← Real Estate Investing School Podcast
Real Estate Investing School Podcast
194. REAL DEAL: Tackling an Out of State Mobile Home Park
00:19:55
Welcome to the Real Estate Investing School Podcast! In this Real Deal episode, we have REIS podcast host, coach, and excellent investor Joe Jensen take a deep dive on a mobile home park deal that he did! On top of tackling a mobile home park deal,...
Loading summary
Transcript1 lines
- [00:00]
A
Welcome, everybody, to a Real Deal episode of the Real Estate Investing School podcast. I'm excited to do this one. Normally, you don't get me on the real deals. You're missing Brody today, but today you got me Joe Jensen, your host of the Real Deal episode. So I'm actually going to be breaking down this as a solo episode, and we're going to dive into one of the deals that I've done recently and kind of just dive into how I found it, how I funded it, and how I forced it to make it even better. So, without further ado, we're going to dive into this thing. I've got some notes here in front of me, and we're going to kind of tear it apart. So to back up how I found this deal. Okay, so this is a mobile home park. I had was diving into real estate, getting really, really involved, studying everything I could, learning everything I could, buying everything I could. And one of the things I put on my goal board was to own a mobile home park. I'd heard good things about it. I'd actually owned mobile homes in the past, and I'd seen the benefit and the cash flow and the downside, but I wanted to get a mobile home park. It was just one of the things on my list. So when I first started in real estate, I wrote a bunch of different things I want wanted to do, and I continued to do this. I'm okay, I want to check this one off, Check this one off. Check this one off. And so it was on my vision board. And the reason I hit that so hard is because I really don't think it would have happened if I hadn't had it sitting there on my vision board. Every day in my office, I look at it. I'm like, haven't done that one yet. Haven't done that one yet. So I put out there in the universe that that's what I wanted. And I was just buying other stuff, doing other things. And then this wholesaler off of some Facebook group, I think, sent me a. A lead for this mobile home park. Now, I'd looked at a couple mobile home parks before, and they were like a couple million dollars, these big parks. And I just didn't know how to tackle that at the time. And so it just wasn't something that I was really diving into. But then I get this one, and it's this tiny little mobile home park. And I just recently looked at this other small one in Kentucky, and it didn't work out. They ended up not selling it. The guy's son decided to keep it. But I was doing due diligence on it. I was like, hey, I think these numbers will work. I want to do it. But then the guy ended up giving it to his son and keeping it instead of selling it. So, like, dang it. So then this other one came across my plate and it was even cheaper. And I saw that and I was like, I don't know how this is going to work or if it's the best idea, but it's on my vision board. The year's almost out. I'm just going to pull the trigger. And so I decided to do it. And so this. I'll go through some numbers here. So anyway, that's how I found it, right? Was literally just staying active, keeping my eyes out and signing up for different wholesaler lists from Facebook groups to everything else in between. Just getting, getting on the list where people would send me stuff and everybody can do that. This wasn't like a wholesaler that I had an in with that I was his buddy and like, he gave me his best deals or anything like that. It was just straight up random shot. Never bought anything from them and they send it out. So I was able to look at this mobile home park and the purchase price was only 127,000. Now this, there's a reason why it was so cheap, but. But it was a eight unit. Well, there was, there was eight lots, mobile home lots, but there was only seven mobile homes on them. So one was vacant. So I saw a little bit of opportunity for some value add there. And I was like, okay, that's kind of cool. As I dive into it, I was like, I just told him, like, I'll buy this, but I gotta use financing. And so that's kind of a unique part of it is usually with wholesalers, they want cash, right? It's like, hey, this is a quick close. That's why they're wholesaling. Like, do you have cash or not? And that's it. And I said, look, I'll buy it, but I've got to do a bank financing. I'm not going to just throw that much cash into this and have it tied up and never be able to pull it out. I've got to use financing because I wanted to have wanted to maximize my money. I want to maximize return, have a really high cash on cash return. I didn't want to put that much cash into this kind of an