Park Place: How to Cash In on the Mobile Home Park Niche

by Tony Ferris

One rule I live by is: Listen and learn from everyone, but only take advice from someone with whom you are willing to trade places with.

Our purchase price in other States was a third the cost as much as similar homes in California, yet the less expensive homes generated the same amount of cash flow. This allowed us to purchase three homes in another State for the price of one in my own backyard. This, in turn, reduced risk.

Of the ten, there was always one of them that was either vacant or the tenant would stop paying. With that said, we were still generating a profit on the other nine homes. The cash flow from each house was $200 to $250 a month after expenses. Now we had the law of numbers on our side. This approach is an excellent way to control the asset and have ‘staying power’. If one house temporarily stops producing, we still have nine houses that are paying.

I knew that if I were going to create $10,000 monthly passive income, I would have to get far out of my comfort zone and see how my mentors were doing it.

The tenants typically own their homes. You are not dealing with the hassle of turnover. You are in the dirt business, collecting lot rents

Hardy says to forget willpower; it's all about why power. Your choices are only meaningful when you connect them to your desires and dreams. The power of your why is what gets you to stick through the grueling, mundane, and laborious. All of your goals will be meaningless until you connect them to your why. Let’s take a plank as an example. If you were to put a 10-inch wide, 30-foot long plank on the ground and say, ‘If you walk the length of the plank I'll give you $20,’ would you do it? You’d probably say, ‘Sure, that’s an easy 20 bucks.’ But what if I took the same plank and made a rooftop bridge between two 100-story buildings? That same $20 for walking a 30-foot plank no longer looks desirable or even possible, does it? You’d look at me and say, ‘Not on your life!’ However, if your child was on the opposite building and the building was on fire, would you walk the length of the plank to save him? Without question you’d immediately do it, $20 or not. Why is it that the first time I asked you to cross that sky-high plank, you said no way, yet, the second time you wouldn't hesitate? The risks and dangers are the same. What changed? Your why changed your reason for wanting to do it. You see, when the reason is big enough, you will be willing to perform almost anything.

“Jones, you really did downsize your car." This looks like a late ‘80s Camry. What the heck is up with the vehicle wrap Tony@ParkPlace101.com?” “Tommy, I get paid $325.00 per month to cruise with this logo. It covers my payment, insurance, and gas. I knew time was catching up with me, and I had to take a more aggressive approach. This is one of the many things I did to build up money to invest with.”

If you have to ‘work’ in a business, you don’t own it, but it owns you.

What makes Mobile Home Parks a G.R.E.A.T Investment Generate more cash flow at a lower cost per door than other asset classes Recession Resistant Easier to finance Ability to force the Appreciation from day one Tenants typically own their homes, not you.

Mobile homes are anything but mobile. A typical cost to move a house is over $3,000. Statistics have shown that the majority of mobile homes are still in the same location that they were delivered to over decades ago. If your goal in real estate is to create long term wealth and passive income, MHP’s help you get there sooner.

I've found that many successful real estate investors have a goal to make a million dollars. If so, I like to ask why? At the core, it's not the millions that we want but the freedom and lifestyle that it provides us.

MHP’s offer a lower expense ratio to own and operate than most other assets. Mobile home parks offer better returns than multi-family investments in that they have lower operating costs. With tenants owning their homes, there are very few monthly incurred costs.

It’s not uncommon to have less than ten new parks being built per year. Most of today’s major Cities will no longer allow permitting, proper zoning and legal restrictions for parks to be developed. Thus, creating a limited supply and giving you less competition than other asset classes. In the rare instances you able to build a park, the cost of developing one could be over $500,000 depending on the size. You are responsible to install all of the electrical, water and sewer. The cost of this may be well over $5,000 per space. Lastly, you have an empty park and would need to fill it up with homes. Home prices can range from $2,500 all the way up to north of $150,000 in high-end communities. The numbers for building a new park simply don’t pencil out.

With mobile home parks, the tenants are responsible for incurred expenses such as painting, new carpets, leaky faucets, new appliances and holes in the wall, to name a few. As an owner, you are in the land lease space rent business.

there is very little activity that happens on a daily or monthly basis when the tenants own their homes. It also creates a better community feel and a greater sense of ownership. Most importantly, it also gives our residents more incentive to pay on a consistent basis.

All parks have either tenant owned or park owned homes or a combination of both. 1. (POH) Park owned homes, is where the park owns the home 2. (TOH) Tenant owned homes, is where the tenant owns the home

Most Investors prefer tenant owned homes over park owned homes and rightfully so. You don't have the day to day management, and all you do is collect space rent.

With POH's there’s a stigma associated with it. Especially when there are too many park owned homes. Many investors don’t like POH’S because it’s more like having a rental home. As you know from the first part of this book, rentals are more of a hassle. But here’s the flip side to POH’S. They produce nearly twice the income as tenant owned homes do.

