Posts

How to Find Investor-Friendly States to Invest

Where you invest is just as important as the properties you invest in…

Before inking that mobile home park deal, make sure you are investing in the right area for optimal success, and best net benefits.

Some US states, counties, and even cities can yield far better net returns, and can be far more pleasant and stress-free to invest in than others. Knowing this in advance can help mobile home park investors to dramatically cut down their research, and hone in on the best opportunities, in the best locations, and get more out of their time and capital.

So what factors should mobile home park investors be looking at when shortlisting destinations to invest?

Landlord Friendly States

US states vary greatly between whether their real estate laws favor landlords versus tenants. Clearly those investing in buy and hold properties for income may find dramatically better results by sticking with those jurisdictions that typically rule in favor of investors.

Various factors can come into play here including:

  • A landlord’s right to access their own property
  • Time required to evict
  • Cost to evict
  • The compensation available to tenants and their extended contacts for frivolous items
  • Trends in which party judges typically side with

Renter’s Insurance Ranks These as the Top 8 States for Landlords:

  1. Texas
  2. Indiana
  3. Colorado
  4. Arizona
  5. Florida
  6. Kentucky
  7. Georgia
  8. Mississippi

Others have posed Arkansas as a friendly state for landlords. This is in contrast to states like New York, California, Illinois, and Massachusetts. In Chicago investors have complained that tenants have a significant incentive not to pay rent for 5 months before they’ll be evicted. In Massachusetts landlords are held to high standards even when tenants are not paying and should no longer be in the property. Tenants in MA, and their extended family can even easily sue landlords for emotional distress.

Rental Controls

Rent controls are considered a major nuisance by many real estate investors. Many believe they are actually counterproductive for everyone. The bottom line is that they limit how much landlords can raise rental rates. This is something you need to know before making a mobile home park purchase.

Rent control is more common in some states than others; such as New York and California. However, rent limiting regulations can also be on a county and city basis. It can even be property specific. Some notable investors have succeeded in forcing out protected tenants, but that isn’t a venture the average investor probably wants to bet their capital and reputation on.

States where investors should expect to encounter rent controls include:

  • New York
  • New Jersey
  • Maryland
  • District of Columbia
  • California

Price to Rent Ratio

Price to rent ratios reveal how much you pay for an asset versus how much cash flow it will produce. SmartAsset shows that you’d have to buy a $540,240 home in San Francisco to rent it out for $1,000 per month (a 45.02 price to rent ratio). Contrast that with Detroit which has a ratio of just 5.6, where you can rent out a $67,200 home for $1,000 per month. Seeking Alpha breaks down major US markets even further with heat maps of major US metros based on price to rent ratio.

Financial Stability

The financial strength and fiscal liquidity of local government shouldn’t be overlooked either. A bankrupt city or state can have big consequences felt in many ways. Detroit is one of the most significant examples of this. In tough times local law enforcement can also be incentivized to drive up revenues through new levels of toughness which can have an impact on landlords through their tenants. Raising taxes is also a common way for authorities to make up for shortfalls. We’ve seen this consistently in New York, and Chicago recently unleashed a massive collaboration of tax hikes and simultaneous efforts to reduce pay for key workers. So make sure they’re healthy!

Taxes

High taxes can impact investors in a variety of ways. They can potentially impact how much locals can pay in rent, property taxes on mobile home parks, how high property values can rise, resale appeal, and net profits for real estate owners.

Property Tax Adjusters Names the 4 States with Lowest Property Taxes as:

  1. Hawaii
  2. Alabama
  3. Louisiana
  4. Delaware

It’s important for investors to look at overall taxes which may impact them directly, and the prosperity of the destination in the future. High taxes tend toward scaring away business, jobs, and residents, and that bad for the rental business.

Forbes Names 5 of the Most Business Friendly States as:

 

  1. Wyoming
  2. South Dakota
  3. Nevada
  4. Alaska
  5. Florida

Money-Zine offers a complete breakdown of the best and least tax friendly states by rate here.

