MOBILE HOME PARK FOR SALE
In this episode of The MHP Broker’s Tips and Tricks podcast, Maxwell Baker, founder and CEO of The Mobile Home Park Broker, will discuss the company’s Buyers Guide, a book that Max wrote with all kinds of valuable advice for those looking to buy mobile home communities.
As with every Tips and Tricks podcast episode, this one is brought to you by The MHP Broker’s proprietary Community Price Maximizer. Use this four-step system to get the highest price possible for your mobile home park or RV community when you sell it through The MHP Broker. Guaranteed. Call Max for details.
Here Are the Show Highlights:
Power Quotes in This Episode:
“You’ve got to stay in front of your broker to keep your deal top of mind. Call them at least once a month to stay on their radar.” (Max, 51:31)
“The risk factor is huge when buying a mobile home park on your own. Our company does a ton of upfront due diligence on every one of our deals. That’s how we know. That’s how we know so much in such a critical area, such as water, sewage. You just don’t want to make mistakes in that area.” (Max, 1:09:45)
“Our goal is to ride shotgun on your journey to mobile home park investing.” (Max, 1:29:21)
00:00
Maxwell, hello and welcome to the mobile home park broker’s tips and tricks. This is the podcast where we talk about mobile home park investing, because that’s what we’ve been involved in for the last decade. Let’s dive into today’s episode. Here is your host, Maxwell Baker,
00:22 Maxwell Baker
Hey, y’all, welcome to another episode of the mobile home park brokers Tips and Tricks podcast. As always, this episode is brought to you by the Community Price Maximizer. It is our proprietary system that will guarantee you a higher price when you exclusively list with us, give us a call, (678) 932-0200, and we will go over all the details on how to get you the highest price when you exclusively list with us as your broker. So, without further ado, today, we are going to be going over the Buyer’s Guide. This is a book that I’ve written over the years of just stuff you need to be looking out for whenever you are buying a mobile home park, we update it periodically, and we’ll update y’all whenever we get new updates.
01:18
So, let’s get rolling. These are the 9 critical buying tactics you need to know before you buy your next big deal. Let’s start with the Introduction. There are a lot of people coming into the mobile home park industry right now, from a broker’s point of view, there are some fundamental tactics I need to educate you on before you even get involved in buying your first deal. A word of warning, most sellers and brokers are going to want you to rush through your due diligence because they want you to close as quickly as possible. I’m here to tell you that you need to stand on your ground and take your time when it comes to buying a park. Don’t let the fast talking over eager broker or seller tell you that you need to close within 10 days after the effective date of your contract. You don’t! Here’s the thing, if you don’t know that, you will be bullied into a quick close, which will leave you feeling insecure and most of the time a little suspicious. In this book I share with you all the pitfalls and booby traps that can pop up when buying a mobile home park. The BS closed deadline is the beginning of the road when it comes to successfully nag navigating a lucrative deal. We’ve been in the business for years, and I don’t want to say I’ve seen it all, but I’ve seen a lot of it and like commercial farmers, insurance, “We know a thing or two, because we’ve seen a thing or two.”(laughs) So put your mind at ease. This isn’t a hype filled sales book created to string you along and give you anything but answers. This is a No BS strategy book on how to get the most value out of your mobile home park deal, the power tips we share for veteran buyers as well as newbies.
03:01
So, let’s get this ball rolling. The meat and potatoes of this book is the Top 8 critical buying tactics you need to consider before making your first offer. These tactics will give you a strong advantage when dealing with brokers, sellers and taxing agencies. But I’m not an accountant, so Buyer beware on the taxing tactics, all the information in this book was earned by the old-fashioned way, through trial and error and slamming my head against the door numerous times. Now you get to take advantage of the; last right now it’s been 15 years, but I have a decade in here; of hard-earned experience I’ve gathered and can cash in on my top 8 buying tactics in any mobile home park transaction. My sole goal for every buyer I work with is make sure you know as much as possible about the deal. This includes meeting your investment criteria and setting you up for the exit on the park, whether it’s 12 months from now or 20 years, our network is in it for the long haul or the short haul. My wish is for you to be inspired and seek out your own mobile home park deals. The information contained in this book will ultimately put more money in your pocket and help you feel more confident moving into your first of multiple deals. My hope for you is that I can add as much value as possible to your buying journey and help you get the best possible outcome for your investment to your best return.
04:30
Big Tactic Number ONE. Cashing in on bonus depreciation. Bonus depreciation is a tax incentive that allows a property owner to immediately deduct a large percentage of the purchase price of eligible assets like mobile homes, associated water and electrical hookups and land improvements like roads, parking pads, greenery and more. With the Trump’s administration’s recent tax reform, you can now depreciate the entire purchase price of those individual assets in the first year. What a pocketbook difference that can make. What does this look like? Case in point, the purchase price of a mobile home park I was involved in with was $825,000 we hired a Cost Segregation specialist, or a Cost Seg and that is somebody who comes in and itemizes all the assets in your mobile home community and allocates real cost to each of them. We use Terry Johnson at Capstan Tax Strategies, and they were awesome. Terry explained that some assets would last longer than others. As you might expect, a tiled marble floor will be estimated to last a lot longer than a regular carpet floor. Once your assets are itemized, they can be segregated into different categories based on their class, based on their class lives, excuse me, and how long they expect to be living. This is where the savings start. Assets that are only expected to last around five years can be depreciated over five years, instead of sitting on your books for decades. This is called accelerated depreciation, which takes advantage of the time value of money to increase cash flow and decrease tax liability. The dollar today is always worth more than the dollar tomorrow. Plus, there’s the special edition incentive called bonus depreciation under the recent tax reforms; bonus depreciation allows you to immediately write off the full purchase price of eligible assets in the first year. This is a huge tax boost now, since the years have started to go further along, and the bonus depreciation has been going down 20% every year once it hit that benchmark, I think right now we are in the 60 percentile. So, whatever the Cost Seg person allocates each asset in your investment, you can now depreciate 60% of it in year one. Now it’s been going down, like I said, 20% however, there is some talk that they might continue bonus depreciation next year. It is currently sitting in Congress and I believe there’s been some good things about it, but just a heads up that it does change dramatically from year to year, but supposedly they are going to extend that tax return to help make buying investment property as lucrative as possible, because when you don’t have to pay the depreciation, better yet, the tax on the income of; globally; it does help with the bottom line, obviously.
07:32
So, moving on, the cost of the service starts at around 3500 and increases depending on how complicated your deal was. Regarding that $825,000 Park I mentioned earlier, the capsand team estimated a bonus depreciation of $700,000 on day one, which is a heck of a write off for a first year of owning a mobile home park. However, you might have to keep the park for the duration of the depreciation schedule, because if you don’t, you’ll need to pay back a portion of this write off called Depreciation Recapture. If you don’t, it helps alleviate some of the recapture, or just exhaust it. In general, bonus depreciation enables you to write off a ton of cash up front for high earners. That’s a pretty big deal.
