Where to get the repo lists? - Posted by Mike

import · October 13, 2003, 1:29pm

Dont try this at home… - Posted by Chuck

Posted by Chuck on October 13, 2003 at 13:29:01:

The problem that this creates, beyond the obvious rent control and resulting tenant displacement issues, is in property values… the “small” operator sees all this and gets it into his head that his 11 or 12 cap park is suddenly a 7 or 8 cap park.

The snowball effect from all this will be felt for many years to come… and not all of it will be favorable.

Parks that would have sold for ~ $1 million a year ago are now going for $2 million or more… and the only thing that has changed about these parks is their cap rate.

I saw a RV park in California at a 5 cap the other day… a 5 cap on 40% expenses and a $5 million investment.

There’s another one down the road with a 7 cap… sounds abit better, until you learn that it’s $6.75 million investment.

Yea, rv parks… talk about idioticy.

Your gonna see another “Conseco-type” blow-out in a couple of years… this runaway pricing will come crashing down around them when their equity levels out and they move to resell.

You might wanna stand back… the fallout will be over there.

import · October 12, 2003, 7:42pm

Re: hey Greg - Posted by Jon_FL

Posted by Jon_FL on October 12, 2003 at 19:42:19:

Come on over, having a few friends for golf on sat and we’re having a poker game afterwards. Bring over about sorry, 6500 for playing with!LOL. call if you can make it and Monte asks if you need , sorry gas money!

import · October 12, 2003, 5:12pm

Re: Have to speak out on repos…long - Posted by Marty (MO)

Posted by Marty (MO) on October 12, 2003 at 17:12:57:

oops- I appreciate your posts, also!

import · October 12, 2003, 4:01pm

also, you are right on some form spelling… - Posted by Greg Meade

Posted by Greg Meade on October 12, 2003 at 16:01:05:

out exactly what is owed by whom prior to bidding on home. About half the time this is feasible, but what happens when the court docs are taped to front door and the owner of the home and land are nowhere to be found? Do you pass? Do you gamble? I truly hate to admit it but part of the blame lies with moi…that old greed thing kicks in and i accepted from the crooked pm exactly what i wanted to hear…terrible when it’s not ALL their fault, ain’t it??? I need to go camping for a week or two…maybe over to Daytona!

import · October 12, 2003, 11:42am

Re: Have to speak out on repos…long - Posted by Chuck

Posted by Chuck on October 12, 2003 at 11:42:51:

Right… “check funds” instead of a certified check… check funds being a personal check that you can cancel if the deal goes south, per the terms stipulated in the purchase agreement (see quoted post for clarity).

import · October 13, 2003, 5:11pm

Re: Dont try this at home… - Posted by Tony-VA/NC

Posted by Tony-VA/NC on October 13, 2003 at 17:11:17:

This is an interesting topic. The parks can get blown waaaay out of proportion with the “dumb money” from wallstreet chasing stated income and low cap rates.

How this affects the sale price of smaller parks remains an interest to me. Maybe you can shed some light on your area.

While some park owners here are asking outrageous prices, thinking they are sitting on gold mines (instead of 20 rental mobiles in their park). But typically I find that in these smaller parks, these parks sit and sit without any true interest. Occasionally some fool buys in but typically loses his down payment when the (predatory in my opinion) owner forecloses on his outrageous first mortgage (smiling all the while). These folks are doomed to fail when they pay so high.

What about bank financed purchases? Will more small parks become REO’s?

The true “Mom and Pop” sellers still seem to be realistic and little appears to have changed. Occasionally one does come across a dreamer but we all know by now not to waste time with non-motivated sellers.

So for dreamers and dumb money, danger is at hand. Like always, for investors there is money to be made. A blind attempt to quick flip a park would not be my recommendation at this stage of the game. Who knows when the dumb money will seek the greener grass on the other side of the fence again.

It seems to me that we would be well advised to continue to buy what we can from motivated sellers while waiting for the fallout from those who bought high and will be forced by reality to sell low or lose. But is that really much of a change from our ever present M.O.? I think not. It may however, be a change for those not acustomed to the mobile home arena.

Your thoughts?

Tony

import · October 12, 2003, 7:43pm

hahahaha/ NT - Posted by Greg Meade

Posted by Greg Meade on October 12, 2003 at 19:43:35:

`

import · October 12, 2003, 6:34pm

I don’t feel that I am the one responsible… - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on October 12, 2003 at 18:34:35:

…for their dishonsty BUT it is probable that a lot of these problems started because of me. There was a time when there was a GREAT shortage of used mobile homes in Arizona. Well, just as any other self-respecting entrepreneur would, I thought of Henry J. Kaiser’s saying: Find A Need And Fill It. I thought why not buy mobile homes at California Lien sales and tote them to AZ and cut a real fat hog. There was about a $5,000 price difference between the two areas even after teardown & set up, and moving costs.