Where you may retire and live in the future may also influence your decision of where to invest in mobile home parks. Will you want to live near your assets? How will your choice of retirement destination impact your net income and the legacy you can pass on?

Equity Trust Names the following at the Top 6 States to Retire as of 2015:

  1. Wyoming
  2. Alaska
  3. Florida
  4. Mississippi
  5. New Hampshire
  6. Nevada

Investor Friendly Real Estate Services

Where you can find investor friendly services and vendors may also play a role in where to invest. Can you find local real estate attorneys, Realtors, title companies, and financiers which are investor friendly?

How To Perform Due Diligence On A Mobile Home Park

What key factors should mobile home park investors consider when evaluating new acquisition opportunities?

Due Diligence for Mobile Home Park Investors

During the process of evaluating potential mobile home park acquisitions, and vetting properties under contract investors ought to be familiar with the following items.

  • Property inspections
  • Environmental inspections
  • Title and lien searches
  • Comparable sales
  • Holding costs
  • Operating costs
  • Actual rents
  • Leases and tenant status

However, even before getting to these property specific items thorough inspections mobile home park investors should also have performed wider market research, and evaluated the opportunity based upon the following factors.

Evaluating Mobile Home Park Acquisition Opportunities

Per Door Cost

One of the main attractions to mobile home parks is lower per door cost. That is the per unit cost in a park. For example; a $1M park with 10 lots would have a per door cost of $100,000. A $1M park with 100 units would have a $10,000 per door cost.

Price to Rent Ratio

Price to rent ratio calculates the rental income against the purchase price. Find this by dividing the purchase price by annual rents. So a $200,000 property divided by annual rents of $20,000 would give a price to rent ratio of 10. This same example would qualify for the 1% rule. This demands the monthly rents are at least 1% of the purchase price (or mortgage taken out). Those using financing will also want to ensure they are watching the debt-service-ratio. Most lenders will not want to exceed a DSCR of 1.2.

Local Competition

How much local competition is there between mobile home parks? Are there many parks or only one or two to pick from? How are they different? If there is a waterfront park or luxury park community and a low income park in a dry inferior area, or an over 55 aged community, they are probably not competing for the same tenants.

Supply and Demand

How are local occupancy rates? How strong is the demand for this type of rental? What are the forecasts and potential threats or bumps to demand and supply?

Rent Controls

Are there rent controls in place? Are there rent controls impacting the ability to raise rents on this property? Are there rent control regulations keeping the rents down on other local properties? Are there limitations in existing leases which could prevent rents from being raised up to market levels?

Compare Mobile Home Park Units to the Competition

How do the units in this mobile home park compare to similar local rental units? For example; local 2 bedroom, 2 bath apartments? How do the rents compare? Facilities and amenities? Qualifications to lease? Demand and occupancy rates?

Local Home Prices

How much are local homes being sold for? How do this compare to your per unit cost of acquiring a mobile home park? How does the cost of putting and maintaining a mobile home on your lot compare to buying a similar sized home in the area?

Location

How great is this mobile home park located? How well is it located in relation to the services, stores, and amenities your demographic of tenants needs and wants? Lower end mobile home parks may benefit from being within walking distance to grocery stores and fast food. Vacation and seasonal parks may benefit from being closer to attractions such as the beach and parks. Over 55+ communities may benefit from proximity to healthcare services. How does this location compare to other local parks, and competing housing?

 

The Difference Between Pro-Landlord States And Pro-Tenant States

There is a substantial difference between US states when it comes to investing in real estate. Do you know what they are, and how they can impact you as a mobile home park investor?

How Much Can Location Matter?

Most real estate investors are already well aware of the fact that location can play a notable role in the price of property assets, rents, vacancies, and appreciation. Yet, experienced property investors know that location can play a far more significant role in their finances and lives.

Different states, and even more minor jurisdictions can make a huge difference in the level of risk and liability involved in investing. And this can go well beyond the financial. Some states offer ease of doing business which increases efficiency and net profitability. Where you invest can substantially impact both short and long term net profitability, including the strength or lack of a resale market. All of these things should be taken into account when choosing where to invest.