08:19
Now, the next section I have is the best kept secret. ‘Can’t my accountant, do it?’ Maybe, but I advise against relying on your day-to-day account for two reasons. First, you’re more than likely to get the best possible results by bringing in the pros. These guys are professionals who know how to break a property down to the smallest asset. They don’t miss anything usually, and you can be sure you’re getting all of the savings you’re entitled to. Second, it can be a little riskier to rely on your accountant without this expertise when it comes to the potential audit, I’m the white glove type. I like to make sure everything is just right by having a third-party professional with mobile home park experience to deal with it. I’ve seen people try to do it themselves. In the case of an audit, the results can be disastrous. They could throw out your entire valuation, and then you have penalties and recovery of taxes. Plus, I think the IRS charges 10% a year in penalties, so even if you have to, they wait until the very last year to audit you, you’re going to have to pay that 10% charge, plus all the taxes you would have had owed for every year challenged. It’s definitely worth the money to get the job done right. You’ll maximize your savings, and if push comes to shove, excuse me, you’re more than likely to be successful. In the case of an audit, the fee is going to be less than 10 grand, possibly much less, and it’s worth it to spend the money doing the job right up front, rather than dealing with the headache and heartache that a slipshod job could bring.
09:53
So, moving on. Don’t lose your ass-ets. I’d have to say half or more of the mobile park investors don’t even know that cost seg exists. When you’re buying a mobile home park, it’s best to understand the intricacies of cost seg and why you should hire a third party to maximize the benefits. Why leave any money on the table? You’re getting into the business to make money, right? We’ve picked up this mobile home park strategy along the way. When you consider a deal, it’s important not to only look at the yield, but also how much money you can save through the cost seg and bonus appreciation. Even, if it’s an all-lot rent deal, there’s still money to use and value in your parking pads, water, sewer, even your mailboxes. Those are all the assets that Cost Seg specialist will identify price and segregate.
10:44
Now we move to the Big Tactic Number Dos. Big Tactic Number Two, the often-forgotten conservation easement strategy. What is this strategy? In the interest of full disclosure, I’m not an attorney or an accountant or any kind of specialist dealing with the issue of conservation easements. However, I have significantly been exposed to this strategy because some people in real estate are investing in conservation easements for tax purposes, the IRS is coming down hard on these prospective investors, but it’s a good strategy if you own a mobile home park that has excessive land that you don’t want to develop into expanding your community. Instead, you could apply for this important tax write off if you don’t want to expand your mobile home park, you could have a specialist come in. We have a quite a few attorneys well versed in this strategy, and third-party people who are not attorneys, but are qualified to examine your park and the extra land to provide insights on how to handle it. Then, if you choose to do so, we’ll help you hire a third-party appraiser and attorney to legally submit all the applications and paperwork needed to file a profit enhancing conservation easement on your property. Now with all that disclosure, I will move into the theory of conservation easements.
12:16
Why do most people not know about this money-making strategy? I think it’s safe to assume that 90% of the park owners out there who have extra land have no idea that they can do this. It’s a pretty unique strategy to get some lucrative tax write offs. Here’s a quick example of the profit potential of a conservation easements from our own portfolio. We were handling a mobile home park sitting on 20 acres of land, half of which was developed with 50 pads. The other half sat undeveloped with some wetlands and a creek. We could project the value of the raw land at, say, $100,000 as is, and the total value of the raw land was appraised at, let’s say, a million dollars, when fully developed with another 50 pads, that $900,000 spread between that raw land what is currently worth and what it might be worth when fully developed is what can be used as a basis of your conservation easement tax strategy. That is a hell of a bunch of words you gotta put together (laughs) Try to say that a million times, I doubt you can do it. So, your goal is to get this excess land accepted into a land trust. This is easier when you are in wetlands or other natural resources as your raw property. We brought in professionals who could give that after repair value land value should say, then we took a one and a half x after repair land figure to reevaluate the underdeveloped or the undeveloped property for a donation to the land trust of $1,350,000 some land donors have valued their property at 5x the easement value estimate but, that can be a little dangerous when dealing with the IRS. Be conservative. There’s an old saying that might be applicable here, ‘Pigs get fat. Hogs get slaughtered.’ We all love that bacon! At any rate, we’ve got the conservation easement professionals that can tour your land and give you its potential for Land Trust donation and a potential for a very fat tax write off if you don’t use a valid conservation easement yourself. It can also be a very important selling feature. When you list your park with the Mobile Home Park Broker.
14:39
‘Every property is different’ is the next title. Your success in this area is all going to depend on the value of the land underneath and whether or not you can donate the property to a land trust that’s willing to accept it; Private conservation easements. For a private landowner holding undeveloped property, donating conservation easements to a qualified Land Trust is a powerful charitable action that could also provide the landowner with tax benefits, provided certain qualifications are met. The below analysis discusses federal tax law, which permits a landowner to take federal income tax deductions, the process for donating a conservation easement and some of the risk that should be considered. Conservation easement donations are extremely sophisticated, complex transactions and associated tax benefits should only be sought when working in conduction with an experienced tax attorney.
15:39
‘The Law Background.’ Decades ago, the United States Congress enacted IRC 170 H to provide taxpayers with a charitable contribution deduction for granting a conservation easement with respect to real property. A conservation easement is a voluntary and legally binding agreement between a landowner and a qualified land trust or government agency, a qualified organization which permanently and perpetually limits the landowner’s future use of the land in order to protect the land’s natural qualities. These might include historic features, open space, rare or endangered flora or fauna and other significant conservation values. At the time of making the donation, the landowner signs and records a deed granting the conservation easement to the qualified organization in the property records where the real property is located. Importantly, the landowner retains ownership of the real property even after the donation is made, and the landowner can continue to do limited activities on the property, such as fish or hunt or sell the property, but the land trust now holds an easement over the property and enforces the conservation easement against the landowner, including other landowners that are downstream. Let’s, not church it up more than it has to be (laughs). In addition to the donation of the conservation easement, the qualified donee organization will typically require a cash contribution to allow the qualified organization to visit the property on occasion and ensure that the terms of the conservation easement are being observed and enforced. A CE might apply. I’m using CE for Conservation Easements for simplicity sake here y’all a CE might apply to all or only portion of the land. The CE deed must be careful to specify any portions of the real property not considered. The real property must be a long-term capital asset in the hands of the landowner prior to the donation being made to qualify for the full deduction available under Section 170 H. In other words, the real property must have been held by the landowner for at least a year and a day. If the real property is a short-term capital asset at the time of the donation, the taxpayer would be limited to their basis in the claiming charitable contribution deductions. Section 170 H sets forth certain rules and techniques required that must be satisfied for the CE to qualify for federal income tax deductions. So, get your shit together. Don’t be trying to cowboy this all the way to closing. In other words, the qualified organization mentioned earlier include government units and land trust or other charitable organizations that must meet certain requirements under the IRC. A number of qualified land trusts throughout the country accept cont CES and therefore work to ensure that their properties encumbered with such easements are maintained in compliance and regulation. A Land Trust can be focused on certain geographic location or CE value, so it is the best to find the land trust that is particularly interested in CE values and location of the real property being conserved. Perhaps most crucially, the real property must have significant CE value, and the CE must further a conservation purpose. This essentially means that there must be some environmental, historical, recreational, educational value in conserving the land. As a result, this tax program may not be suitable for real property that have been recently clear cut of its timber has dilapidated, multi-family housing development located on it or has environmentally hazardous conditions currently there, the RC specifies four valid CE purposes.
