HOW WE VALUE ADDChallenges - Implementations - Strategies - Returns
What type of timeline and return can I expect?
You should expect 13%-15% annualized return after stabilization of the asset if held for cash flow. Mobile Home Park Investments projects a 20-25% annualized return to investors if the property is resold with a general hold period of approximately three years. On the flip deals there is generally no cash flow to investors during the first two years. Each park is unique and there is not a standard timeline for a return on the investment. Each acquisition will include a prospectus with investment duration.
How much increase in net income can generally be achieved?
The increase in net income will generally be 2 -3 times the original net income at the time the property was purchased.
How does Mobile Home Park Investments generate these returns?
Mobile Home Park Investments purchases poorly performing mobile home parks at discount pricing. Then, we value add the parks by fixing deferred maintenance and upgrading the property. Additionally, we buy used mobile homes and relocate them to the park. Once on site, we renovate the used mobile homes. The homes are then rented as “apartment” units. By preforming these steps, it raised the occupancy towards 100% and generates significantly higher revenues. Mobile Home Park Investments acquires chronic high vacancy mobile home parks and transforms them into high occupancy parks.
How does Mobile Home Park Investments find suitable parks to acquire?
Generally, either directly or through our broker network, we buy parks from family ownership, bank foreclosures, elderly sellers, surplus parks from larger ownership entities and sellers who are unable to execute their own value add plan.
How do you know if the geographical submarket is a good place for a mobile home park investment?
Mobile Home Park Investments looks for mobile home park opportunities in areas with multiple employers and a stable or growing economy. Examples of such factors would be a new steel mill, river port expansions, or a fertilizer plant. We must believe that there is sufficient demand to absorb additional mobile home units that Mobile Home Park Investments can bring to the market.
Who are your tenants?
There is a significant shortage of workforce rental housing in the US. Many of our tenants are lower income working people and their families, retirees and others seeking low density reasonable priced renovated units.
Why is Mobile Home Park Investments successful using this business plan?
Our Mobile Home Park Team has had extensive experience in value adding properties and multi family operations. We have team members who are on site after acquisition and have learned through hands on experience how to troubleshoot and correct day-to-day issues.
Why aren’t more investors using this business plan?
This business plan requires capital that typically is not available to this type of buyer. In addition, buying, installing and renovating mobile homes on a tight budget is difficult. Very few buyers are capable of executing this plan on a large scale.
How long does it take to renovate and stabilize a park?
Usually, it will take 6-18 months depending on the quantity of used mobile homes being added and renovated. For example, a construction crew of two will finish a trailer renovation in one month.
How long does it take to rent a renovated mobile home?
Usually, the mobile home is rented immediately and will often times have a wait list before the mobile home is ready for the rental market. In any particular park, we generally can process a maximum of five to seven new tenants per month.
Does Mobile Home Park Investments only renovate mobile homes to create more value?
Value add opportunities are beyond just renovating mobile homes. There have been opportunities to create value through other means. Mobile Home Park Investments has renovated an existing on site motel, acquired additional land adjacent to solve a logistic problem and operates an existing restaurant.
What could happen to our investments if the real estate market falls into recession?
Mobile Home Park Investments’ rental pricing tends to remain fairly consistent once the mobile homes are renovated. We are generally at the lower end of submarket rental rates. Because of this factor, the rents typically stay fairly constant during a recession. Additionally, during a recession, we get a better quality of tenant. There are more tenants seeking a more affordable less expensive rental option. As a result we can generally maintain our returns. If, however, Mobile Home Park Investments was planning on selling a property, there might be a longer hold period in order to get the projected exit pricing as Cap Rates generally go higher in a recession.
What hurdles does Mobile Home Park Investments face while managing the park?
Existing tenants move out due to their anticipating that the future rent will increase after the park is renovated. In this case, they often use their tax refund to move out historically in May. Inherited unlawful or deadbeat tenants need to be evicted. Abandoned dilapidated mobile homes that cannot be renovated need to be hauled away at cost to Mobile Home Park Investments. Unforeseen infrastructure repairs, (i.e., broken pipes) could arise. Outstanding government compliance issues inherited from the previous owners are sometimes complicated and costly. Mobile Home Park Investments takes the possibility of these issues into account when strategizing an action plan for each park. If it turns out that there are few or no issues, it creates upside to the deal. Mobile Home Park Investments takes a conservative approach to the possibility that there will be issues when modeling a park cash flow.
What kind of reporting will I receive?
On a quarterly basis, the general partners will furnish Investors with the Deal Update, which reports various activities and operations of the acquisition. This report can range from 1-3 pages depending on the volume of activity for a given quarter. Annually, you will receive a K-1.
BASIC INVESTING INFORMATIONMONEY-QUALIFICATIONS TO INVEST-TIMING
Must I be accredited in order to invest in the deal?
Yes, as an investor must qualify under the Accredited Investor criteria. Generally, you need a minimum documentable net worth in excess of $1,000,000 (excluding your primary residence) or annual income for the past two years in excess of $200,000 for a single person or $300,000 for couples. We have a qualification form for this.
What is the minimum and maximum amount I can invest in a deal?
Minimum is $50,000 and the maximum is dependent on the size of deal. If you have a lot of money to place, we can discuss targeting a larger opportunity and we will strategize to accommodate your need.
Can I do a 1031 Tax Deferred Exchange into a Park acquisition?
It is possible to roll your proceeds from a sale using the 1031 type exchange. However, we need to set it up correctly well in advance.
Can I invest through a self-managed retirement account?
Yes, this is a very common way of investing in our deals. The General Partners use IRA Services Trust Company in San Carlos to invest their personal retirement funds on the investor side of deals.
How long does it take to get returns on my investment?
It depends on the business plan for each deal, but keep in mind it takes some time as we are spending a lot of money investing in the park. We will usually pay out a smaller return from operations during the first year, a good to very good return from operations income during the second year and with the big payout when/if we sell the park and close the LLC, generally targeted between years 3 – 5 of ownership.
How is the equity split between the Investors and General Partners?
Our deals are generally structured with an 8% annualized with a preference to the investors and then a 50/50 split on net income thereafter between investors and the general partners. On a sale of the park we pay back the Investor’s equity and then apply splits to the remaining profit.
How do the General Partners make their money?
The general partners receive an acquisition fee that is generally $50,000 – $100,000, dependent on the size of the deal. An asset management fee between $1500 – $3000/month is paid to Mobile Home Park Investments from the operating fund of each deal.
Reimbursements for specific expenses such as general partner park site inspections is also paid from the park’s operating fund. The general partners make most of their returns from the 50% split of the profit after the 8% investor preference is satisfied. No deposition fee is charged. Your profit and the general partners’ returns are tied together. As an investor, your interests are aligned with the general partners.