So how do states differ?

Landlord – Tenant Laws

Landlord-tenant laws vary widely from state to state. Laws differ on the amount of upfront money and deposits that can be taken from tenants, the penalties for landlords failing to meet regulations, how easily tenants can sue their landlords, and the protections for landlords. In some states landlords are bound to all types of rules even when tenants aren’t paying and units are being illegally occupied. This can all clearly have a big impact on profitability.

In the Courtroom

The above can certainly carry over to the courtroom. Investors report that some jurisdictions consistently either side in favor of tenants or landlords. This is critical to know. You don’t want to burn your time and money going into court if you have little chance of winning.

Evictions

The same applies to evictions. IN some states and cities it can take just days and almost no expense to get non-performing tenants and occupants that don’t have a lease out of your property. In other places it can regularly take months and hundreds of dollars, if not more. We’re talking about months of income that can be burned, or deposited in your bank account. Which would you rather deal with?

Business Friendly States

Beyond landlord-tenant law and relationships some states are clearly far friendlier toward businesses and business owners than others. That includes real estate investors and mobile home park owners. Business friendly states can have low energy costs, good talent pools, business friendly laws, and low business costs. A few even offer far superior privacy for business owners.

Taxes

Taxes differ widely from state to state. This includes property taxes, corporate taxes, inheritance taxes, and personal income taxes. Note that at Amazon employees have territory maps including areas they are forbidden to even enter in order to avoid triggering taxes.

Financing

All of the above rolls over in the real estate financing. Clearly mortgage and business lenders are affected by the above items too. They certainly take them into account when choosing where to lend, and the costs they levy to offset the increased or decreased risk. This not only matters to those investing now, but for their ability to resell their assets later, and for how much.

Summary

This is not that complicated once investors choose their top preferred states and separate them from the rest. Just pay attention as these factors can change over time too.

 

Mobile Home Park Due Diligence: Strategic Flights

Due Diligence Hacks for Mobile Home Investors

How can mobile home park investors conduct efficient due diligence on more opportunities anywhere in the country?

Strategic Flights

In the past real estate investors have frequently made a killing on buying out of area property, sight unseen. Many have also bankrupted themselves by ignoring the most basic due diligence. Between the internet and local professionals it is easier than ever to get a real handle on a product without being there. Still, there is no true substitute for putting boots on the ground.

Of course flying or driving the nation to hunt down and evaluate every mobile home park out there just isn’t efficient, practical, or profitable.

Change the game and achieve superior due diligence, efficiency, and returns using ‘strategic flights’.

What is a Strategic Flight? This is a term used for when you want to do due diligence on a market that you don’t live close to. Instead of doing due diligence on just one park, you conduct research on several parks at the same time; thus strategically choosing a flight that has you flying to a place once; and then working in that market for a few days.

Here’s how to maximize this strategy…

Choose Your Destination

Find a destination with multiple parks clustered together in the same area. This will ensure you maximize your time in the air and on the ground. It also clearly helps if at least one or two parks in the area are entertaining offers or will consider selling. How large of an area you are willing to tackle in a single trip is really up to you. Just don’t overdo it, and burn yourself out. It is possible to visit as many as 20 parks in 3 days if you are strategic about it, and plan your time well, in advance. This may also somewhat depend on the area. For example you may be able to go to semi-rural Georgia and fund many mobile home parks within 30 to 60 minutes of each other. Of you could fly in to Orlando, Florida and technically take day trips to all four corners of the state and check out dozens and dozens of markets in distinct submarkets, all in one trip.

Some additional factors which may impact the choice of initial destinations may include:

  • Flight deals
  • Going further afield as you accumulate air miles
  • Realtors and mortgage pros willing to comp your travel if you buy
  • Combining research with vacations

Setting Up Your Trip for Success

Maximizing your flight success by ensuring you get the most out of your time. If you go without a plan and schedule there is a good chance you’ll mostly just be spinning your wheels, and increasing your carbon footprint. Instead, make sure you line up your trip for success.