Again, many investors take a different approach to what they are looking for. Most would rather own parks with only tenant owned homes and bring in an easy $250 a space not having to deal with the hassle of renting them out. On the other hand, when you own park owned homes, its not uncommon to get $450 a space or more. For one investor, it may be a problem and for another it may be an opportunity.

Personally, I’m ok with a little more hassle for a few years with the park owned homes and have a mobile home park paid off in full. The key is, putting together the right teams and finding ways automate your business. Once the asset has been paid off free and clear, you have a number of exit strategies.

We are targeting states that are landlord friendly. It doesn’t make a whole lot of sense as an investor to be in areas that are pro-tenant. Many states and counties favor the tenant or ‘tenant rights’. I’m not saying that our residents shouldn't have rights, because they should. It's when they don’t pay for three months, and you are unable to get them out, there has to be

Feel free to send me an email at Tony@ParkPlaceCommunities.com ‘rent control & top States’. I'll also send you a list of my top 15 States that we invest in.

The next step that I use is called the, 'radius method'. This will help us find out how far our residents are willing to drive to work. Our tenant base is typically a very hard work blue collar families on a relatively fixed income. Thru additional research on our investments, I determined that our tenants will drive a distance of 20 miles to and from work.

Let's follow the money. Wal-Mart’s and McDonalds invest heavily in population growth areas, blue collar jobs and stability. While continuing your due diligence, make sure that you have solid employment anchors within proximity

to your mobile home park. We like to have at least a Wal-Mart or McDonalds or preferably both within a 5-10 minute drive.

I like to look at U-Haul trends, finding out where the one-way trips are going. Search online also, and there are many excellent heat maps that show population migrations.

If you're looking for a deal in an excellent area, but the owner is asking too much, you may need to look at it from a different aspect. Let’s say you’re looking at a park and the owner would like to have $200,000. After doing the numbers, you’ve found at a 10% cap rate the valuation would be closer to a $100,000.

Being this far away on price, you have to take a different approach. Let the owner know that you would be more than willing to pay them what is fair. Spend some time talking to local banks in the area. They typically use the income approach for valuations of MHP’s. The banks, too, do the numbers. Their valuation may only be $125,000. From here, you can go back to the owner with a few pages from the bank and let them know the bank’s valuation. It helps when you approach the owner with third party credibility.

Here’s an example of a calling script: Hello, My name is ___. I was looking for a Mobile Home Park for my grandmother to move into. Can you please tell me if you have any vacant spaces? How much is the space rent? Can you please tell me if that includes the water and sewer bill? Are you the manager? Or the owner? Make sure to get their name. Can you tell me if the owner may be interested in selling the park? Thank you very much for your time. ITEMS TO BE LOGGED INTO SPREADSHEET: 1. IF THE PHONE NUMBER IS BAD 2. INPUT INTO NOTES, BAD #, AND HIGHLIGHT IT RED 3. NOTES OF THE MAIN ITEMS DISCUSSED 4. DATE CALLED 5. LOT RENT 6. WHO PAYS WATER & SEWER 7. NUMBER OF LOTS AVAILABLE PLEASE SEND ME A DAILY FOLLOW UP ON EXCEL SPREADSHEET. SEND INFORMATION IN A SEPARATE EMAIL OF OWNERS THAT MAY BE WILLING TO SELL.

Questions will be more on a relational level. Remember to lead with their needs. Ask them how they got into the MHP business in the first place. Turn a five-minute conversation into a thirty-minute one.

Make sure to also back check your assistants every few days. The way I do this is by back checking bad numbers, owners names etc. Once you and your assistants are in alignment, you will be astonished how much can get done. It's not uncommon for them to call thousands of owners within a week. For the investment of a few hundred dollars, you have narrowed down thousands of parks to a few where the owners may be ready to sell.

After your discussions with the owners, your next step is to find a way to set yourself apart from the competition. An excellent idea is to send them a thank-you letter for taking the time to speak with you. The key is to send it out right away while your conversation is fresh in their mind.

Here’s an example of a follow-up letter: Dear Delores, My name is ____. It was nice speaking to you today about your Mobile Home Park. I just wanted to thank you for taking the time to speak with me. As discussed, I’m sure you’ve done a great job running the park for the last 30 years. I hope both you and your mom continue to do well in the years to come. Per your request, I’ll give you a call once this cold weather warms up. I can be reached at: Your phone # Tony@ParkPlace101.com Sincerely, Tony Ferris

"Jones, there are two types of parks. You have both RV and mobile home parks. I prefer mobile homes to RV’s. What’s difficult with RV’s is that they are ready to roll. If the tenants are not paying, they can up and vanish by the next

morning. This is not the case though with mobile homes."