I just subscribed to about 30 Southern California newspapers and a couple of clipping services to read the legal ads and was able to line up several sales each week. At that time it was rare to find ANY other bidders so I got lucky real often.

All of a sudden ‘no motorcycles allowed signs’ sprung up in parks all over Southern California. I was about the only one riding a motorcycle in their parks at that time. I switched to a car, then security gates became real popular but not so effective. I just parked right outside the gates with my motor running and by making a mad dash I could follow the next car through.

Next I noticed that when I asked questions of PMs I was always being referred directly to a lawyer’s office. “Hello sir, nice day, isnt’t it?.. HOLD IT …you gotta talk to our lawyer about that”.

I made more and more money and they tightened the noose more and more firmly around my neck (and yours, Greg). Finally I had gotten all that I thought I could get out of them and changed hats.

This left hundreds of empty spaces in Orange County and Riverside Copunty parks. That was close to 15 years ago and many of the Riverside County spaces are STILL vacant (Santiago Moile Home Park, for example in Moreno Valley, my former home town.)

Naturally when others saw what I was doing they jumped on the bandwagon too and we sort of became a band-parade trouping acrosss the land like a hord of locust, denuding the mhp landscape of coaches as we went.

Well, that is free enterprise, isn’t it?

I have written extensively about this in earlier posts.

Now its just a matter of me not wanting to swim upstream all of the time, now that my spawning days are over. There are other fat hogs that are easier to capture, but I gotta admit that none squealed louder than the Southen California mobile home park owners. :~0

I’ve been running another scam on them these past few years and they haven’t figured it out yet but I’m not talking until the money dries up.

I maintain two sets of business ethics. One is for dealing with honest folks and the other is for dealing with crooks like these. Then its no holds barred and lots of fun pulling their tails from time to time. Even at my age, I still have a perverse mischeivious streak in me.

From now on, when dealing with California mobile home parks, its caveat emptor, or don’t make waves unless you’re a strong swimmer.

Regards, doc

import · October 13, 2003, 10:27pm

Re: Dont try this at home… - Posted by Eddie-Mi

Posted by Eddie-Mi on October 13, 2003 at 22:27:28:

How many outrageous 1st mortgages that were forclosed have you seen Tony? You may not realize it, but there is an opportunity for us when this happens.

I just bought a 50 unit land contract repo. This arab attorney payed 600,000 with 150,000 down. I picked it up about half that price with low down.

To be honest, I have looked at parks on the brokerage side of things and I dont see any immediate changes with park prices.

The rents keep increasing and making mobile home living less and less affordable. I envision more and more vacancies and eventually some repo’d parks and better prices for large and small parks. But its a few years away in my opinion. I don’t see many folks selling a good park on a 10 cap in the 4 states i covered.

import · October 13, 2003, 7:21pm

Liquid Gold - Posted by Chuck

Posted by Chuck on October 13, 2003 at 19:21:50:

I’ve spent the last year or so looking for my next park… here are the trends I’ve seen developing.

Cap rates have dropped from an -average- of 9% to low-7% and are continuing to fall. Parks of 50 spaces or less are (with a few exceptions) holding stable… for the moment. Parks of 100 spaces or more have jumped in price from ~ $1 million to $2 Million plus… and this is starting to trickle down to the 50-spacer’s. Mega-parks, 200 spaces or more, have gone ballistic… $4-5 million on average, and some as high as $6-7MM.

I saw a 500+ space go for $13.4MM last month to a corporate (enity) buyer… and lest you think I jest, I personally brokered the $3.65MM unsecured PMM (2nd) on it… behind the assumeable FHA 207m first.

There seems to be a ripple-effect developing in the listing services. Brokers are looking at the low cap rates being advertised, and are pricing there new listings in a like manner… when they can justify it… meaning pricing via proforma is on the rise.

There also seems to be a “triple-net” mentality developing in the market… “dumb money” chasing cap rates without regard to the tenants who make the whole thing happen… the “people factor” has been nullified and rent control law revisions/repeals are the after result… or the effect of the cause, take your pick.

Where this will end is abit scarry… mhp’s may become an endangered species, at least for a time… tenants will bail for a cheaper cost of living (imagine that one if you can), which will be closely followed by a huge investor bail-out… with over-indebted/under-performing parks glutting the market in a “Conseco-type” fashion.

The fact of the matter is that many of the recent listings I’ve seen, will have returns equal to buying a cd at your local bank… somebody’s gonna loose money on this deal.

My vision for the future…

Cap rates are going to go the way of the dinosaur, as a measure of property value with regard to selling price. Maybe not tomorrow, or next week… but it is coming.

Print it out, you saw it here first.