Contact Owners in Advance

Have your virtual assistants call around the mobile home parks in the area in advance and try to evaluate acquisition opportunities, and set appointments. Get as much intel in advance and organize it for your reference when in the field.

When possible arrange for lunches or doing coffee with park owners either to directly negotiate a deal or probe them for information on others in the area. Ask the owners, “Do you know anybody who is thinking of selling?”

Send out a strategic postcard mailing to all mobile home park owners in the area to plant the seed and idea of selling before you arrive.

Don’t just limit yourself to mobile home park owners and those that are actively marketing their properties for sale. Get in touch with local real estate agents, members of the Chamber of Commerce, property managers, and others that may have more insight into local development and real estate trends, as well as leads on properties for sale now, and in the future.

Getting the Most Out of Your Time on the Ground

  • Drive to every park in that geographic area (even ones you’re not thinking about buying)
  • Drive by potential parks at different times of day to gauge quality
  • Ask yourself whether you’d park your car there at night time (is it safe?)
  • In the evening count how many lights are on to estimate occupancy rates
  • Go to local restaurants and coffee shops to talk to the locals and ask them how they feel about the park
  • Ask local law enforcement about the park and local crime
  • Go to the county assessor and pull up info about park owners if not available online
  • Meet with owners and managers of as many local parks as possible
  • Speak with residents in mobile home parks to get their feedback
  • Take plenty of photos and notes for future reference and load them to the cloud

Follow Up

Set up your future success with great follow up. If you can’t strike an immediate deal with an owner stay in touch and let them know you’d love to make an offer when they are ready. Send a handwritten thank you letter to all those that help out. Remind locals and Realtors you are looking for referrals.

Where will you fly next?

 

How To Perform Due Diligence On A Market

What should mobile home park investors be looking at when evaluating markets to invest in?

Make no assumptions when it comes to where to invest. Sophisticated real estate investors conduct thorough market research before investing. They know that all real estate is local, and winning property investments are all about “location, location, location.” So what factors do savvy investors look at? What indicates a good market to invest?

#1. Landlord Friendly States

 Intelligent buy and hold real estate investors will normally filter out and focus on states based on their bias for ruling in favor of landlords versus tenants. Even if you plan to resell your acquisitions relatively soon this will be a factor for the next buyer too. Some states like Florida are friendlier to landlords. Others such as Massachusetts are decidedly in favor of tenants. If you don’t want tenant issues, look for states with legal systems in your favor.

 #2. Top Ranking MSAs

Once states have been shortlisted investors often boil their search parameters down further by MSAs. Larger Metropolitan Statistical Areas are seen as being more sustainable and profitable. Larger population concentrations generally foster more transaction activity, and in turn price appreciation. They may also be more stable over the long run compared to a small rural town which could more easily go bust and become a ghost town in a very short period of time. More people also suggests more demand for rental units, lower vacancy rates, and the potential for faster rental rate increases.

#3. Trend Setting Stores

Certain stores are known for leading growth in new areas. It could be that their research enables them to move into areas which are about to explode. Others argue that certain brands drive real estate and population growth. Both may be true. Some examples of this include Walmart, Home Depot, and McDonalds. Recent data even shows that real estate located nearer a Starbucks is worth more than other properties.

#4. Increasing Population

Population growth is incredibly important to real estate investors. There may be some well-established communities in the US which are actually beginning to age and die off. Others have proven to growth decade after decade. Population growth is directly linked to demand for rentals, and rental rates. Wikipedia offers a quick resource for tracking the population of a given city. For example; check out Jacksonville, Florida and you’ll see the US Census reports positive population growth dating all the way back to 1850, with the exception of one year (1960). Another tool for getting further ahead in the data is U-Haul trends. U-Haul regularly ranks top destinations and measures the moving volume in and out of cities.

