MHP Turn-Arounds in High Demand
Today, everyone seems to want MHP Turn-Arounds. Something they can buy cheap, then fix in a way that greatly enhances its income, and it value, the resell it for mega profits. It’s certainly a great way to gain entry into the MHP business for newbies. However, the challenges presented by MHP Turn-Arounds can be daunting, and are often the undoing of many an investor, new and old alike.
They call it ‘Upside’, and everybody wants it. But what is ‘upside’, anyway? Loosely defined, it’s a solid, nuts-and-bolts plan that will enhance the performance of the property, along with the careful financial calculations that project the costs and benefits.
Many investors come to us with parks they are either considering, or have already purchased, that they define as ‘upside-deals’. Their Upside Plan is to collect more of the rents, get expenses down, raise rents and generally run the park better. I hate to break the news to them, but that’s not an Upside Plan. That’s just good management. It goes without saying that you’ll do all those things, whether it’s an upside-deal or not.
The Science of MHP Turn-Arounds
Generally, in the MHP business, upside boils down to adding rentable (or sellable, if you’re so inclined) units. In the apartment business, they call it ‘adding doors’ (as if you could practically add doors in the apartment business). As specialists at MHP turn-arounds, adding units is what we do, again and again, in dozens of parks all across the country.
How do you add rentable units? Two ways, mainly:
1.) Fix vacant Park-Owned Homes (POHs); or
2.) Buy new or used MHs to fill vacant spaces
FIXING VACANT POHSs
The financial dynamics of either are mind-blowing. Think about this example: When we fix vacant POHs in our parks, our fixup costs average around $5,000 each, between the best and worst of them. If all you rent them for is $500/month that’s $6,000/year. It should cost you around $1,000/year to own and operate that POH as a rental, so that nets you $5,000. Get that? A $5,000 NET INCOME on a $5,000 investment? That’s a 100% Cash-on-Cash Return! Where on earth can you do better than that? And not just once, but again, and again and again, at least until you run out of vacant POHs to fix.
PROS: The best Bang-for-the-Buck in the universe!
CONS: It’s a pain in the ass, and you’ve got to fight to keep those repair costs down (again, that’s what we do for a living).
BUYING USED POHs
When it comes to filling vacant spaces, we have always purchased used MHs, but lately, we’ve been doing more and more projects with brand new homes. Typically, in many parts of the country, we can buy used (late 1980s to 2000s) singlewide MHs for around $3,500 to $8,000. Of course, some cost more, but you don’t buy those. It can cost as much as $6,000 or more to break then down, move them, then drop them onto a space in your park. Then the full setup, with leveling, anchoring, water, sewer and electrical hookups, skirting and two sets of stairs can run another $3,500 to $8,000. Then, once it’s set up, it may need to be freshened up inside to make it rent-ready. After all the dust clears, our average is $15,000 to $20,000 done. So, using the same income model, if you net $5,000 a year on your $20,000 MH, that’s a 25% RETURN ON INVESTMENT! And in both these prior examples, we’re charging only $500 rent. In most markets, you can get more than that, so the returns could be even better.
PROS: Fill up your park and make great money to boot!
CONS: You’ve got to go out and find those used homes (and again, that’s our job, that’s what we do).
BUYING NEW POHs
A growing trend lately has been to fill vacant spaces with brand new MHs. Both MH manufacturers and lenders have come to realize the that biggest, most lucrative market for new MHs, and thus MH loans, today are not retirees moving to the desert, it’s people like us, MHP owners who want to fill up their parks. So, they have tailored their products to our needs, giving us larger units with fewer frills, better built to hold up to tenant abuse, and all at lower prices. Financing is available for MHP owners today to buy new or used MHs with zero-down and flexible terms, if you want to keep them as rentals. They finance 100% of the purchase of the home, the transport, and the setup. If you want to sell them, and just collect the space rent, there are flooring programs available where you can fill your spaces up with new homes, at zero-down and no payments for a year, while you sell the homes. Then, the same lender can provide the take-out financing for the consumer who buys the home from you. It’s a beautiful thing. Many older parks are being transformed as they fill up with brand new homes. New homes can run $25,000 to $40,000 or more, depending on manufacturer, size, features, options, etc. Obviously, try to keep your costs down. Figure transport will run you around $10 per mile, so find a manufacturer who is close to your park. There’s much more to it than this, and you should call me before you attempt this yourself.
PROS: You can totally transform your park, all with zero-down.
CONS: Price. Some markets can pay a higher rent for new units, some can’t.
Most of our MHP Turn-Arounds involve a mix of 2 or 3 of the above. Obviously, buying a park with lots of vacant POHs to fix can offer the highest returns by far, and that phase of the turn-around can go rather quickly, compared to buying units.
Stellar Returns from MHP Turn-Arounds
Think about this dynamic for a minute: If you buy a MHP as a Cap Rate-deal, in other words, let’s say you can buy it at an 8-cap and you’re happy with that, then only those components of the park that are generating an income currently, were part of that Cap Rate. Let’s say the park is an 8-cap on Day One, with 30 vacant spaces left to fill. The 8-cap was only on the parts of the park that were generating income right then, and thus contributing to that Cap Rate. Everything else is thrown in for free. So you just got 30 MH spaces for free. What is a MH space worth? In California where I’m from, they start at around $40,000 per, and can go as high as $80,000 or even higher in Southern California or the Bay Area. In the South and the Midwest, they range from $10,000 to $25,000 more or less. And you just got 30 spaces for free. But, they don’t make any money until you put a MH on them. For just $20,000 (in the case of a used home) you can essentially create an apartment unit that you can now rent out forever, if you just take care of it. In 4 years time, in the example above, your net income should pay off that trailer, making everything else after that pure profit. And on top of it all, you’ll be filling up your park and making it worth more.
We do MHP Turn-Arounds
MHP Turn-Arounds like this have lots of moving parts and can be very challenging, even for the experienced turn-around artist. Sort of like the warning “Don’t try this at home”, of course we recommend against your going it alone. We not only have the experience, we have the resources and the personnel in place to help these projects succeed. Let us bruise our knuckles and deal with the frustrations that are inherent in all such endeavors. As your consultants, we would be overseeing every aspect of the turn-around, as well as the ongoing operations of the park, keeping you updated with Weekly Updates, Monthly and Year-End Financials. One particular member of our staff will be assigned to your park and will always know what’s going on with it. You can call and speak with them during business hours to get your questions answered, because they will be the one person that everything flows through on your park. However, they’re not the ones overseeing the turn-around. That goes to our Operations Team. In this way, we don’t distract from the day-to-day operations of your park, which is critical to extract the full profit potential.
We give away a lot of free information on this website, inside tips that you won’t find anywhere else. We’ve given you lots of great ideas on this very page about turning MHPs around. We made it sound so simple. But, please don’t be fooled into thinking that it is either simple or easy. Turning MHPs around is neither. The marketplace is littered with upside projects that stalled or failed. We have a short list of properties like that at all times. Some have incredible upside potential. Many are just waiting for the right investor, with with wherewithal, that is, the capital, and the right wiring to be able to take on a project like this.
And again, you don’t have to figure out how to do this stuff, or take a month off from you job to go live at the park and fix trailers. That’s our job. That’s why you hire professionals, who do this sort of thing all the time, to run your park for you and extract that Upside Potential. If you own a park now that has pent-up income and value (ie: upside), or you want to invest in a MHP with Upside Potential (ie: MHP Turn-Arounds), call me. There is no cost or obligation to get some advice from someone who does this stuff every day. Call me, Andy Tallone at (925) 323-2134, or email me.