19:51
Number One, let’s say it, preservation of land areas for outdoor recreation by or for the education of the general public. Number Two, protection of the relatively natural habitat of the fish, wildlife, plants or similar ecosystem. For all you nature lovers out there, that’s for you. Number Three, preservation of open space, including farmland and forest land, and preservation of a historically important land area of a certified historic structure, wetlands, featurely, generally supported biodiversity and may be special interest to a land trust. Typically, a written baseline documentation report will be commissioned by a land trust to establish a conservation value on the property to be protected by the CE and the baseline documentation report serves as a touchstone that helps cover govern the relationship in partnership between the land owner and the land trust on a going forward basis and stewarding the real property and the resources located thereon. All right, y’all we’re almost done here with all these technical jibber-jabber just hang in there. Thirdly, the conservation easement must be made in perpetuity. I have a hard time saying that word sometimes y’all; meaning it must restrict the use of the property permanently. This effectively means that the conserved property cannot be developed, drilled for oil, gas, or quarried or otherwise improved with limited expectations, except, you know, like hunting, anything that’s outdoor recreation. Thus, a conservation easement cannot be amended once recorded. This requirements set a section 170 H conservation easement, apart from the Conservative Use Value Covenant, CUVA is the acronym for that, for example, which typically runs for a number of years and abates the landowner’s property tax ability for the duration.
21:58
In addition to the above significant points, there are many other minor and major technical requirements that must be satisfied before a taxpayer may claim a charitable contribution deduction. Accordingly, CE transactions are exceedingly complex and require a great deal of planning, review and due diligence. However, the benefits carrying out such a donation may be significant. A non-corporate donor can take a deduction equal to 50% of the donor’s annual Adjusted Gross Income, AGI for donating a conservation easement, and if the donor is a rancher or farmer, the limitation is increased to 100% of AGI Yowzers!. Compare this to the typical AGI limitation for non-cash charitable contribution, which are capped at 30% currently for a given year. Furthermore, a non-corporate donor can carry forward unused conservation easement tax deductions for up to 15 years. That’s pretty long y’all, how much can a taxpayer claim an income tax deduction associated with the charitable contribution of a CE? Again, assuming the real property was a long-term capital asset in the hands of the landowner, Section 170 H permits the landowner to claim donation value of the property as established by a qualified appraisal, moving on to the qualified appraisal.
23:32
Qualified appraisals are required for all deductions of CE contributions which claim a value exceeding $5,000 if a Conservation Easement deduction is more than $500,000. The taxpayer must attach a copy of the qualified appraisal of the property to the return in the year of the donation. To be considered a qualified appraisal, the appraisal must meet certain requirements set forth by the IRC first, the appraisal must be prepared no earlier than 60 days before the date of charitable contribution, no later than the due date, excluding extensions of the tax return on which the charitable contribution deduction first claimed. Second, the appraisal must be prepared, signed, dated by the qualified appraiser, no backyard appraising y’all. Third, the donator cannot pay any prohibited fees to the appraiser. Finally, the appraiser must include all information specifically required by the Treasury Regulations. So, don’t be slipping your boy or girl appraiser $100 bill to make sure they get it right, because they will throw it out, and you could be fined, and ultimately, mucho bad stuff will happen to you moving on. Such required information includes One, a detailed description of the property. Two the property’s physical condition. Three, the date of expected date of CE donation. Four, the terms of any agreement relating to the property’s use, sale or other disposition, an example, the deed of CE. Five, the appraiser’s name, address, taxpayer identification number, and those of the appraisers of employer or partner, if any. Six, the qualifications of the appraiser, including the appraiser’s background, experience, education and member in professional appraisal associations. Seven, a statement that the appraisal was prepared for income tax purposes. Eight, the day the property was appraised. Nine, the appraised fair market value of the property on the date, the expected date of the contribution. Ten, methods of the valuation used to determine the fair market value. More on this in the next section. Number 11, a specified basis for the valuation, such as a specific comparable sales transaction or statistical sampling, including a Juris justification for using sampling and an explanation of the sampling procedure used.
26:12
Valuation of the federal tax deduction, the deduction for a CE generally, is equal to the fair market value of the property at the time of CE is placed on it, but in some cases, may be limited to the lesser of FMV or Fair Market Value or basis of the use of the property transferred is unrelated to the charitable purpose of the qualified organization. The regulation requires that if there is a substantial record of sales of comparable easements. Those sales must be used evaluation of the CE. Since easements are not typically sold, there usually are insufficient sales to use a comparable easement sales approach. In that case, the before and after method of valuing a CE may be used. That’s a pretty important part y’all. If you don’t have the details of comparable sales for the easement that you’re donating, you can use the before and after method of what it’s worth currently, and then what it’s worth after you do the development that’s that spread, I mentioned earlier, which is pretty freaking huge. So, moving on, the fair market value is the price at which the property would change hands between the buyer and seller, neither being under any compulsion to transact, and both having reasonable knowledge of relevant facts, the FMV of the property must decrease as a result of the conservation easement in order for a taxpayer to claim a deduction. In some cases, the grant of a conservation easement must not have a material effect on the value of the property. The before and after method calculation below is used to show the difference.
28:04
Before and After method: Fair Market Value of the property before the easement, less the fair market value of the property after the easement equals Fair Market Value of that easement. In essence, an appraiser must determine the highest and best use for the property and the corresponding fair market value of the subject property twice, first without regard to the CE, the before value, and then again, after considering the specific restrictions imposed on the property by the CE or after “value”. In determining the before value of the property, an appraiser must consider the current use of the property, but also objectively assess the likelihood that that property would be developed absent the use restrictions imposed by the CE, existing zoning, conservation, historic preservation or other laws restricting may limit the property’s potential highest and best use. In determining the after value of the property, an appraiser must consider both the specific restrictions imposed by the CE being valued and the specific restrictions imposed by easement on any comparable properties to qualify as the HBU, the proposed use of the property must satisfy the following four criteria, physically possible. Number One, the land must be able to accommodate the size and shape of the ideal improvement, or stated another way, what uses of the subject site are physically possible? Number Two, legally permissible, a property use that is either currently allowed or must probably allowable under applicable laws and regulations. What uses of the subject site are permitted by zoning deed restrictions, Environmental restrictions and government restrictions? Number Three, financially feasible, the ability of the property to generate sufficient income to support the use for which it was designed. Among those uses are physically possible and legally permissible, which uses will produce a net return to the owner. Number Four, maximally productive. I kind of like that name maximally. Gotta spice it up. Y’all a little bit the selected use must yield the highest value of the possible uses among the feasible uses, which use will produce the highest net return or the highest present worth.