#5. Increasing Employment

Strong employment not only dictates the ability to rent and for how much, but also how tenants will perform. Clearly mobile home parks are unique in that they can benefit and thrive in tough times, but if people don’t have money to pay, or end up leaving town for jobs that can be a challenge. Remember that “a rising tide lifts all boats.” The United States Department of Labor, Bureau of Labor of Labor Statistics reports on local unemployment rates and rankings.

#6. Diversity of Employment

Diversification and type of employment and industry is critical to the sustainability, consistency, and growth of real estate fundamentals too. Look at what happened to oil reliant towns when oils prices crashed. It means significant layoffs. Without a good balance of industries entire metro areas can go broke. Look at Detroit to see how bad it can get. The end of the auto industry literally bankrupted it, and has left much of the region as ruins and urban war zones. Despite its prominence Silicon Valley is incredibly reliant on tech. A bursting of a tech bubble could certainly have a significant toll. Again it is important not to make assumptions here. Look at the facts. You may be surprised what areas are actually both responsible for a significant amount of agriculture, imports and exports, technology, manufacturing, and financial services; all at the safe time.

#7. Type of Employment

How about the balance of outsourced work versus work that cannot be outsourced? Brick and mortar industry which is hard to move may be a good sign. Is this market supported by organizations that can’t afford to move, or can’t do their work elsewhere? Is the talent pool so strong that other businesses will come to feed on it?

However, it may be wise to take a more up to date view of this dynamic given the current transition from the industrial era. If a destination becomes too expensive and work can be outsourced, there could be a significant flight of jobs and population. The opposite can also be true today. The majority of the population is no longer tied to the urban core or major business cities for their ability to earn and provide. If individuals can live further out, get more real estate for their money, and not earn any less, they will be drawn to that. This doesn’t have to mean suburban or rural either. Back in Detroit the city erected a giant sign calling the world to outsource their work to Motor City.

#8. Occupancy Rates

How strong are local occupancy rates? Higher rental occupancy rates secure consistency in income, increase property value, and provide to raising rents and being more selective in tenants and terms.

#9. Affordability

When surveyed analysts replied that they believed the single most important factor for real estate was affordability. While mobile home parks might weather a lack of affordability best, this can impact gross income potential. How affordable are properties? Are wages strong? Is the destination affordable enough to keep attracting smart money and serious employers?

#10. Trends

What other trends are in play? What trends could affect a potential acquisition during the time you plan to hold it? Is the destination becoming more or less fashionable? Who is buying and holding property here? How will that matter if the economy goes south, a foreign economy goes under, or currency exchange rates change? What about property taxes? Are they headed up or down?

Summary

There are a number of fundamentals that savvy investors look at when selecting a market to invest in. Never make assumptions if you want reliable investment returns. Fortunately the internet can make it incredibly fast and easy to dig up the data.

How To Avoid Self-Sabotaging “Analysis Paralysis” When Investing In Mobile Home Parks

One of the greatest stumbling blocks for aspiring investors is over analysis. It literally causes financial paralysis, with dire consequences. How can more hopeful investors overcome this counterproductive hurdle in order to realize more of the results they really crave?

The Importance of Due Diligence

Thorough due diligence is necessary. By no means does the following suggest that an investor should not be thorough in their research, learning, and vetting of potential investments. Mobile home park investors should know the potential for the market they are investing in, the real value of the property, the real rents, real repair needs and costs, and how to protect themselves throughout the process. However, over analysis can absolutely be self-sabotaging as well.

7 Paralyzing forms of Analytics

#1. Analyzing too Many Asset Classes

Diversification is wise. Yet deep analysis of too many asset classes can definitely be counterproductive, confusing, and draining. Not even the most successful are masters of every type of investment. If you feel stocks should be in your mix then grab a broad mutual or index fund and let it roll. If you’ve got to have gold in your portfolio, just grab some and get it done. If you think single family homes are a sound investment then buy yourself a home. Then move forward focusing on investing in mobile home parks.