asset. Pardon me. And so I, I started, I signed on, I signed the contract. We got it under Contract. And then I was looking and trying to find debt for it, trying to find a lender that would let me borrow money to buy it. And I was getting nowhere. I mean, I called lender after lender. I called the big banks, I called small local banks. I was calling everybody. It was just, no, no, no, we're not going to lend on that. We're not going to lend on that. We're not going to lend on that. I was just like, oh, my gosh, this isn't going to work. I reached out to the. The wholesalers, like, man, you have any banks in mind that might lend on this thing? And they gave me some, and that wasn't working out. And I got pretty far with one. And then they do under the due diligence period, they decided they didn't want to fund it either. So. So this has been dragging on for a couple months, and I'm surprised that the wholesaler hadn't kicked me off yet. But I was just kept pushing along and I wasn't anxious to get it. I wasn't necessarily super excited about it, but except for it was on my to do list, I wanted to own a mobile home park, and this one seemed doable, especially if I could get it under the conditions that I wanted with the financing. And so I kept moving forward. Eventually I find this bank and they say they'll lend on it. And I'm like, great. They know the area, they know the mobile homes that I'm talking about. So there's just a super small local crew, and they're just like, yeah. The loan officer's like, yeah, I know. It's cat. It'll cash flow. You're good. So they, like, really didn't do too much due diligence and even less than I thought. As we're going through, we're like getting down to, like the week of closing. So normally along, like the month of closing, you know, my lenders are asking for this document, this document. They're like, just asking for tons and tons of stuff. It literally came down to the week of. And they're like, hey, do you have like, the address or something like that? Something super basic. I'm like, are you kidding me? You guys don't have any of this? And I was like, this isn't gonna close. But, like, I felt like they didn't really do any due diligence. Small bank. They just felt comfortable with it. They knew the area, they knew the rents, and they were just like, yeah, we'll just fund it. And so they ended up funding it. We closed on time and it was kind of crazy just because of how it all went down, which was such a key part of this deal for me was finding the, the, the financing, finding a lender that would actually do it. And I always say for anybody who's listening to the podcast and you hear me say it again and again, it's like, if one lender says no, like just keep, go ask the next one. Go ask the next one one. There's been multiple deals where if I had taken the first lender's answer, I would never would have got the deal. And this is one of them. But I went through a lot of lenders on this one. So anyway, so they finally end up closing. One thing that was kind of unique with the close is we did a remote close with a remote notary. So normally you have to have a notary there to like verify your ID and see that you're signing and you are who you say you are. And we were able to use a remote notary over zoom and do the whole closed remote as well. So I was able to just do it. I was living in Texas at the time and I never had to go out to Kentucky. I never even had to go meet with a notary. We did it all over zoom and closed everything. So that was kind of crazy, but kind of a cool experience. And not all states allow that and not all companies lenders will do that, but this one did. So we were able to pull it off that way. And so I'm able to sign off on everything, get it all done, get the place funded. I end up buying this place. And so it's seven mobile homes. And these are old junkie mobile homes, nothing super fancy, but there's tenants in them and they're paying rent supposedly, right? And so at closing, they give me that whole month's worth of rent for, for every single unit. I'm like, sweet, I'm gonna cash flow on day one. All right, so, so yeah, so it was $127,500 was the purchase price and I had to put 25% down. So around like 32,000, I got an interest rate of four and a half at the time, a 15 year term. And this is a five year arm, meaning every five years it's going to adjust the mortgage rate, the interest rate is going to adjust every five years. So it's a five, five arm. And so right now that's the interest rate. In a couple years it'll be different. And so one thing I'm trying to do to be prepared for that is one, I want to get the property all turnkey enough that if I wanted to sell would be worth way more than I bought it for. So I want to increase the rents so it's more attractive. And. And I found out after I bought it it was NEV. Only 4 of the units were officially