30:44
Moving on to the cost, between required due diligence on the property and making associated cash contributions to the donee land trust or other qualified organization, a number of material costs are typically associated with claiming a charitable contribution of a Conservation Easement. It is highly recommended that anyone seeking to take this deduction retain experts who have extensive experience with the technical and substantial requirements of Section 170 H. The following example lists the typical costs that may be associated with making a CE donation. Number one or A) is title work, zoning and or permitting. B) is qualified appraisal. C) is desk review the appraisal. D) is Land Trust, cash contributions and legal fees. E) is baseline documentation report, F) development plans and market analysis. G) phase one, environmental report, land analysis. H) legal representation and the last one. I) accounting risk. Due to the substantial cost, it’s recommended that anyone seeking to carry out a CE transaction has a financial wherewithal to handle those costs in the event of federal deduction that is reviewed and challenged by the IRC, or IRS, I should say. Charitable donations of CE have received significant scrutiny from the IRS in recent years, while the IRS has focused partly on so called syndicated CE transactions, which are considered listed transactions. The IRS also reviews private donations which make sure you got your shit together again. Don’t go in and you’re trying to just slam a deal together. This especially true when the appraised evaluation is large compared to the landowner’s cost basis in the property. So, don’t be going in there and saying that your property is going to be worth $10,000,000 when you just bought it for 100,000 that isn’t going to pass a sniff test the before and after the appraisal. The following is a non-exhaustive list of risks involved with the IRS challenge to a CE transaction. So, this is all the shit that they can do to you. The IRS might argue that the account, the CE enhances the value of other property owned by the landowner, and attempt to reduct, to reduce, or even disallow any deduction taken in connection there withal. The IRS could challenge;
33:21 Maxwell Baker
This is Number Two, y’all, the IRS could challenge the valuation of the charitable property as established by the qualified appraiser, which could result in a reduction or disallowance of deduction altogether. The IRS could challenge the deduction of lack of CE purposes. The IRS could challenge; that was Number Three (laughs). Number Four, the IRS could challenge the deduction based on the identity the grantee organization, an example, if such an organization is not a qualified organization under the IRC. Substantial legal fees could be incurred in the event a landowner must defend claim deductions against the IRS challenge. That was Number Five. Number Six, the last one and if the IRS challenge is successful, the deduction is reduced or disallowed. The land owner could suffer a net loss and permanent loss of development rights to the CE property. A lot of risk in these but if you do a right, you white glove it, you could do some big things. Some other deficiencies have also caused issues in reporting. CE(s). These include inadequate documentation, deeds allowing for abandonment or termination of the CE. Three, reserve property rights that run contrary to see either property. Four, failure to provide the qualified organization with the right to proceed in the event of termination. Five, use of improper appraiser methodologies, like I mentioned earlier, no backyard appraisals, not even I can give you a BOV, no you got to cut it. I can give the appraiser the correct data of recent sales and rent comps of what the current market is for your property once it’s developed, happy to provide that to y’all but going in there and saying that the market lot rent is $1,000 when we all know it’s only $300 is muy malo (very bad). Most importantly, conservation easement donations should only be made privately by the owner of the property, and tax benefits should not be sold to investors, or the transaction will likely become a listed transaction and almost certainly result in an IRS challenge and characterization of the landowner as a promoter of a tax scheme or benefit. So, in other words, do it yourself, but don’t go and try and sell the deductions to other people. They will typically audit it, and if it’s not white glove, you’re going to be toast.
35:53
Moving on to enhancement issues. One issue that has the potential to reduce or eliminate the amount of the federal deduction from the CE transaction is a potential enhancement to contiguous property. In other words, if the CE by limiting developed land and by taking acreage off the market, enhances the value of other property owned by the landowner, then you may not be giving any true value away. The Treasury regulations provide that if the granting or perpetual Conservation Easement has the effect of increasing the value of any property owned by the donor or a related person, the amount of deduction taken by the donor connection with granting a Conservation Easement will be reduced by the amount of the increase in the value of the other property, whether or not such property is connected to property encumbered by the CE. The simple example below illustrates how this works. So, I’m about to explain it to you. Landowner claims a $200,000 donation for granting the CE on property A. Landowner also owns property B, which is scenic views of property A. The IRS audits landowner’s charitable contribution. The appraisal shows that the value of property B was increased by $20,000 due to its scenic views being protected in perpetuity. The landowner’s charitable contribution deduction is now reduced by $20,000 to $180,000. As a park owner, the deal that we were working on had wetlands, and it buttoned up to a military base and it sat behind the trailer park. It was a perfect situation for this, and they could have done a pretty nice little CE in donation. The big variable was having to get a trust to accept it, but it was definitely something that could have been done. It was about 10 acres button up to military base in a wetland, so it looked like a pretty good opportunity.
37:59
Moving on where a landowner develops, for example, a mobile home park on one portion of the property and grants a Conservation Easement with respect to remainder said property. It is conceivable that the conservation easement might enhance the value of the mobile home park by One, providing green space adjacent to the mobile home park in perpetuity, and Two, limiting the amount of real property available for the development of mobile home parks in the future. Enhancement items will need to be considered in qualified appraisal carefully. So, the one I was just talking about that was a buttoned up to the military base, it would have provided some green space. So, you would have had to consider that. But limiting the amount of real property available, the county is not going to allow you to add another mobile home park in the area. So that second part, I don’t think it’s really justifiable, but again, this is just my humble opinion. For further information, give you some more stuff, the risk of potential benefits of engaging in a private CE transaction, please contact Dwyer Law Offices LLC by email at ddwyer@dwyerlegaloffices.com or by his phone at (404) 389-9043, I have actually used Devlin in the past. He does a great job. Super knowledgeable about this. He specializes it. So, I would recommend giving him a call and talking to him about what you’re trying to do.
39:30
Legal disclaimers. I got to read this to you because it’s a legal disclaimer (laughs). This memorandum has been provided to you for the informational purposes only, and should not be construed as investment advice or as recommendation or advice or any legal regulatory matters, accountant treatments or tax consequences from any investment. And that’s it for the legal disclaimers.
