair either, because it doesn’t place a value on the time and resources it took to accumulate (find, buy, fixup, lease up) such a portfolio. Furthermore, LDs are for a finite period of time while rentals are infinite. I don’t see how it would be feasible to convert this portfolio to LDs/LOs. You’re paying 6,500 per home, how much would you sell them for? With such a small margin, you would have very little profit left after paying off your 432k purchase price. If you lower the amount of income or its duration (ie. the typical 3-4 yr LD), the income stream becomes less valuable.

So, here’s how I analyze the deal:
First, there’s a vacancy factor, a number of units will be vacant at any given time, and that amount is subtracted from gross income. Not knowing the market, I’ll use 10% (adjust accordingly based on your local knowledge). Then there are repair expenses associated with wear and tear, and rehab costs on turnovers. Some units will have no repairs, while a few will require major overhauls, so I’ll use 10% as a rule of thumb. Taxes, insurance and miscellaneous expenses, 5%. I’m assuming tenants pay all utilities, if that’s not the case, that needs to be added in. You didn’t provide details on the owner financing, so I used a payback period of 10 years at 7%. Lastly, since maintaining rentals can be very time consuming, my numbers include hiring a full time handyman. This will free you from grunt work and allow you to focus on building your empire (or allow you to keep your day job).

gross 31,000
vacancy -3,100
lot rent -12,500
repair -3,100
misc exp-1,500
handyman -2,500
note -4,000

cash flow 4,300
COCR 52% (based on 100k down)


Re: Converting Rental Homes to LD’s or… not - Posted by Michael(KCMO)

Posted by Michael(KCMO) on April 14, 2006 at 05:53:44:

My immediate concern would be having THAT MANY rental on dirt I don’t control. What happens if the parks all raise lot rent $20/mo? What happens if one of the parks sell and want to start moving out older homes? Etc, etc.

For $432,000 you ought to be able to find a 67 space park and BUY THE WHOLE THING. Heck, you might be able to buy one of the parks he has homes in. :wink:

That was my immediate thought. But a quick look at the numbers shows he’s asking an average of almost $6,500/trailer. I wouldn’t pay that much for a 60’s vintage, for sure. And I don’t usually have to pay mor than $2,000-4,000 for a nice 80’s model. The only advantage I see is that he’s already done all the work of acquiring the “empire” for you as opposed to you having to go out and buy them one at a time for yourself.

If he’d negotiate down in the range of $100,000 TOTAL then I might be interested enough to look into it. But again, for $432,000 I’d be looking for a whole park.

My 2 cents,