Why? Because there’s just way too much room for emotion/speculation in this manner of valuation (appraisals being another), and the signs of this being true are all over the place now. All it took was a flaky stock market/economy (and maybe a few terrorists) to drive this home.

Your going to see a “new yardstick” develop (in truth it already exists, it just hasn’t found wide-acceptance yet)… and this new method will allow an investor to determine the proper price to pay, based upon the risks involved, his desired yield for the investment, and the cost of the loan involved to aquire it.

Wow, what a concept.

Eventually, this will be a good thing (regardless of how freaky it sounds)… because it will trickle down to all the other area’s of commercial investment… you’ll see the secondary commercial mortgage market go wild, along with an increase in activity of government-backed commercial loans.

Hold your ground and bank your (investment) dollars… there’s money in them there hills.

import · October 13, 2003, 11:26pm

Re: Dont try this at home… - Posted by Tony-VA/NC

Posted by Tony-VA/NC on October 13, 2003 at 23:26:14:

There isn’t opportunity for us in the scenario I have witnessed.

Here is what I am referring to.

Seller cranks up the price of the park through manipulation of figures. They offer to owner carry a first mortgate for Buyer with a large cash down payment. Even with this purchased equity, the park cannot support the debt load and expenses.

The happy Seller forecloses (or takes the Deed in Lieu), keeps the large down payment and repeats the scenario, bragging about it privately. Not what you would call a win/win. Not my kind of business but to each their own I suppose.

The “opportunity” you mention…are you thinking that this paper or property would come on the market at a discount? Not if the Seller can help it.

Is this rampant? Maybe not but it is happening.

Tony

import · October 13, 2003, 11:17pm

Re: Liquid Gold - Posted by Tony-VA/NC

Posted by Tony-VA/NC on October 13, 2003 at 23:17:33:

Your comments on valuation seem in line with mine (and the discussion here I had with Ray Alcorn). CAP rates concern me a great deal because of the huge multiplication of even the slightest error, not to mention stated income (“If all the lots were rented at the ‘you can’ raise the rent to price”) compounded further by low cap rates. Such park buyers are doomed to fail almost from jump if any substantial debt service is involved.

As I recall Chuck, about a year or so ago your wrote a post entitled something to the effect of “CAP Rates are for BANKERS.”

I might add “Bankers, appraisers and Brokers.” CAP rates too easily manipulate value in my opinion. Due diligence may or may not save the real estate investor but certainly not the stock investor turned RE guru who is buying on stated income at 8% CAP rates.

In my post to Ray, I admit that the 25 unit and over parks are currently my target size. It is among the smaller parks that I believe we can still find motivated sellers who are realistic in the pricing schemes. Getting to them before the Brokers do is certainly important.

You have encouraged folks to bank their investment dollars May I suggest that these smaller parks may well be a place to go in the meantime. A 1031 into a larger park (now turned REO) or facing similar circumstance could be quite a feat. If not such a coupe, the cash flow and experience will at the very least propel them in the right direction.

The future may well hold the opportunity for us small park fans to upgrade to the 25, 50 or more unit parks simply through the opportunity to capitalize on the “Conseco-type” fallout.

One remaining thought. I have not endured a rent control scenario as your post envision, so I can merely speculate. But if the dumb money terms received by the park buyer forces runaway rental increases, causing the tenant base to once again seek affordable housing…where will the go?

Might not the small, “mom and pop” park be a natural consideration for them? Might not these tenants also enjoy the appeal of reasonable rent on the mobile home/land packages (purchased by inestors at wholesale instead of inflated retail CAP pricing)?

Lastly, have we thought about the affect that massive park defaults might have upon the vigor of local gov’t efforts to eliminate mobile home parks?

Tony

import · October 13, 2003, 8:35pm

The two posts above are gold… - Posted by Greg Meade

Posted by Greg Meade on October 13, 2003 at 20:35:17:

and well thought out.This really is a complex problem. somewhere on this board i read that new Walgreens and Eckerds are selling with 5 and 6 CAPS. And they are on every corner now with more planned. My friend Gary a banker with Wells Fargo says with interest rates in the sewer, it can actually have a negative effect on the economy as in who wants to put out long term money for capital improvements, etc. at rock bottom rates. He further states that the real fear in the Capitol is deflation not inflation. I know there some oldies like me out there who remember inflation…10% raises each year? 16.5 % mortgage rates? Thought that was the worst thing in the world, but Gary says that pales in comparison to deflation, and he is a grad of Texas A& M…we try not to hold that against him! Thanks for the great posts Chuck and Tony.

import · October 14, 2003, 1:33pm

Re: Liquid Gold - Posted by Chuck

Posted by Chuck on October 14, 2003 at 13:33:14:

Yes, timing is important… in all things. Getting to the mhp seller before the broker has warped the picture is certainly wiser than not.