39:56
Moving on to Big Tactic Numero Tres Big Tactic Number Three. ‘How to discover opportunity zones?’ Opportunity zones are what the Trump administration created as part of the Tax Cuts and Jobs Act. Its purpose is to help promote areas of the country designated as lower income areas that need capital infusion to encourage growth. A lot of these areas have or will have mobile home parks. Other counties put opportunity zones on top of mobile home parks to get rid of them. These Qualified Opportunity Zones, or QOZ, created entirely new investment vehicle in such zones, the Qualified Opportunity Fund, the QOF, that’s what the other one’s called, Qualified Opportunity Zone and then there’s the Qualified Opportunity Fund, which is the vehicle they use in order to invest in Qualified Opportunity Zones, QOZs. Moving on to how to discover Opportunity Zones or OZs, investing in a QOF provides three huge tax incentives for capital gains deployment into these new funds, deferred of capital gains invested in Qualified Opportunity Funds until December. 31 2026, a 10% step up on the basis of the capital gains invested in Qualified Opportunity Funds by December 31, 2021, a step up in basis to Fair Market Value zero on any investment properly held by a Qualified Opportunity Fund that an investor has held for 10 years or more. This is actually better than just an elimination of federal tax owed on capital gains from Qualified Opportunity Fund investments. Some of the Opportunity Zones have mobile home parks. You can find a searchable map that shows all of the QOZs at www.opportunitydb.com/map, again, that’s www.opportunitydb.com/map to receive the preferred tax treatment that opportunity zone investing offers investment must flow through a newly created investment vehicle, the Qualified Opportunity Fund. Opportunity Funds can be structured as corporations or partnerships. Opportunity Funds invest substantially in Opportunity Zone Businesses, Opportunity Zone Business property or a combination of the two. In general, an Opportunity Fund must hold at least 90% of its assets in qualified opportunity zone businesses or business property. Accordingly, a QOF can invest in operating zone businesses that hold tangible property located within Opportunity Zones, or it can essentially become an OZ business that investing directly in a tangible property located within Opportunity Zones. Whether the QOF invest into a QOZB or directly, it must ultimately own Qualified Opportunity Zone business property, which is tangible property used in a trade or business, so long as it meets the following three criteria. Numero Uno, such property was acquired by the Qualified Opportunity Fund, purchased after December 31, 2017. Number Two, the original use of such property in the OZ commences with the qualified OF or the fund substantially improves the property. Number Three during a substantially all of the Qualified Opportunities Funds holding period for such property, substantially all the use of such property was in the Qualified Opportunity Zone. An existing mobile home park or a newly developed mobile home park inside a QOZ will meet all of these requirements. Accordingly. If you have capital gains, or one of your investors has capital gains, you could set up a QOF and a QOZB to acquire the park, improve it and be able to eliminate taxes on the gain after 10 years. We have third-party vendors who can assist in setting up the QOF and the QOZB structured, necessarily, if you have your own capital gain, you can be done fairly simply and will cost, typically around $5,000 to set it up. We have also attorneys to provide help with these QOFs. They are then syndicated to investors as a part of the capital raise process, as this involves the sale of securities. The documentation is much more complicated, and the fees run from $20,000 to $25,000.
44:55
Mobile Home Parks are excellent candidates for OZ investing because it usually fairly easy to meet the. significant improvement requirement, which is that the buyer has to spend an amount equal to the value of the existing improvements on the property. The Cost Segregated specialist mentioned earlier would allocate the assets separated from the land in typically, QOZ transaction, any park owned homes would be conveyed to a separate entity and so this would be limited to any improvements on the land, like roads, water, etc,. Whatever portion of the purchase price they allocate to these tangible assets, you then have to invest an amount equal to that number and improvements over the next 30 months, which can be longer depending on the structure and circumstances. That’s why I said that earlier y’all where you would separate the Park Owned Homes from the transaction and just have a portion of the improvements from the Cost Seg that they’ve spent. So, say you bought a million dollar Park, they say that the improvements are worth $700,000 you have 30 months to invest equal to or greater than, according to the rules here, of $700,000 back into the park, or you might be able to do with the Park Owned Homes but I am not a professional in this category. I would contact an attorney to help you with that. Anyways, moving on after the 10 years hold of the fund. Call it the Qualified Opportunity Fund. Any gain on the sale the Mobile Home Park will receive a step-up basis in the fair market value. Here’s an example. You have a million-dollar property, and the Cost Seg specialist comes in and says, these assets that are located on this property separated. The land is worth about half a million dollars. You have 31 months, which can be extended to 62 months if you bring additional capital from closing to reinvest the $500,000 into that property. After 10 years, all that money you make from that reinvestment, when you go to sell it is not only free of capital gains tax, but will also be free of depreciation recapture. The Opportunity Zones are sexy when it comes to mobile home parks, when the Cost Seg specialist comes in and they replace all the infrastructure and inventory of homes with a newer product, it’s easy to hit that mark because of whatever allocated to those assets, these areas might get torn down for something bigger and better to build. Nothing’s better than a mobile home park, but if you wanted to build an office building or retail shopping center, that’s the reason these counties and municipalities are promoting these areas where mobile home parks are they want to tear down and build something that looks a bit more impressive and has a higher tax basis. Pretty obvious what the agenda is there for the counties. However, there are areas where the mobile and park is still the best use, and they’ll even reinvest and upgrade the mobile and park to the benefit of your tenants. It’s also great for you, because as the owner, you’ll now have some valuable tax incentives. Most buyers don’t know this tactic. It’s relatively new. The dust still settling on what is appropriate, on how to use it, so there’s still some fluidity on how things are going to play out with the OZ tax laws. Also this new strategy for mobile home parks, so you probably have little or no knowledge on how to use it. That’s where the attorney specialist will bring you up to speed with that information.
48:30
We do list and sell a bunch of mobile home parks in OZ property zones that can be valuable investments when you partner with the right experts, Attorney experts, I should say, moving on. How to find oz properties, like I mentioned earlier, you can go through Google, typically look through government agency, but the best map is the www.opportunitydb.com/map. For inspiration. Sean Parker, the co-founder of both Facebook and Napster, bought a huge mobile home park of about 300 pads in Virginia, and is taking advantage of the OZ. He is heavily reinvested in the community, and is increasing the profit potential considerably. Parker is just one example of a deep pocket investor who discovered the magic of mobile home parks and an OZ you can do it too, even with relatively shallow pockets, nothing beats getting tax free money by holding and reinvesting in an area for just 10 years. If you’d like more information about OZ near you, contact me, set up a conference call, and I can give you an eBook of an attorney named Ashley Tyson, who’s written virtually all there is to know about the investment tactic. Legal issues associated with OZ are virtually Tyson’s sole area of concentration at this time, and he is the dude when it comes to that. We can also put you in touch with third party vendors who will set up a fund for the purposes of investing in OZ opportunities. You must create a fund to absorb the capital gains from selling assets. Though, the money that comes out of the sale of an asset is the capital gain. That money is deposited into the “Fund” that was created to buy OZ property by an attorney. It’s an SEC syndication type instrument. Once it’s set up, that Fund will be used to buy OZ properties. It could cost an estimated $10-20 grand, maybe $25-30 grand to establish such a fund. Investors take the money out of these funds and buy property in these OZ properties, the Cost Seg specialist we mentioned earlier would allocate these assets separated from the land, whatever that chunk of asset, they allocate the portion of the purchase price you have to meet or beat that allocation price you allocated before or after closing, then the investor must take the cash and invest in the property. With that done, all the gains made after the 10-year holding period are tax free. That wraps up Big Tactic Number Three.