#2. Analyzing Too Many Markets

Even within a domain such as mobile home parks there can be many diverse geographic locations to cover. There are mobile home parks all over the USA, and even abroad. Trying to evaluate the ins and outs and quirks of these varied markets all at the same time can be a massive burden. Instead hone in on a few key areas, start investing, and then move on while you already have money working for you.

#3. Becoming a Pro-Forma Junkie

If numbers and spreadsheets are your thing it can be easy to be caught in the modeling trap. What if X happens? Or what will happen to Y if I do ABC? You can do a lot of this after making an acquisition. If you spend too much time in this trap upfront you’ll miss out on deal after deal.

#4. Learning vs. Doing

Boosting your investment and real estate education is great. Sadly some use learning as a way to fuel their pension for procrastination. Some will spend years learning as the opportunities slip away and their peers gain both knowledge and financial rewards. Knowledge is not power until it is turned into action.

#5. Demanding too much from an Investment

Another way to permanently sit on the bench is to demand too much from investments. You can invest in good deals and expect great results, or sit on the sidelines demanding unlikely scenarios and worry about what could happen. This sometimes happens to those learning from out of date materials which offer strategies and calculations that no longer apply or work in the current market. For example; private lenders may have scaled back to loaning 50% to 60% on very conservative valuations during 2008. Now they have to offer 90% LTVs and even repair funds based on the future value of the property after improvements. Or it can be a mindset change that is needed.

#6. Timing the Market

There can be benefits of buying and selling during different phases of the market, and depending on various outside factors. But in any asset class the gains normally go to those that simply consistently invest. Those that try to wait to find the perfect day and hour, normally only notice it after it is gone.

#7. Analytics as an Excuse for Fear

The most successful don’t pride themselves on being the best analysts. Instead they are the bold actors that take action when others are fearful and timid. Even the best investment gurus admit they know they will absolutely get it wrong sometimes. But they can’t win unless they take shots.

Kicking Analysis Paralysis to the Curb

Action is the antidote for analysis paralysis. So take action.

  1. If there are specific facts you need to know list and learn them this week
  2. Set your goals
  3. Set a hard timeline for investing
  4. Get an accountability partner
  5. Get started with small wins and milestones
  6. Reward yourself with every positive action you make

What To Avoid When Investing In A Mobile Home Park Investment

What should you be watching out for when investing in mobile home parks?

Mobile home park investing has been gaining traction amongst savvy investors, but that doesn’t make every park a great deal. So what are some of the factors real estate investors need to be wary of in this asset class?

8 Red Flags when Shopping for Mobile Home Park Investments

Here are 8 red flags to watch for when you’re doing your due diligence on a mobile home park investment. On their own each of these signals may not have an impact, but as the number of red flags increase, be increasingly cautious.

Declining Population

Robust population growth is a common factor that real estate investors seek in a destination. It signals increased demand and rising property values and rents. So it is only common sense that a declining population is a bad sign for a location. Even though the economy may be improving and the overall housing market may be gaining value by the trillion, it is important to watch out for regional pockets that are bleeding population. This can have many negative side effects, all of which culminate in high vacancy rates, low demand, and poor income property performance. There are many different ways to get this data, but one of the easiest is Wikipedia. Look up the city and you’ll the ‘Historical Population’ figures from the US Census on the right hand side if you scroll down. For example; Los Angeles shows that its net population has consistently grown from 1850 through 2014.

High Unemployment

While mobile home parks may be better insulated against the wider economy than most types of real estate and housing, you can’t ignore basic fundamentals. Mobile home rentals do extremely well in good and tough times. After all, it really doesn’t get any more affordable than living in a mobile home. Still, if there are no jobs then people are going to have a hard time paying their rent, no matter how cheap it is. High unemployment also frequently triggers negative trends in other fundamentals like declining population, higher crime, and softening property values.

Low Demand

Lack of demand for housing and real estate in general in an area can be bad for any landlord. Weak demand means high vacancy rates, lower rental rates, and more short term transient tenants, as well as lower quality tenants. This can often be evidenced by high levels of inventory, slow sales times, and long marketing periods for rentals. It doesn’t matter how cheap a property is to buy if no one else will rent or buy it from you.