part of the mobile home park. The other four units were like on another lot somewhere and they weren't part of it officially. And so I was able to contact the mobile home department, whatever that's over the parks and get it all officially brought together under one park name, under one permit, with all the units accounted for, just really cleaning it up. Which is one reason I think this got sold so cheap on a wholesale is it. It was messy, right? They didn't have it organized, they didn't have it clean. They didn't have any book of business. I mean, these are just old people handing cash to the owner next door. And that's how they did it. You know, there. There was no paper trail or anything like that. And so I think that's one reason they just wholesaled it out. But I wanted to be able to go improve things, get it super clean, that I could go sell it, you know, normally to any commercial buyer, any investor, and it's all good to go. And that would increase my sales price a ton. Now, I don't necessarily plan on selling it. As long as it's cash flowing well, I want to keep it. It's great. But I always want, and I encourage everybody to have a plan B and C and D. I like to have multiple exit strategies and options in case, you know, things do change and it's not the best for me. And it'd be better to get the equity out than to roll with the cash flow. So anyway, so adjustable rate mortgage. I think it was one of the first ones I'd ever done of that. But I figure five years and at this price, I. I don't think I could lose even if the rate goes up. So we'll see how that goes. I didn't have any improvements on my spreadsheet that needed to be done. When I bought it. I was told that the. The owners or the tenants of each unit just maintained the units themselves. And they got kind of a discounted rate for that. And I just collect the rent. After talking to some of the tenants, they didn't know that. They were like, no, you got to maintain this. You got to maintain that. But they were getting a lower rent than the Normal in the area. And so I kind of reset that standard, set expectations like, hey, this is how it's going to be. And so the, the improvements I ran into, There was a couple of things I need to take care of. Some of the headaches was one of the lots. There's like two different lots with four spots on each one. One of them ended up having issues with the. The sewer lines. And I had to replace the water and sewer lines to the whole park. It cost me like $8,000. And that was not expected. Total bummer. But I always tell people to have a slush fund whenever you buy in case something like this comes up that you don't lose the asset. You guys know my number one rule is collect as many assets as possible. And number two is don't lose your assets. And so luckily I had the slush fund. I was able to cover it, but it wasn't in the original plans, which was kind of a bummer to have to spend that much money on it. But the numbers still came out. Even with spending that, it was great. I put some money into adding electric to the empty pad and electric pole and a new pad there so that I could put an eighth unit on there instead of just the seven so I could increase my rents there. So I put in about 12,000 altogether in improvements. So you know, I'm it about 44,000. All the capital invested. Now the cool part is, you know, I got my mortgage around 750. Got taxes, 67 bucks a month, insurance, 65 bucks a month, a 10% maintenance and capex reserve, that's about 290. Park permit annually is 300. So it's like 25 bucks a month. And then I pay someone to help manage it. 145 bucks. And then vacancy, I put 145 bucks so there. So my total expenses is about 1500. But I rent out all the units when they're all rented out is around 2,900. So with that, my cash on cash return, my cash flow is 1400 bucks on that. My cash and cash on turn is 38.31. So just shy of 40% cash on cash return. So it would have been a lot better had I not had the issues with the pipes, right. The water and sewer. You know, I would have to see. Actually I can do the math on that. Let's see, it would have been closer to 46% if I didn't have to pour that 8,000 in there. As it was, it went down to 38. But still a huge win, right? Still cash flowing. 