51:01
Let’s move to Big Tactic Number Four. All right, here we go. Tactic Number Four, the insider power secrets of dealing with brokers. Brokers can be like little puppies, high energy, easily distracted. If you throw 10 balls their way, they’ll want to chase all and retrieve them all, and they’ll stop chasing one as soon as you launch the next ball, because they’re sure that must be the better one (laughs). I can talk this way because I’m a broker too. I know the challenges we face. You’ve got to stay in front of your broker to keep your deal top of mind. Call them at least once a month to stay on their radar. Never be vague about what you need from them. You need to know your deal about as well as you expect your broker to know it. Know what questions to ask and where to take the conversation. Once you do have their attention, they need your clear direction. Here at the MHP broker, we take on the responsibility of keeping our brokers on point. We have experienced and talented people in place to keep your deal moving forward. We have the research team to help with appraisals and rent comps and access to the bankers and the data so that they can properly set expectations for you and their partners on your deal. It’s important to hire a broker with all the industry specific back-end support to make it easier for you to buy mobile home park. One person shops are good at what they do, but when it comes to streamlining and making the buy easy and being two steps ahead of every issue in a deal, it takes a solid team of multiple people supporting the deal with varied talents, all the way through. Hiring a company that has all of the back end support for your deal is going to make your transaction a much easier to navigate.
52:55
Power tip, don’t be a bargain hunter. The broker’s job is to find a mobile home park and sell it at the highest price possible. That’s why park owners hire us. Another reason is that they don’t want to deal with these transaction hassles, the sellers. Brokers are busy, and, as I said earlier, easily distracted. So, if you want to try and get their attention with a brief, vague email, simply listing your needs. I want an all-lot rent deal, city water, sewer and 10 CAP off market. You are going to be ignored. You provided no background information. I don’t know who you are. There’s no proof of financing, and you’ve set very high expectations. So, if I approached you and said, ‘Hey, I want a guaranteed 10% pref on my deal, and I want 80% of all the gain above and beyond that.’ How do you think that’s going to make you feel as me, as an investor, you’re probably going to laugh at me, right? So same science goes with dealing with brokers. Instead, you need to divulge upfront everything that would make you appealing to a broker. You must ask questions rather than make demands and be able to prove your resources and provide a bit of a resume background that will get the attention of a competent broker. A lot of people who come into the industry shooting for high cap rates, high cash on cash are asking for the world on their first deal, will eventually get a response, but it’s not top priority for us just to be blunt. If you call a broker instead of just sending a quick email, ask questions about market direction, offer to prove your funding source and reach out once a month. This approach can produce endless deal flow for you and your investors. You got to invest in that. Invest in the relationship. Fly out here, meet one of our agents, you know, send them a Christmas card. We’re real people, like we have. We want to build relationships. We’re not Prostitutes. We want a relationship.
55:04
Moving on to time kills deals. A lot of buyers go to seminars to learn how to buy mobile home parks. I’m a huge believer of ongoing education, and I’m constantly me personally, in the classroom trying to figure out how to be a better broker and operator and business person every year, but still, I advise making the learning process attached to the due diligence as brief though thorough as possible. Some professionals in the business might advise the buyer to demand 90 to 120 days of due diligence when the owner is financing the transaction and making it extremely easy to purchase their community, don’t make it hard on them, especially if you’re trying to close a high dollar transaction with a modest amount of earnest money. Keep the seller on your side by working as quickly as possible. For one thing, you look like a rookie if you unrealistically extend your due diligence time and more pragmatically, your seller is likely to look for another buyer who can close the transaction much faster. The only time you can really justify long due diligence time is when the park is a huge turnaround and needs in depth research to put your mind at ease. Bank owned deals typically require a lot of due diligence because most of the lenders will have limited amount of data on the park they have for sale. At most you should not need more than 30 to 45 days to look at the park, and then another 15 to 30 days to close, all inclusive, 60 or so days. The period includes due diligence and the closing period. So, like I just said, the longer the deal takes to close a likelier, their environment is about to change. Your loan terms could adjust, occupancy levels change, the sale could self-destruct for multiple reasons, including the illness or death of the park owner. So, if you’re in a serious about the deal, put nothing in the way of getting the contract signing as soon as possible, but not by taking any due diligence shortcuts.
57:03
As a buyer, if you make the transaction as smooth and issue free as possible, and that includes simplification of the DD process you have the inside track on your deal. How about another example from our own transaction history? Story Time, y’all. We once had a sizable mobile home park in a major market, and it drew three serious offers, between 900 to 1.1 we got a prospective buyer to increase that lowball bid, just another 50,000 and sold. The seller left about 150,000 on the table and took the lowest of three offers for several reasons. For starters, the two losing bidders demanded DD time that was unreasonably long while the winning bidder was prepared to move much faster. Those higher bids had other problems as well. The earnest money was less than one and a half percent of the purchase price, and their offers were submitted via LOI. I always tell my clients that sending an LOI can be a big waste of time in real estate because they are non-binding. The winning bidder came in with a 30 day look close period with their PSA, and they had a resume, proof of funds and even references, that’s unheard of, and the package certainly really impressed us here at the firm. As the seller’s advisor, also pointed out that this lower bid buyer was willing to close in 30 days and offered upfront money to go hard, non-refundable in the first 15 days. The seller believed, as I did, that it was the best interest to take the lower offer because it was less problematic. Here’s another power tip, don’t Retrade your deals. I did a little post on this the other day on LinkedIn, and it was called long-term thinking versus short term thinking. The importance of avoiding retrading deals whenever possible was the focus of my article. This involves trying to renegotiate terms with additional information comes to light, as you can imagine, this move is going to leave a sour taste in the mouths of both the seller and your broker. The response might be immediate sale to a backup buyer who doesn’t try to renegotiate the terms. If you must take this position for a legitimate reason, be sure to thoroughly explain your situation to the seller and the agent, explain the issues you’ve uncovered, the way your understanding of the property change, what additional costs you expect to have to incur? In short, make sure all parties know that your Retrade isn’t frivolous matter or last-minute ploy to discount the selling cost. Handle the situation right, and you might avoid backlash and blacklisting from the broker and seller. Real estate is all about establishing and maintaining good relationships. That’s the difference between being a short term and a long-term investor in the mobile home park field. If you always do the right thing, i.e., you are upfront and honest about things in your deal, you’ll find that brokers are willing to work with you again and again. Even if you lose on your first transaction. Remember, there’s gossip in every industry, and it’s no different. In the world of mobile home park sales, there’s another reason you must think a long term in everything you do. You want to enhance your reputation, not be someone to be avoided at all cost.
