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My First Mobile Home Park

by Peter Heffernan   

I'm not all that tempted to call this a "success story." It's more of an "experience that hasn't turned out miserably" story. This is the story of buying my first mobile home park.

Let's start with the mistakes: I probably overpaid, I put a whole lot of cash down, and I radically underestimated the amount of work it would take to accomplish my objectives.

I'd calculated an offer price based on what I felt was a fair cap rate (14%) on the seller's verified N.O.I., but then I let myself get jimmied upward for the extra 80 vacant acres, the owner's & manager's mobile homes (10-yr-old doublewide and 27-yr-old singlewide), and the full complement of machinery & equipment that came with.

Of the equipment, both the dump truck and the lawn tractor (way overmatched for the 30-acre empty field) have already crapped out on me. The backhoe, though, has been a singular blessing, despite the fact that I've nearly managed to maim myself twice.

Bottom line: I put $125K down (from the sale of a Brooklyn brownstone I'd bought for $6000 down and which had appreciated roughly $240K in four years) and paid $687K for a clean 47-unit park with a dozen vacancies.

I thought, starting in July, I could fill every spot in enough time to move to somewhere warm before winter. That was before I found myself climbing into septic tanks.

The good news? I got a seller mortgage at 8%, amortized over 21 years with a 15-yr balloon, and an interest-only first year. That part of the deal, compared to the 11% commercial money that was available to me at the time, I calculate as being equivalent to a $110K discount. I did a 1031 exchange into the property, saving me upwards of $22K

I found a fantastically responsible manager to live here full-time; this has allowed me to take, so far this year, 12 weeks of traveling vacation. (Yes, I was in California for most of the upstate NY winter.) With the extra acreage ? some wooded, some open, and maybe 20% unusable because of severe grades and swampy conditions ? expansion is well and truly feasible.

And of the 35 existing tenants, the seller's strong-arm tactics had them in excellent paying habits ? exactly one of them has been a persistent slow-pay.

More good stuff: I've filled 14 vacancies (two move-outs included) in 16 months, including selling nine homes on 15% notes. The yields aren't Lonnie-large because I paid higher prices and made longer-term loans ? between $6500 (a 1986 60-footer) and $15K (a cute 1990 doublewide), with 12-yr or 15-yr terms ? but I preferred to put newer homes in the park for the visual upgrade they make.

The first three deals, which I did last fall with (the dregs of) my own cash, cost me roughly $14K apiece (including moving and set-up costs) and sold for $19K apiece, 15 yrs at 15%.

I learned from that experience. This year I borrowed $60K from a local bank at 9.5% (now 8.25% thanks to Messrs. Greenspan and bin Laden), bought and moved in five mobile homes including the cute doublewide, and sold them on 15% notes totalling $105K.

Since it wasn't my money, the yield on this year's deals is infinite; net to me on those five notes after sending the bank $775 is $710/mo cash flow, and I'll have the bank paid off in about eight years while my notes run from four to seven years longer.

I've shoveled a hell of a lot more dirt and hefted a whole lot more concrete block than I ever thought I would; I have become a veritable Rembrandt with the backhoe. I've made significant aesthetic and infrastructure improvements to the park, including in one nasty case rebuilding a crusty drywell by hand.

I've spent a big chunk of what I'd supposed would be my profit on renovations, especially in wages to the subcontractor who's taught this city boy far more about plumbing, electric and woodwork than I could possibly have gleaned from Bob Vila in twice the time.

But at this point, I own an asset that is in good shape, pays me about what my old job paid, while requiring only a fraction of the ongoing time and no punching a clock.

I calculate my efforts to have created roughly $300K in increased equity value for the mobile home park. And I am reliably informed that the residents of the park are elated at the effort I've put into making their community a nicer place to live. Maybe instead of a success story, this is a movie waiting to be made.

Thank-you's are due to the generous advisors on CRE Online, despite my habit of doing things the hard way in spite of their wise and creative advice, most particularly including Terry & J.P., who got me fired up in the first place, the incomparable Ray Alcorn, and Ed Garcia's financing wizardry.

 
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