Potential Real estate deal - comments appreciated

[ahnuld]

interesting thread. Keep us updated spex. Also, does your friend expect a finders fee or was he just doing you a solid?

[spex x]

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interesting thread. Keep us updated spex. Also, does your friend expect a finders fee or was he just doing you a solid?

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It was a solid. We look for each other like that. This is one of those situations where being involved in the local community of investors paid off.

[inishowen]

Spex,

Interesting read...deal sure looks solid on cash flow. Management issues might be the problem given the clientele. Are you adverse to Sect 8, seems they'd be the lesser of two evils vs transients, no?

Follow up to the "exit strategy" question.

Any chance of, or value in, subdividing? Thinking along the lines that the parts might be worth more than the whole, and a piece rather than the whole might possibly be more attractive to future buyers.

[GittyUP]

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Spex,

Interesting read...deal sure looks solid on cash flow. Management issues might be the problem given the clientele. Are you adverse to Sect 8, seems they'd be the lesser of two evils vs transients, no?

Follow up to the "exit strategy" question.

Any chance of, or value in, subdividing? Thinking along the lines that the parts might be worth more than the whole, and a piece rather than the whole might possibly be more attractive to future buyers.

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the numbers look good on paper. But the management might be an issue. You have to remember the kind of clients your likely to be dealing with here.
how are the eviction laws where you live?

How do they apply to "motel"/moble homes compared to standard apartment/house rentals?

What are the local laws on abandonment? this might be more of an issue with mobile homes as they can be considered personal property.

I don't think any of these will be a big issue but I brought them up for discussion sake.

Looks like you have a good deal on your hands if you can get a reliable system for management. This could be one giant headache or a smooth + cash flow. Most likely somewhere inbetween.

[spex x]

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Looks like you will be a slum lord. Always good deals in slum areas.....

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haha, I already AM a slum lord. I've always focused on low income housing because, as you mentioned, there are always good deals in low income areas. I makes for more tenant headaches, but I screen tenants extensively and only chose the best of the bad options. I also limit my tenancy issues by accepting Section 8, and that creates a lever with which to control tenancy much better. I rent to low income people, but I'm proud to offer the BEST low income housing in the area. My places are kept emmaculate, and this property will be no exception. My places also attract the best tenants in the market segment I'm after. this property wil just further build my slum empire. [img]/images/graemlins/smile.gif[/img]

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What are the neighborhood problems? And shootings? Violence? Crime?

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Well, there aren't really NEIGHBORHOOD problems. This property isn't really in a neighborhood at all. The property is on a 45 mph split highway with commerical buildings on both sides of the road. This property is the only residential anything for some distance. So the property is pretty isolated. Crime and such are low in the general area. The only real problem is that lots of the commerical buildings that are there are boarded up (maybe 15-20% of them), and the presence of the sex shops. The other businesses that are right there are mostly used car lots, RV sales lots, and that kind of thing.

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Considering the fact that he has been burned TWICE before by lease option buyers, it may or may not be a hard sell.

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yes definitely. This seller doesn't seem too bright though and I think he could be convinced. I'm pretty experienced as a landlord to low income tenants, and I've done projects like this one before. I've got a long-term employee that has agreed to live in the MHP and start renovations immediately. His property is in capable hands, and I think I can convince him.

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The 2nd option is the owner finance option which I like the most since it would give me absolute control over the fate of this property and what happens down the line.I normally don't like to have any strings attached to the previous property owner.

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yeah, agree. The only reason why I prefer the l/o deal is that it limits my risk so much more. This property seems like an enourmous risk to me, and I want to limit my downside as much as possible. The l/o deal gives me the ability to get away from the property with minimum fuss for both me and the seller.

[Groty]

I have a bunch of dumb questions. If you don't want to waste time responding, I understand.

When you model this up, do you anticipate future rental income increases are offset by expenses increasing by the same amount?

Do your expense estimates include insurance and property taxes? Do they include an estimate for depreciation to cover periodic big ticket items like replacing roofs, siding, appliances, etc?

At what point in the process do you conduct a lien search?

After you purchase the property, how much time will you spend "managing" it?

Just out of curiosity, how big is the parcel of land all this sits on?

[Mark1808]

I am invloved with commercial real estate, not this type of mixed use residential property, but I would want to know:

How much land?
What are land values in the area?
How is the property zoned?
What are expenses / revenues last 3 years.
How much would new mobile homes cost?
Could the property be sub divided and individual pieces sold?
Could individual mobile home pads be sold?
Why did past two operators fail? What were their revenues / expenses?
Why does the owner want to sell?
What are the anticipated annual reserve requirements for future capital expenses.

In my experience it is very easy to play games with revenues and expenses to make a property appear more profitable than it is. Why would an owner give up 10% to 20% cash flow in exchange for a much lower paying note from seller financing?

[stephenNUTS]

I have a fairly substantial R/E rental portfolio(buildings and legal multi-family homes)...but have never even considered or been approached about investing in the mobile home investment arena.

It sounds VERY interesting as I am reading this thread,and I would also like to hear your progress!

GL,
~Stephen Feraca [img]/images/graemlins/cool.gif[/img]

[snowbank]

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Did you tie up this property yet?

I'd get over to the owner ASAP and work up some sort of purchase and sales subject to all the documents being furnished to your satisfaction.

I don't know why you are waiting for more documents to make your offers. I wouldn't.

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Yeah, I know, but something is making me hesitate. The deal seems a bit too good to be true which is why I want to see everything up front before making any kind of committment. The thing that I keep coming back to in my mind is that the property has been lease/optioned twice and neither person made it work. Somehow I just can't figure how that would be possible unless the payments on the least agreement were ridiculously high or something. I dunno, I just wanted something a bit more. I should probably just get it under contract. I know you're right.

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spex,

get it under contract. you aren't tied to the deal unless everything checks out. include contingencies in the contract and tie it up.

[spex x]

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I have a bunch of dumb questions. If you don't want to waste time responding, I understand.

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I never mind answering questions.

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When you model this up, do you anticipate future rental income increases are offset by expenses increasing by the same amount?

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Not really. Utility costs, taxes, etc. will increase. But rents tend to outpace these expenses. Normally I increase rents by about 3% per year. Expenses don't go up nearly as much year to year.

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Do your expense estimates include insurance and property taxes?

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Yes.

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Do they include an estimate for depreciation to cover periodic big ticket items like replacing roofs, siding, appliances, etc?

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Yes. We don't call roof and appliance replacement depreciation though, we call them capital improvements. A percent of the income goes into savings: Like if I know I'll need to replace a roof in 10 years, and I figure it'll cost $10k, I'd save $83 per month. That is all included in my expenses. Carpet, appliances, etc, I save for all of that. Sellers love to argue these expenses because usually they'll try to tell you that expenses only run 30%. I tell them that their numbers are realistic but not sustainable - eventually roofs, etc. must be replace. I price all of that into my offers.

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At what point in the process do you conduct a lien search?

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That is normally done by the title company or closing attorney (depending on what state you're in). It happens after you've got the property under contract and have had it inspected, etc but before the closing date.

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After you purchase the property, how much time will you spend "managing" it?

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mmm...hard to say. I expect to spend 20+ hours per week on this property until its up and running the way I need it. That means that all my workers are lined up and working, etc. That should take 3 to 4 weeks to get running. During the rehab of the MHP, probably 10 hours per week including daily drive throughs, etc (I trust my guys, but always check up on them). After the completion of the renovations period, I'd guess 3-5 hours or less, including book keeping time, etc.

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Just out of curiosity, how big is the parcel of land all this sits on?

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3 acres.