1:00:18
Moving on to Big Tactic Numero Cinco Big Tactic Number Five, Ignoring Third-party reports can cost you an arm and a leg. Third-Party reports consist of surveys phase ones and data provided by the Cost Seg specialist. These different reports are very important when it comes to closing you on your mobile home park. You don’t really need an appraisal. If you’re buying a mobile home park without a lender and are getting financing from the seller, typically, you will be buying it based on the terms of the loan versus the value, but the other 3/3 party reports are critical to almost every transaction, because the they reveal what could hurt you or help you in a big way when it’s time to sell your community, being that we already dedicated a chapter to Cost Seg, I’ll just go over The other third party reports. Boundary and Survey appraisers, a boundary survey is an absolute minimum you need. Why? Well, my friend, why don’t you take a seat and let me tell you my story you might want to pour a drink or not, depending on what time of day it is (laughs). A few years ago, when I was working on a deal here in Georgia, I had a park with about 65 units, it was about the cleanest mobile home park I’d ever come across. Mostly lot rent, city water and sewer, bigger lots, newer homes, but there is just one big but we found out through the survey, one of the park owned homes was sitting on the property line, encroaching on the neighboring parcel. The buyer asked the seller to move the unit back three feet or give him a credit to closing so he could do it. The seller already felt he was giving away his mark, and he didn’t like the buyer personally, so he refused. I couldn’t keep the buyer and seller out of court, and it took two years and a fortune to both lawyers before finally it came to an agreement that experience illustrates the importance of always inserting contract language that states that if the seller has any mobile homes or improvements to the land that their encroachment on the neighboring parcels, that it is their responsibility to remedy it. So, that’s another place where we come into play as your broker. A lot of times, whenever there’s an appraisal, we’re going to provide all the research and data to the appraiser when they call us to verify information, we add the most value in this area by helping consult your lender with the information we’ve uncovered through our research team. We source all of our own data, making us a leader in the industry when it comes to having all the sales and rental details at your fingertips. Secondly, being that we specialize in this single asset, lenders will typically look at us for guidance on risk factors and how we feel about the park. By hiring a Mobile Home Park broker, you’ll have a purchasing partner worth its weight in gold. That’s a personal opinion, y’all, but I think it’s fact.
1:03:29
So, moving on to the Phase One environmental issues. The last third-party I’m going to go over to discuss is the phase one environmental report. When you order one these vendors will research the records of your mobile home community and make sure the EPA hasn’t had any outstanding issues with the land or its improvements. We had a park down in Middle Georgia that we sold three times. The first time the buyer didn’t purchase a phase one despite our recommendation. The second time the buyer did and it failed, we were shocked, because there was literally nothing around the park, no gas stations, no dry cleaners or anything that might alert it to a potential environmental problem. As it turned out, some knucklehead had abandoned dry cleaning barrels on the parcel next door. At the bottom of these barrels, it was a slight amount of chemical residue from the agent used in the dry cleaning this park was on well water, and although those barrels were not on the parcel, it was determined that there was some risk that the residue could have contaminated the park’s well water. Yikes! I was shocked by the unexpected obstacle. When I called the parcel owner, nobody knew who had left it there. Luckily, the buyer decided to purchase a phase two environmental study and which soil samples are collected, they came back clean. The barrel residue had caused no damage, and we were able to proceed. Phew. Dodged that one! Of greater importance to future clients. We learned the importance of always getting a phase one environmental when buying a property, even the cleanest property could have questionable neighbors polluting common land. Just do a phase one and sleep better at night. In Acworth, Georgia, we almost ran into a similar problem when we ran a phase one on a community under contract and found that it sat on land that used to be a gas station 50 years ago. The possibility of soil and groundwater contamination put us in an immediate panic mode, as it turned out, the study also found that the eBay had cleaned it up the site before the park was established, so it was all good, but we only knew that because we did the phase one. Imagine if we’d avoided the environmental study and found problems prior gas station only later than the transaction. It would have been no bueno. So, that is the end of Big Tactic Number Five with the third parties.
01:05:46
Let’s move to Big Tactic Number Six. Big Tactic Number Six, is the county going to fight you tooth and nail? How to find out if the county is on your side? One of the first things we do when we talk to a mobile home park owner is ask them, how’s your relationship with the municipality? If there’s any hesitation in their response, I assume the worst. Some park owners really don’t care about what the county municipality or inspector says about their community. They’ll be selling a park with a half a dozen to a dozen citations from the local government, maybe for illegal additions to mobile homes. We’ve all seen those signage or safety issues, for example, but the citations could be also from cosmetic or infrastructure issues. It’s critical to know about the long-standing relationship between the property and the municipality, because it could bite you in the butt during the transaction process or afterwards. If you don’t feel like you’re getting the answers you need from the property owners, call City Hall and the police department and simply ask them about their relationship. How many calls does the police get on the mobile home park or the RV park? Is there drug activity there? Are there complaints from neighbors? I always then call the local mobile home inspector and ask their opinion of the community and how it’s run. One important value factor is reflected in the community of criminal activity in the mobile home park. Another is whether the community experiences antagonism from its municipality in terms of such things as citations, stiff ordinances aimed at the park, or tough zoning restrictions. As a prospective owner, you’ve got enough challenges before you. If your municipality is attempting to close your park down or make its operation outrageously expensive, at the very least, you’d better know about it before making your offer. On the flip side, if you have a turnkey deal, and a perfect relationship with the municipality, the mobile home inspector, then the probabilities of you ever having any long-term issues with your purchase should be pretty low. If it’s going to be easier for you to exit your investment when the time comes, then you better make sure that you have done all this work up front. Now, if you wait until after you purchase this, you’re probably going to be in a world of hurt. Just best not gamble it. I personally have significant experience working with park owners in this regard and for my own regard, and there are some pretty aggressive tactics I’ve used in the past to help park owners push back. If you want to give me a call here at the office, I can explain to them. I’d prefer not to put it in writing, because they are a little aggressive (laughs). My number is (678) 932-0200, or shoot me an email at info@themhpbroker.com and we’ll figure out what we can do together. I’ve also got a really good attorney that I can recommend you that specializes in these types of drama filled communities, and he does it nationally. I actually did a podcast with him a little while ago, so give me a call. Love to talk to you about it. Moving on to how to build rapport with the local officials. The local municipality is either your best friend or your worst enemy. When it comes to getting the best price, you can get when you sell your community, you’ve got to do some due diligence upfront with the local county to maintain the best ties possible. It’s called politics, y’all, it’s building strong relationships with influencers. Dale Carnegie’s classic, How to Win Friends and Influence People is a must read for anyone in this position. Do the little things like sending holiday cards, remembering birthdays. By keeping these strong influencers on your side, you might be able to get the most out of your park when you sell it and avoid hassles, headaches and head butting, fights along the way.