As to “banking your dollars”… if you can get a smaller park at a decent price (assumes all the factors regarding such a purchase being satisfactory), go for it… but keep your head on straight and buy smart. Don’t let the desire to aquire blind you.

As to “where will they go”… I see land/home combo’s or land/home subdivision’s as the answer to that. No-one’s going to move a home from a 4/5-star park (and there is where-in the problem stems from) to a lesser one.

As to “park failures”… I see what’s currently happening in Florida as the most likely first response to this… they’ll become developer fodder… anything beyond that is speculation yet.

More food for thought… two parks in the same city, and on the same street.

Park A

Rating - 2.5
Spaces - 59
Space Rent - 375
Sub-Metered - Water, Sewer, Electric
Amenities - None
Tenant Mix - Blue Collar
Year Built - 1963
Acreage - 4.79
Price - $2.1 million
Cap Rate - 9.6%
Outstanding Loan - $1MM / 7%
Assumeable - Yes / 1%
Down Payment - $1.1 million
NOI - 201,082
Cash Flow (post debt) - 124,931

Park B

Rating - 4.0
Spaces - 107
Space Rent - 415
Sub-Metered - Gas, Electric
Amenities - None
Tenant Mix - Retirement
Year Built - 1976
Acreage - 13.66
Price - $4.7 million
Cap Rate - 7.3%
Existing Debt Service - $2.75MM / 7.25%
Assumeable - Yes / 1%
Down Payment - $1.95 million
NOI - 343,477
Cash Flow (post debt) - 144,353

The only line that matters to a “real” investor, is the one that says “cash flow”. In that vein, I offer the following for comparison.

Video Store

Price - 150,000
Cash Flow (post debt) - 150,000

My point is that I can spend 1/10 of what I would have a year ago for a mhp and pocket better money with a video store.

So why is it that a small business is priced based on it’s income-productivity, and commercial properties are priced based on cap rates/appraisals/etc?

When you take emotion and speculation out of the equation, the answers change.

import · October 14, 2003, 12:40pm

Re: The two posts above are gold… - Posted by Chuck

Posted by Chuck on October 14, 2003 at 12:40:52:

The Walgreen’s comment was probably mine… and yes, they are building them as fast as circumstances allow… some 200 per year at last mention.

Most of the Eckard’s are zero-cash-flow (and have been for awhile to my knowledge)… meaning that ALL of the lease income goes to cover the debt service.

You can quote me on this… anyone would buys based on stated/proforma income and cap rate (today) is doomed to fail… there are going to be major changes in the way properties are bought/sold in the not to distant future… and the resulting fall-out will create a commercial re-financing market like nothing ever seen before.

import · October 14, 2003, 11:16pm

Re: Liquid Gold - Posted by Philip

Posted by Philip on October 14, 2003 at 23:16:17:

One thing in your post got my attention.
That was the comment about MH developments replacing parks.
I think that WILL happen in some areas.
We already have a few in my area.
1 hour away there is a 120 mh development with each mh on it’s own acre. They all look almost exactly the same though, and it even repulses mh buyers!
They are having a hard time filling it.
Philip

import · October 14, 2003, 5:22pm

Re: The two posts above are gold… (2) - Posted by Chuck

Posted by Chuck on October 14, 2003 at 17:22:30:

Let’s try that again…

You can quote me on this… anyone who buys based on stated/proforma income and cap rate (today) is doomed to fail… there are going to be major changes in the way properties are bought/sold in the not to distant future… and the resulting fall-out will create a commercial re-financing market like nothing ever seen before.

(where’s the spell check on this thing?)

import · October 15, 2003, 12:28am

Re: Liquid Gold - Posted by Chuck

Posted by Chuck on October 15, 2003 at 24:28:14:

I’d almost bet you dollars to donuts that if they started RENTING the lots, it would fill up.

import · October 15, 2003, 7:50am

Re: Liquid Gold - Posted by Philip

Posted by Philip on October 15, 2003 at 07:50:45:

Why does that work so well chuck? The renting I mean.
I would rather live in an ugly Mom and Pop park with 14 different “trailers” with add-ons, than this cookie-cutter place!
Thanks
Philip

import · October 15, 2003, 12:10pm

Don’t bruise the dirt… - Posted by Chuck

Posted by Chuck on October 15, 2003 at 12:10:34:

Basically what they have there is 120-space mhp with VERY large lots… and two options for filling it, they either sell 'em or rent 'em.

I’d like to point out here (at least in theory) that a one-acre mobile home lot should fetch a premium RENTAL dollar… compared to a mobile home park lot.

Later on if they decided to cash out and move on, they could either sell the lot (to a established tenant) on a land contract… or offer refinancing via land/home packages.

Smell the coffee yet?