1400 bucks. A great story. And even then, see, even if some of them don't pay their mortgage or their rent every time. So the lowest I've had it, when I had a couple vacancies and issues like that, it was still a 20% cash on cash return. So. And that was like 2100 sub 2900, because I had a couple months where, you know, one or two people didn't pay. And so anyway, it's been a pretty awesome return on that. Really good cash flow, really good cash and cash return. A couple of the funny things about it is I get this. And so I'm reaching out to tenants. Hey, you know, I'm the new owner. Can you pay through, you know, cash app or Venmo or I can set up like an ach draft. Like can we do something digital? You know, I'm not the neighbor being able to take cash anymore. And these are like old people. I mean, some of these people are like 70, 80 years old and, and they just can't. They just can't figure out technology. And they're like, no, we can only do cash. And I'm like, oh, shoot, okay, well, maybe I'll set up like a local bank they can go drop the cash off at. And the local bank right in town, they want to give me an account. They're like, you don't live here. We're not going to give you account. Even though I explained my situation, they didn't care because I'm like, oh my gosh, okay, what am I going to do? I find another bank, like the next town over, 15, 20 minutes away. They give me an account. I set up an account there. But these old people are like, well, we don't drive. We can't get out there. I'm like, what am I going to do? How am I going to collect rent? And I end up actually asking the previous owner. I'm like, dude, is there anybody that can help me? What do I do? And he's like, hey, check with Roger down at the general store. And this town is tiny, you guys. We're talking like 1200 people in the entire city. I mean, it's just a small town in the middle of nowhere, Kentucky. And anyway, I get a hold of Roger and he's the general store manager and everybody knows him. He knows everybody. And he's like, yeah, I'll help out. They can just come into the store, pay their rent, I'll give them a receipt and then I'll run everything down to the bank once a month. So I pay him a partial property management fee to help me with that. But then he goes above and beyond and he helps me find new tenants. One of the people actually ended up dying in one of the units because they. They were just this old person. And we ended up going to the hospital. I guess they died in the hospital, but not in the unit. But after they left and they were gone, I was actually able to raise rents quite a bit to get it to market value because I didn't want to come in and, like, raise rents on a bunch of old people. But once he was out of it, because he had passed, I was able to raise the rent, like 150 bucks. And so this has slowly been growing my cash on cash return as I open a new lot and put someone on there as I raise the rents as people leave. And it's just been, you know, getting more and more of a more attractive asset as time goes on. And there's definitely been headaches, right? Just trying to figure out how to get rent was a huge headache, and I was getting kind of nervous. But I found Roger, a local guy that could help me out, and that's been huge for me. I've done that in a couple different small towns where I've just find someone locally that can help me that's reliable. And it's kind of scary. You just got to put yourself out there and figure it out and reach out to people and maybe trial and error a little bit. But I'm a big believer that anything is figureoutable. Like, there's a solution to make it work. And sometimes if we want everything to be perfect beforehand, we just won't even pull the trigger. Right. But I, you know, the numbers worked, the cash flow worked, the cash on cash return worked, the metrics I was looking at worked. And I was like, I'll figure out the rest. I'm okay biting off a headache right now. Cause I can do it all remotely on my own time. And so I've been able to kind of put that together. And, you know, we've had some vacancies. We've had some issues with, you know, people not paying, but because there's enough of a margin, even then it was still an awesome deal. And. And so anyway, that's kind of the way I found it was with a wholesaler. The way I funded it was just lender after lender after lender, just knocking those doors down until I find one that would finally do it. Small local bank that knew it. And Then the way I forced it was I improved that extra lot and I, you know, started raising rents when I could and was able to force even more of a return out of it. So that's my real deal, my mobile home park in Kentucky. Freedom park number one is the official name of it. It's kind of cool. I got to, like, file my note, my own park permit name and everything when I redid the permit. So it was kind of cool for me. And I got to check off that bucket list item. So I believe in that. Have a vision board, put things on it, and you'll. You'll get them done. Even if it's not perfect, even it's not cookie cutter, even. It's not quite how you imagine. There's power in just getting things done that you say you want to do. My theme of the year has been action leads to opportunity. And so because I was taking action, I was able to get this opportunity and turn it into this. So, anyway, without any further ado, this is Joe Jensen signing off for the Real Deal episode episode of the Real Estate Investing School podcast.