As Jones and I approached the park, I noticed right away that the power lines at this park were above the ground. What I like about having them above the ground is that it’s easier from a maintenance standpoint. The only concern with this is, it's a little more unsightly than below ground infrastructure.

Jones asked about double wide vs. single wide homes. I’ve found that double wide’s cost twice as much to buy and set up but don't deliver twice the rent as a single wide. When you do the numbers you will find out that they take up a lot of space, and many times you’re only able to get another $50 per month.

“Excuse me, Miss. How are you doing today? I was just in the area checking out this mobile home park. I have a grandmother that’s moving into town, and I was helping her look for a new community.” From here, you want to zip your lip and let them talk. Here’s where your due diligence begins before you even know it. She might say, “Oh, you don’t want her to move here. There is illegal activity going on and their are cops in and out all

night. Besides that, the plumbing’s backed up and we have terrible water pressure. There are water lines breaking all the time.”

Or she could say, “I love this park. I’ve lived here for 35 years, and my friend Donna has been here nearly 50 years. There’s not much activity in the park and it’s pretty quiet. We do get those young whipper snappers riding mopeds thru th...

While no two parks operate the same, you can figure an approximate 25% expense ratio if the tenants pay for their utilities.

I like to use www.MobileHomeParkStore.com , www.MhVillage.com , WWW.cimls.com , Www.MhBay.com , www.MobileHome.net and www.loopnet.com . I've found that the secret to your success in this business is to use the (consistent + persistent + action) approach. Then repeat the process, and keep repeating it.

I believe that every deal should be a win-win. I don’t see doing a deal if both parties are not happy. When I structure deals, I like to lead with the seller in mind. Let’s say the seller is in their 50’s, and they are looking for a consistent residual income stream for the next 10-15 years. My goal is to focus on what they are looking for and structure the terms accordingly. In most cases, the average term is 7-12 years.

Negotiating the interest rate with the sellers. This part of the deal structuring is one of the hidden secrets to mobile home park investing. Most of today’s mom and pop owners have owned their parks for twenty years and have them paid off outright. Nearly every one of our deals have been thru owner financing.

When speaking with owners you have to take a different approach than you would in other real estate sectors. Take single-family homes for example, you put in an offer and hope it gets accepted. Your Realtor submits the offer to the seller, and you wait. No conversation, no relationship. The mobile home park business is completely different; it’s all about connecting with the owners. It’s not about putting an offer in and waiting. It’s about connecting. When negotiating or 'creating relationships' with the seller, lead with their needs. Make it a point to find out where they are at in life, and how much cash flow they are looking for. Turn a five-minute talk into a thirty-minute conversation. Focus on listening in-between their words. You will be more successful when you look for ways to help them solve their problems.

opposite. By the time I get in contract, I’ve done some initial diligence from running area ads to see if there is demand.

The thing to remember is, you don’t get cash flow or create equity on assets you don’t own. Time is CRUCIAL when it comes to investing. Every day you decide not to take action comes at a cost. Time is either compounding for you, or against you. Let’s say you purchase an investment property at just over fair market value. You may not be in a positive equity position on day one, or even day two.

What you do have though is time. When time is on your side and you control the asset, look out. Like I said earlier, time waits for no one. Your asset is paying its own way. In ten years, will you regret not having purchased that investment property? In ten years, was that extra few thousand dollars really a deal breaker? It will be ten years from now before you know it. What would you have done differently? In ten years, you could have it paid off free and clear.

While working on your due diligence, some additional items to keep in mind are, is there a lot of rentals in the area? What's the median home value and are their lots of apartments in the area? If so, how much is the rent? How about a Wal-Mart or McDonalds nearby? What is the population and is it increasing or decreasing? Jobs and unemployment are a huge factor. Are there other parks in the area and what are they charging for lot rent? What is your local competition? Do neighboring parks have high or low occupancy? Are there local amenities and shopping nearby? Does the area have good schools? Are the utilities separately metered or do they have a master meter where the park receives one bill? How are the roads and infrastructure? Is it a safe neighborhood, not necessarily always where you would live but is it safe? Has the park been grandfathered in for the appropriate number of spaces? Have you contacted the local city, police dept. and Chambers to see what’s happening in the area. Is there a hospital in the City? Once you have the park in contract, you want to make sure to stay overnight. Watch the park in the evening and gather information. Good or bad. Take notes of how many lights are on and make sure it matches up to your offer. Talk to the tenants and get a good pulse. The tenants know the park better than anyone else. See if the owner can provide you with the rent rolls, copy of tax returns, bank statements, utility bills, capital improvements, etc. ...

I’ve also found that most rent rolls are not accurate, nor up to date. Many owners 'and brokers' will provide you with the ‘potential rents’ not the actual rents. You will have to get good at building the documents up yourself.