Real Estate Investors Association of Washington on 9/10

I attended the monthly meeting of the Real Estate Investors Association of Washington on 9/10/07.  The meeting opened with a short announcement from Greg Pineo about the free seminar coming up.

Mobile Home Parks

The majority of the meeting was a presentation by Corey Donaldson discussing investing in Mobile Home parks and Self-Storage Facilites.  Corey is part of the Mobile Home University and is a good speaker.

Corey told us a story about Mr. Violi – he arrived in this country in 1961.  He could not speak English at the time.  He started buying duplexes and renting them out.  By the time Corey met him (Corey knew one of the Violi daughters), he lived in a large estate and was living very comfortably.  If Mr. Violi can do it with those limitations, any of us in the room can do it.  It is just doing it with perserverance.

We then heard about Lonnie Scruggs, the author of Deals on wheels: How to buy, sell and finance used mobile homes for big profit and cash flow.  Lonnie specialized in buying used mobile homes at a discount and selling the mobile home on lease-option terms.  Each of these deals resulted in some positive cash flow and the recovery of all or most of the initial investment.  With enough deals (cash flow), Lonnie would leverage his way into a mobile home park.

The mobile home industry has had the worst down cycle in history since 2000.  As the single family home market has trouble, it may cause some recovery of the mobile homes. 

Corey recommended the book:

Evidently, Warren Buffet has recently been investing in mobile home parks.  His rules for investing in MH parks are:

• Buy parks in desert areas with at least 20% vacancy
• Place late model (no more than 10 years old) or new homes on vacant lots in park
• Sell these homes with seller financing

With MH parks, there are 4 profit centers:

1. Rent from lots within the park.  Each lot rented adds directly to the bottom line.  Increases in lot rent do not really change the turnover in the park (moving a mobile home costs $3000 for single wide and $5-6000 for double wides – so hard to justify moving for $5 – $10/month increase).
2. Mobile home sales.  Goal is to buy repossessed mobile homes that are no more than 10 years old and resell these for a profit.
3. Financing.  Goal is to borrow the money to buy the homes and sell the homes with seller financing that has higher interest rate than what we are paying.  This difference in interest rates is financing profit.
4. Increase in property value.  Most parks are eventually turned into single family home neighborhood developments.  This is because as the surrounding areas develop, the value of the park’s property grows high enough to justify converting the park.

Evaluating the investment – Corey usually analyzes parks at a cap rate of 12.  This results in 2 pieces that are summed up:

• Occupied lots – take average monthly rent x 60 x # of lots
• Vacant lots – take average monthly rent x 30 x # of lots

This total is the value of the park.  Average expense of a park are in the range of 35 – 40% of the revenue.

There are about 40,000 parks in the USA.

Things to watch out for:

• Single wide homes are 16 x 80′ today.  However, they used to be much smaller.  So when buying an older park, check on the size of their ‘single wide’ lots to be sure that you are correctly counting the number of modern units that you can fit into the park
• Older parks often used 30 amp meters for each lot.  Current homes use more power and if you need to upgrade this, it will not just be the cost of meters – you will also need to update the wiring infrastructure of the park
• Water leaks in the park can really increase your expenses – get the last 2 years of water bills for the park to figure out if there are leaks that you will need to address.

Self Storage Facilities

There are 41000 facilities in the US – 25% of the market is held by the ‘big boys’  (Shurguard, Public Storage, etc.)

There are 3 or 4 generations of facilities – our goal is to deal with 2nd generation facilities.  The prior generation is too hard to upgrade and the subsequent generations don’t have enough profit to cost for their upgrades.   Corey talked about being able to list over 35 profit centers at one of these facilities.  He incentivises his onsite manager by offering a percentage of profits on any additional profit centers that they invent.  Examples of these profit centers are:

• Large portion of revenue can be late fees – be sure to charge them!
• Charge admin fees to sweep unit after clean up / move out and to process paperwork
• Rental trucks or tools
• Moving supplies
• Records storage / destruction
• Fulfillment center – FedEx / UPS / etc.
• EBay consignment
• Car wash
• etc.

Corey manages his facilities (MH and self storage) with remote cameras and GoToMyPC to access the admin computer on site.

Corey’s last recommendation was the book