Is Less Really More? - Posted by Tony Colella

Posted by Scott on November 10, 2010 at 23:05:14:

I agree with Tony and Briton. I have 3 parks and do not want another one. I am happy with what I have and can manage the 3 with ease. I have a greeter at the 2 smaller parks and I manage the larger one. The larger park has a part time maintenance man and a lady who works in the office approx. 20 hours per week. I have my properties running smoothly. If I add more parks to my portfolio I add the headaches. It would also take me away from my “main” park. I have a great relationship with all my tenants. They know I am there everyday and take care of any problems as they arise. I receive positive comments all the time about how lucky they are to have such a great park owner If we add another park or two my larger park may suffer. We own 49 of the 90 homes in the park. All the homes are late model 16x80’s and 5 double wides. All the homes are perfect. If they need any rehabbing when a tenant moves out we do it. Not only to get better residents in the park but to protect our investment.

I am taking a new approach at one of our smaller (26 sites) parks. I am increasing the rent. We do not own any of the homes in this park. My intentions are to fill the vacant lots (when they become vacant) up with our own homes. Over time I plan on putting in 10 homes and renting them out. 10 homes wil increase my income by over $3500 per month. The increase in rent will also add an additional $500 per month. To me thats better then purchasing another park and addding to my headaches.

So in closing I plan on increasing my income by adding homes and raising lot rent. Rehabbing and taking care of my contract homes and building a nice nest egg for my family.

Is Less Really More? - Posted by Tony Colella

Posted by Tony Colella on November 10, 2010 at 14:01:15:

There are folks like me who are happy with a smaller portfolio that they can keep to using their blue collar, hands on approach. Others grow bigger and at some point make a leap to where they are able to acquire properties sufficient in size and income to support on site managers and maintenance personnel.

I know investors both in the big and little portfolio categories that are doing well and those that are struggling so size is not necessarily the deciding factor.

Even for the smaller portfolio holders I can tell you that downsizing has its own hidden challenges. A larger portfolio has larger gross income and when problems arise there is usually sufficient slush in the gross income to cover the expense. The problem is that there always seems to be a problem!

The successful downsizing I have seen has been folks who were able to sell some assets and pay off debt on the income producing assets. By selling off some properties without paying off the debts on others you have reduced your gross income (slush) but the problems (though less often) still make appearances which means that money has to come from somewhere. That can put the smaller investor in a bind unless they have created new income somewhere else (either new investments or a job).

I welcome input from the larger portfolio players, smaller players and those who do a high volume of sales. Much of the decision to grow will, in my opinion, be based upon each investor’s comfort zone. There is no right or wrong but perhaps we can generate some conversation that may help those thinking of downsizing or expanding their portfolios.

Tony Colella

Re: Is Less Really More? - Posted by Shawn Sisco

Posted by Shawn Sisco on November 11, 2010 at 14:37:42:

It is pretty amazing how the perspective changes and I keep setting the bar a bit higher. If I look at the past 25 years at my business/financial goals, I can hardly believe how far that I have come. At the same time, I don’t feel at all satisfied with my recent (past 5 years)business progress, but on the family/spiritual growth side, these past 5 years have been enormously productive.

I have a hunch that I am being prepared for another level of something, whether that is business related or not remains to be seen.

Many good points have been raised regarding the personal/family issues involved in growing a business, I’ll add this: a good owner/operator model will always out-perform a good manager/employee model. That is not to say that manager/employee model is always bad, clearly that is not the case.

This discussion brings to mind my SD IRA account. It out performs my core business by a pretty wide margin, and I think the reason is that the goals of the IRA account are so much clearer, it is no problem to set the goals for the accounts growth and work to achieve said goals.

With the core business, somebody (me) keeps moving the goal.

Re: Is Less Really More? - Posted by Don-NY

Posted by Don-NY on November 11, 2010 at 11:40:15:

First off I want to thank and congratulate Tony on the thought and effort he put into starting several great threads these last few weeks. It has really re-invigorated the web site as well as my brain. I wish I had the time to respond to more of them. We (the Boss) and I talk often about how big is too big. And since I still work full time I think we are at our limit for now with 3 parks totaling 42 lots (30 occupied) including 3 rental homes plus a 2007 DW rental on land. Our goal has always been to replace my income so I can retire early and enjoy life. Not to become a paper multimillionaire. We also search only for real Killer deals that are litterally pennies on the dollar (yes they are out there). That way they can’t help but cash flow. I guess it is a question of where YOUR personal comfort zone is!

