Small rental Park....Brainstorming Exit Strategy - Posted by Briton (IN)

Real Estate Investing Mobile Homes & Mobile Home Parks
1

Posted by Sailor on May 10, 2007 at 12:58:01:

I don’t know how many you’d get back, but maybe not as many as you think. You probably won’t have to buy them back. I just had a tenant move out in spite of the fact he had good equity & low payments–& the place was clean!

I think you can get your time & expenses down by doing L/O. I spend a LOT less time in my park than I did in the beginning. The park itself is doing fine; it’s just the human frailties that take up my time & energy. Even there, since I’ve brought in almost all new tenants we just don’t have the same nonsense going on. Now the difficulties are mainly economic (though I still get my rent on time) w/a dash of contrariness.

Tye

2

Small rental Park…Brainstorming Exit Strategy - Posted by Briton (IN)

Posted by Briton (IN) on May 09, 2007 at 23:54:26:

Bought a small 8 Unit park in December. I have since gotten into some better investments and I am already thinking of exit strategies. Here are the facts.

  • 8 Lots

  • 7 lots have parked owned homes all rented out at about $400/mo

  • 1 lot is empty but I am hoping to purchase a home for it on Friday. This home would cost about 10k moved and set up.

  • Expenses are fairly high because I do not do many repairs myself.

*all 8 homes are on 1 acre. So it is very packed in

Purchase info:

  • Paid $117,000

*payments are $977/mo for 15 years

I do not want to keep renting out 8 units and deal with the management time of doing this. Exit thoughts:

*sell of the homes Lonnie style

Problems with doing this:

  1. the homes could get moved out. Many of the homes are vinal/shingle and would prolly be worth more elsewhere. So “someday” they could get moved.

  2. the homes may not sell for much. This is a small park in a lower class small town. The park is 8 lots on 1 acre! So I do not know if “home owners” would pay much for a home in this park.

Advantage of doing this:

LOWER EXPENSES for the term of the Mobile Home note. Therefor I could take the MH payments and put them directly on my park loan. If I could get $50,000 for all the mobile homes in the park I could get my park loan down to like $40,000 withing 4 years or so.

If I did this I would make lot rent a cheap $150/mo and have about $1200/mo coming in with a small %40,000 loan and hardly any expenses.

***My second Exit Idea is to sell the park.

I would keep all the homes park owned and sell. I would have about $130,000 in the park and all 8 homes at that point.

I would prolly put on the market for $150,000 or so and see if it sells. If it does not I can keep grinding about on my loan until it sells.

Bottom line is it is a good investment but not worth my time. I ended up getting involved in a larger investment only 2 month after purchasing the park and would rather loose the stress factor.

Would love to hear thoughts!!

Briton

3

Finance the park - Posted by Keith (OH)

Posted by Keith (OH) on May 11, 2007 at 15:01:53:

Briton,

I would seriously consider selling the entire park with owner financing. Jack up your sale price to $175,000 or so and offer the financing. I think this park would still look attractive to an investor with the higher price if you could offer the right terms.

You’ll get a nice down in your pocket, monthly cashflow, and enjoy some debt free payments on the back end, if your still in the deal that long. (I’m assuming 10% down, 20years, 8% on a new loan. Payment= $1317) And the headaches will all be on some else !!

Crunch you own numbers and see. It might be another option for you.

Keith

4

Re: Another view - Posted by JeffB (MI)

Posted by JeffB (MI) on May 10, 2007 at 10:21:28:

“If I did this I would make lot rent a cheap $150/mo and have about $1200/mo coming in with a small %40,000 loan and hardly any expenses.”

I would argue the opposite scenario. If the homes really won’t sell for much, and since ALL the homes are park-owned at this point, AND this is a very small town, then there really is not much of a market established regarding how much lot rent is as a percentage of that $400/mo you’re charging.

Rather than make the lot rent only $150, what about charging $250 for lot rent and sell the homes on a note for say $150/mo over several years. You could still sell the homes for say $10k and keep the payments low if you stretch it out 8 years. This way, you’re keeping the lot rent portion of your income high once the homes are paid off and the homes are still reasonably priced.

Based on 40% expenses your NOI would be $14,400 per year which at an 8 cap would put the value at $180k PLUS the value of the notes you’ve created on the homes. Reduce your expenses further and watch the value skyrocket.

Nothing wrong with having park owned homes on a park this size but if time is truly a limiting factor for you I’d be looking for ways to make this investment more passive while still building your equity in the park and/or enjoying positive cash flow.

Did you purchase this with owner-carryback financing and if so is that loan assumable? I would think that nice terms like that would add additional value to the property if you were to sell.

Jeff

5

Re: Small rental Park…Brainstorming - Posted by Sailor

Posted by Sailor on May 10, 2007 at 08:33:59:

Briton, even though your homes are already good, consider
adding some minor upgrades to add the WOW factor. I’m partial
to electric fireplaces bought the 3rd week of Jan for 1/2 price),
laminate floors (when it’s replacement time), glass-topped
stoves w/self-cleaning ovens, & $10 lace curtains.

I like to L/O, not only as marketing & tax techniques, but so that I
don’t have to do much maintenance. At closing I present the new
tenants w/a book on doing their own MH repairs. Another thing I
like is that I get a down payment, & I pass on the insurance & tax
bills for reimbursement.

Once a home is paid, there is always a risk of move-out, but that
would be something way down the road, & if it happens it could
just be an opportunity. Because of the cost & effort involved I
don’t think you’ll have many folks move a home. They’ll move on,
but it is unlikely their homes w/go w/them.

Remember, it isn’t the price of the home that is important; it’s the
payments. You can also open another nice little profit center if
you can train your residents to do all their other financing through
you. This could be a nice little ca$h calf for you if you can
sufficiently decrease the maintenance expenses & hassles. I’ve
got my park much more profitable by submetering water & having
tenants contract for trash removal instead of supplying a stinky
unsightly dumpster.

Good luck & let us know what you decide–

Tye

6

Re: Another view - Posted by Briton (IN)

Posted by Briton (IN) on May 10, 2007 at 10:34:24:

Very insightfull Jeff. This is good stuff.

I like the idea of higher lot rent and lower house payment when selling them off. However I think that can be taken too far as to rip the people off. I could mabye do $180 in this market.

Got a bank loan. Terms are good for 3 years.

Thanx for the thoughts.

Briton (IN)

7

Re: Small rental Park…Brainstorming - Posted by Briton (IN)

Posted by Briton (IN) on May 10, 2007 at 10:53:01:

“You can also open another nice little profit center if you can train your residents to do all their other financing through you.”

I thought of this also. If I sell all the homes on notes. I would prolly get many of them back. I would also be able to purchase them again down the road and start over. This could be a Lonnie deal haven. It really comes down to a factor of time.

Thanks for the input Tye.

Briton (IN)

8

Re: Another view - Posted by land-o

Posted by land-o on May 12, 2007 at 24:24:46:

Briton, I would possibly agree with you if there existing tenants, but since
all are park owned there are no owner contract rights holding value in a
lease, to raise the space rent to 250 is not immoral, for anyone buying
was warned before entering the purchase agreement, I think any park
space is worth 250 anywhere in the country

9

Re: Another view - Posted by Gary

Posted by Gary on May 11, 2007 at 24:23:22:

I’m assuming those homes aren’t encumbered by the bank in any way. You know the market,value the homes at realistic sale prices,calculate the additional interest you’ll make on the borrowed money and determine your position. If the return justifies the time facter ride it out . This deal is already in place and in a few short years will provide you with income forever. Gary