Posted by Ed Ortiz on April 06, 2000 at 07:43:31:
Hi Ray,
How do I go about getting your book?
Thanks, Ed Ortiz
(254)681-2314
MHP vs Apartment house - Posted by PSE
Posted by PSE on April 05, 2000 at 06:23:14:
I have a general question. I am interested in starting to invest in either Mobile home parks or Apartment houses. I need some help looking at the pros and cons about each investment. Which way do you all prefer and why? Thanks.
Re: MHP vs Apartment house - Posted by Bud Branstetter
Posted by Bud Branstetter on April 11, 2000 at 21:51:16:
I’m not trying to be difficult, but from the fact that you ask the question, I would question that you are prepared for neither. Why did you exclude commercial office buildings, strip centers, warehouses and shopping centers? You will find both MHP and apartment buildings that need improvements to increase income. Seldom will you find class A property at a discount. The analysis will tell you if the numbers are right. That insurance company will buy and have managed at a lower return than you may want. Both MHP and apartments of investment grade usually are a vehicle for cash investments of several 100K. The MHP may be harder to find. Apartments come in all different sizes. A class C complex with deferred maintenance is different from the new complex with marketing the main focus. Do you want to upgrade property to make money or are you looking for a rate of return.
Depreciation, Equity(instant), and build up, conventional financing - Posted by AL Brown
Posted by AL Brown on April 07, 2000 at 23:59:40:
I don’t have experience with the mobile homes. I tried to buy, 2 different mobile home parks at one point in time.
One was a 84 unit park, the other was 20 or less. I was unable to get them due to the terms the seller was requesting, (exchange), and the other I had the wrong financier, also looked as if easements were going to be a problem. He wanted me to convert the property, not leave it as it was.
Apartments are my choice at this point in time.
You can shelter income from your depreciation on the Building, Furniture, Carpet, etc.
You have instant equity when you buy the property for less than it appraises for.
Your equity builds as your tenants pay down your mortgage.
Can earn interest on deposits (I believe this is correct, some states may restrict the account these go into)
If you have 100K in equity in a building worth 600K, you can buy a 1 Million dollar property, by converting your equity to cash, either by refinancing, or taking out a second mortgage.
Your property is appreciating in value, even as you depreciate it. (assuming you bought the property in the right location and market)
More conventional financing exists, making your pool of buyer’s (if you ever sell) larger. Although contacts on this messageboard may prove useful to you at some point.
Property management companies exist readily for management of Apartment complexes, I don’t know about mobile home parks.
As long has you have a maintenance fund set up, so that some of your cash flow is put into it, for replacing roof’s, plumbing, boilers, etc. (you can also use equity to finance these), you will continue to improve the property.
These are some of the things I have seen.
Re: MHP vs Apartment house - Posted by Mark (SDCA)
Posted by Mark (SDCA) on April 05, 2000 at 15:49:40:
I’d like to add one more advantage to what Ray has already touched on. It goes in the “reduced maintenance” section. There just isn’t much that goes wrong with dirt. So your maintenance tends to be on things like water lines and if they exist club house, pool etc. But that does eliminate tons of maintenance that you would be responsible for with an apartment (paint, carpet, toilets, appliances etc.)
However, preferring one to the other is not the end of the story. Apartments are much more common than parks. I have been looking for one for 6 months now and am having a devil of a time finding one that meets my needs.
Cheers,
Mark
Re: MHP vs Apartment house - Posted by ray@lcorn
Posted by ray@lcorn on April 05, 2000 at 13:52:24:
PSE,
I’ll take up the cause for MHP’s over apartments just for discussion’s sake. (I’ve also written a book on MHP’s so to say I have a bias would be an accurate statement!) You should know that my family company owns both property types, and to tell you the truth, I could argue for either. Truly though, it’s not so much a preference as it is a reflection of particular opportunity and lifestyle choices.
There are three primary advantages a land-lease mobile home community has over typical apartment projects. (Note: “land-lease” refers to a park that rents spaces only, not the homes themselves.)
The three advantages (in my opinion) are:
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Reduced Tenant Turnover: Due to the expense of moving a home versus moving out of an apartment, mobile home owners tend to stay put. This in turn reduces maintenance costs and the amount of management effort required to maintain the operation. It also gives the residents a community-minded attitude toward the property where they will actually help you to maintain the integrity of the park because they have a vested interest in seeing things be done right. Maintenance costs typically run 10-15% less in a mobile home park versus apartments.
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Affordability: The mobile home offers a home ownership component for often less than half the cost of site built housing, more privacy than an apartment, tax benefits (in some cases) to the resident, and a very low entry cost. This provides a steady and predictable market for the product, which in turn translates to a demand for a place to put them.
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Zoning: This is where most folks say “huh?” “How can zoning be an advantage?” Simple. How many towns, cities or counties are there today where you would feel reasonably certain of gaining zoning approval for a new mobile home park? The answer is very few. So think for a minute about what that does for the existing parks. It’s the old law of supply and demand. When there is less of a product available than is needed by the market place, the price goes up. In the case of a MHP, if you own an existing park the local government is doing you a favor by not approving competing parks to be built. I liken it to being the equivalent of a government protected franchise. If you properly manage and care for an exisiting park, then it can provide excellent returns for many years, and command a higher sales price due to the limited availability of the product.
Compare that to the ease of getting multi-family projects approved in most jurisdictions. In most cases, if there is land and utilities available and the project is in keeping with the character of the neighborhood, approval is fairly automatic. That can change your competitive set overnight.
So that’s my two cents. It would be interesting to see someone take up the apartment side.
ray
Re: MHP vs Apartment house - Posted by Ed Copp (OH)
Posted by Ed Copp (OH) on April 05, 2000 at 10:36:42:
PSE, IT DEPENDS. Apartment buildings generate more tax benefits than mobile home parks. Now that being said tax benefits are a poor basis for investing, because the tax laws could be changed in a year or two to the point that they could not be recognized. AGE is a good factor to consider. How many years will this investment be working. The answer for a 65 year old, and a 25 year old will be quite different. FINANCIAL condition will also have a lot to do with the opinions. If I am 65 years old, deep in debt and no cash; my opinion will be bleak. If I am 25 and have a couple of million in t-bills …well that is another story. Most of us want to make more money faster. For that I personally would lean toward the MHP. Be sure to consider that your question has as many answers as it has readers. It is a little like asking “how long is a piece of string”?. It is very important to make a decision, and get started…ED
Once again folks…A great Post by Ray Alcorn (nt.) - Posted by Dirk Roach
Posted by Dirk Roach on April 06, 2000 at 15:21:19:
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Where’s your book ? - Posted by Andrea
Posted by Andrea on April 06, 2000 at 09:04:46:
Hi Ray,
I’ve been on CREonline for a month or so and have greatly enjoyed your thoughtful and informative posts. Just finished Lonnie’s books and have decided that the best plan of action for me at this time is to start doing Lonnie deals with an eye toward rental lots and/or a park at some time in the not too distant future (tall order for someone who’s not even started yet… Lonnie’s books have made me certain it’s not a question of IF it’s a question of WHEN!)
I’d like to add your book to my reading references … is it available on this site?
Thanks,
Andrea