Re: Is Less Really More? - Posted by JeffB (MI)

Posted by JeffB (MI) on November 11, 2010 at 06:07:47:

A couple years ago I was having an internal dialogue on this subject. Granted I only do LD and do not own parks, but the principle applies. I do a lot of deals in one particular park, and have built a terrific model there which requires very little of my own time to buy, sell, and rehab properties. It runs so smoothly that for most of the summer, my family and I travel all over the place in our RV. It’s great family time and I wouldn’t trade it for any amount of REI success.

Anyway, in 2008 I was faced with the issue, do I expand the model to a few other parks? This would mean I could no longer do all the things myself I was doing, and would have to hire at least one other person (in addition to the full time rehab guy I already had). I don’t mind hiring rehab but I do not like the idea of hiring people to run my business. I have never been able to find people who are 1) competent, 2) honest, and 3) willing to work for a wage I can afford to pay.

At the end of the day it was simpler to keep my business smaller. I’ve been enjoying the cash flow, saving most, but spending some to improve quality of life. As I prepare to transition into different areas of REI in the near future, I look back knowing I absolutely made the right decision for me and my family.

Long response - Posted by Briton (IN)

Posted by Briton (IN) on November 10, 2010 at 19:36:16:

I think about this subject often. With 4 parks, I could continue to buy more and more parks, yet never pocket much cash. If I do this my whole life, it would be insane! There has to be a point in your life were I say, OK, I want to pay these things off, and enjoy the fruits of my labor!

Having more property does give you the “slush” you speak of. Just by paying bills right before they are due, as opposed to right away can free up thousands of dollars for long periods of time. Like a line of credit kinda, but just using the cash flow you already have.

More is less if all you do is work all the time, or work your whole life.

Another thing to keep in mind when thinking of growing your current portfolio of parks is whether the cash would be better spend strengthening your current portfolio as opposed to stretching yourself even further.

For example, If I had an extra 50k cash I could buy an additional park, OR I could spend that money filling up empty lots I already have, or replacing older homes with newer homes. These improvements would solidify my current portfolio for future income and stability.

Another thing to remember while growing your portfolio is being able to keep control of it all. Loosing a couple managers at separate parks, or having several issues come up at once can get stressful.

Another issue to remember is the point that I am at now. If I add more parks I may have to open several new cans of worms. Employees, multiple vehicles, possibly becoming a licensed dealer ect.

Not being able to do everything myself will result in lower quality in some areas, therefor resulting in lower net income at each property, however in theory I would make more with more properties.

Right now I run 84 lots and I do all the paperwork, banking, phone calls, management, showing homes, taking applications ect. I hire mowing, plowing, repairs, accounting, ect, however I still have to see to it that the work gets done, that alone is a job sometimes. I think I could manage 150-300 lots if I hired one office worker and one general laborer/Guinea pig/shadow, however if I had to hire those workers I may not make much more than just keeping what I have and run them the way I already am while soon becoming dept free. I feel like I either need to say where I am at, or go for the gold.

If you cant tell, I have been pondering these things a while now, it kinda feels good to put it in words. Family and personal issues will most likely play a bigger and bigger role in my decisions in the next few years. O problems problems :slight_smile:

Briton (IN)

Re: Long response - Posted by Tony Colella

Posted by Tony Colella on November 10, 2010 at 22:21:50:

Years back (somewhere in here) I wrote a similar thought about improving your parks can be even better than buying new properties, especially those that need more work.

I believe the example I gave is on the same topic that I wrote to you earlier about how I got rid of the old, small single wide which was the worst lot and home in the park and brought in a small doublewide which made that lot the best in the park and the most desired home.

What I did not mention and your post brings to light is that by upgrading that singlewide to a doublewide I in essence added a 1/2 lot to the park without using any more land.

The higher and best use was the doublewide. The doublewide brought in let’s say $800 for easy numbers and the singlewide at best brought in $500. Most the homes in the park would go for $600 (remember this was the worst home in the park and bear with me, I am using concevative numbers because the best I ever got from that home was about $350 for six months and then a total clean out and remodel).

If I turn a lot from $500 to $800 when the other lots (and units) are going for $600, then this means that $300 increase is in effect an additional lot in the park without using any more land.

We may not need more properties if we are getting the best bang for our buck, the highest and best use we can afford to buy and no further management time or expenses. The land is already paid for so the addition of $300 to the bottom line is an excellent use of our time and money (in this example). Not to mention that the better homes we have, the higher rents and hopefully better tenants… the greater the value of the park as an asset in our portfolio so when we do finally retire we may have a nest egg to provide well for our future.

Lastly many of my larger portfolio friends spend as much time managing their managers as I do managing my tenants. Sometimes more. They make more money I have no doubt but just because you have employees by no means ensures you have no problems.