Small Markets

Small cities and markets can be less predictable, and therefore have more exposure to risk. Much of the above can apply to small cities… meaning less demand, fewer job opportunities, and smaller populations. Small cities can also be more susceptible to economic problems. During the downturn of the early 2000s, some municipalities simply weren’t able to maintain public services such as lighting and policing.

Rural Areas

New investors often ask about more rural real estate opportunities because they often notice the price difference. It’s true that you can sometimes find a large single family home and estate-sized lot in the country for less than the cost of a parking space in the city. But you often get what you pay for. Even small rural communities and cities can be an issue. They suffer from a lot of the above including; lack of jobs, demand, financial stability, population, etc. They can also be tougher to gain financing in. If lenders haven’t heard of it, the place might as well not exist. That can impact resale value and the ability to refinance.

Multiple Mobile Home Parks in Close Proximity

In business it can sometimes be beneficial to be close to competitors. That can be true for restaurants and retail shops, and even startups. However, too much competition in close proximity can also be counterproductive. It gives tenants too many options and can make it more likely vacancy rates will rise faster in a crisis, as well as giving the tenants the power to choose and negotiate, versus the landlords.

Water

Water is becoming an increasingly troubling issue on all types of scales. You can’t have a viable real estate investment without reliable access to water. Clean and affordable water can’t be ignored either. So how does the future of water availability look like for the mobile home parks on the table? Is the park on public utility services? Or does it rely on a well and a waste water treatment plant? In addition to the training and permitting needed for WWTPs, and limited time permits, there can be seriously expensive challenges if systems need fixing. This can run into the very high 6 figure range depending on the number of sites involved.

Low Down Seller Financing

Most would see the offer of low down payment seller financing as a great opportunity. So what could possibly be wrong with it? While it can be appealing, for both sides it suggests a lack of demand, and potentially means overleverage, which may not be smart. Approach seller financing with care, and think through all of the ramifications first.

Summary

 

Every savvy investor does their due diligence before investing. In this report, you read about eight “red flags” to watch for when performing your own due diligence. None of these are necessarily deal breakers but you do should watch every deal to see if these pop up, and use them as signals to potential challenges you’ll want to monitor and mitigate if you choose to invest anyway.

 

 

A scale weighing terms vs price when investing in mobile home parks.

Terms Versus Price

If someone were to ask you, what’s better on a deal — Terms or Price?

When it comes to investing in Mobile Home Parks, cash flow is what allows you to control the asset for the duration. Cash Flow is the name of the game.

One of my biggest lessons learned when getting into MHPs is how to structure deals.

I know they don’t teach this in High School, or Real Estate Clubs for that matter. I nearly lost our first park by not knowing how to structure the deal so that it cash flows from day one. Something to keep in mind is that the projected numbers really are what sellers say. If you expect to have $5,000 a month in rents, you can plan on $4,000.

Remember, the park has to pay its own way or in the long run your likely to default on the park. When the seller is carrying back the note, they expect to be paid. If you fall a few months behind on your mortgage the seller is likely to try get their park back and you lost your down payment and the asset.

One of you key focuses need to be on how much the monthly payment will be. As crazy as this sounds you can see in the 3 examples that it’s possible to pay an extra $150,000 for a park and have a $1,000 lower mortgage payment.

Case Study:1
$500,000
Amortized over 12 years
7% $5,141

Case Study:2
$600,000
Amortized over 20 years
7% $4,651

Case Study:3
$650,00
Amortized over 25 years
6% $4,187

Depending on what you investment goals are (i.e. buy the property, pay it off in time and have all of the cash flow or even refinance down the road it’s crucial to remember how to structure deals.)

I have found that most individuals are attached to how much they can buy a park for as opposed to terms. On the flip side, most owners think the same about the purchase price. This can be of a huge benefit to you. I would personally be happy to pay an extra $50,000 on the purchase price if it gave me a better cushion for long term asset control.