1:09:45 Maxwell Baker
The county can stir up huge problems. There’s a county in Georgia, on the northwest side of Atlanta, with an illegal ordinance to approve a five-foot roof pitch ordinance for new homes coming into the county. I believe there’s only one mobile home manufacturer that makes a unit that meets the strict criteria. The strategy behind this regulation is to chase parks away in that the only new mobile homes can be meet this requirement, basically putting everyone else out of business. Obviously, the county believes that the only new home parks meet their aesthetic expectations. The county also mandated 1000 square foot size minimum, which exceeds the dimensions of most models of older mobile homes. Again, it’s a strategy to shut down as many parks as possible and replace them with higher end real estate on a higher tax basis, drawing a preferred residential demographic. Yet another tactic is to disqualify a mobile home lot if it’s been sitting for more than 12 months vacant, ain’t that crazy? They talk about how low-income housing is a big deal, but some counties just want whatever will bring them more tax dollars versus serving their lower income residents. Avoiding preventable problems, impeccable due diligence on your deals will always put you in a better spot long term. You don’t want to be a short-term thinker like we mentioned before, figuring that you’ll solve longer term problems as you run into them. You must do impeccable upfront due diligence on any community you purchase. We had a client in the same Atlanta area we just discussed earlier, this guy wanted to buy a mobile home park bring in used homes. I told him he’d hit the headwinds, but he thought he could handle whatever the county threw at him. I warned him that there would be a variable that you have to deal with. Sure enough, he eventually asked us if we would put him in touch with a municipal attorney, like I mentioned, we have several. We helped our client get together with other park owners in the county facing the same anti used home regulations so they could share lawsuit costs, at least it was less expensive for everyone. But the group is still fighting the county and the legal bills are still stacking up. The lesson to be learned. Deal with the issues like this upfront or walk away. There are enough parks on the market that investors shouldn’t have the sacrifice time, cost and stress, battling in courtrooms with municipalities that don’t want you around. Sometimes it’s worth the hassle, especially if it’s an otherwise great deal, but you owe it to yourself to know ahead of time you might be expensive, time-consuming problems down the road. Now, a lot of times these counties, like the one I mentioned earlier, are open to restructuring how you do the park, and what I mean by restructuring is converting it to a tiny home community. That’s kind of the going trend right now with these counties that hate mobile home parks, I’ve seen them be absolutely evil! I guess you could call it on mobile home park owners putting in use homes but, if you mentioned, ‘Hey, I’m going to convert it to a tiny home community.’I mean, that’s when things started changing pretty dramatically on how they feel about your community. Tiny home communities typically bring better tenant profiles and just overall higher tax basis for the county. The other thing I’ve seen is some people like to rehab the homes and give them away to seniors or veterans and just have an elevated lot rent. A lot of counties are open to senior housing. If you structure it that way, it does help them want to play ball with you. It’s best to try and get a federal designation from it, and you can get an attorney to help you with that, but give me a call, happy to share any and all my contacts, (678) 932-0200.
01:13:34
Now, let’s move to Big Tactic Number Seven. Big Tactic Number Seven, the myth of mobile home park underwriting. Underwriting a mobile home park is an evolving kind of thing you could describe it. In the beginning, people used to use lot rent and park on homes, and they would evaluate income the same way, like all-inclusive rents. This is one of the bigger myths of our industry. Park Owned Home income is not equal to lock rent income when it comes to selling or evaluating your mobile home community or RV community. It’s one of the biggest mistakes that a lot of first-time buyers who haven’t done their research make. You can’t evaluate a mobile home park like you would in apartment building. Bottom line, all mobile home park income streams are not the same. Location, Time and Money. Time is money. Is what they used to say. They still say it. I guess I just remember hearing it from Gone in 60 seconds (laughs) when that guy was in the parking garage and had to get away because they were stealing that Humvee! Time is money still qualifies for today. This is an extremely important when it comes to shopping for a mobile home park investment. In spirits has shown me that when you’re looking at a 10 cap mobile home park that’s three hours away, or an eight cap that’s 10 minutes away, the wiser decision might be buying the property closer to home, the further away property costs the investment of a six hour round trip every time you visit and as I said, Time is money. The 10 minutes away deal wins hands down in my playbook, I might even pay a premium for the convenience factor. The only way the theory, the only way this theory goes out the windows. If you already have a system set up to manage your new parcel from afar and you don’t have to regularly visit, having a trusted team behind you to manage your deals makes it easier to get things done. But if you’re a one-person band, carefully monitor where you spend your time, if you have a park next door versus one that says stayed away, with the same setup, but slightly a different price, then it’s a no-brainer. Pull the trigger close to home. In short, it’s vital to look at a mobile home park based on the location and how quickly you can get to them. After all, in a six-hours away, example, your driving time eats up the hours you might otherwise be spending investing in opportunities that find your next deal.
01:16:01
Utilities and underwriting. Utilities are another significant variable in underwriting. There are three types of city water and sewer systems. Mass metered, Park pays for the water, Sub metered Park bills the tenants for personal usage and Direct bill. The city bills the tenants directly, and usually owns the meters. The last one is the creme de la creme when it comes to mobile home communities, because it’s pretty rare and everyone wants it. So, if you want to find a direct build city water and sewer deal, you should definitely put it in your pro column as you make up your pros and cons list, and consider making the best offer you can put it in the top of your list, just your exit’s going to be easier. Some of the other options include wells, septics, lagoons and the STP and that’s not Stone Temple Pilots y’all. That’s the big old sewage treatment plant where they pump dookie. As a first-time buyer, I would typically stay away from the STPs, simply because of variable cost it would take to replace one. Thinking of a starting point for a used one is probably close to like $300,00-400,000 and let your imagination escalate from there. Let’s talk about why park owners choose the well and septic rather than trying to convert their parks to city utilities. The biggest reason is cost. Typically, municipalities would charge you tap fees on a per lot basis. That cost varies dramatically from county to county. The cost to run these relatively inexpensive unless you start having to replace entire system, and this is the case, you’re going to be in a world of hurt. I think it’s fair to estimate that the amount of money you’ll save on operational costs in wells and septic tanks pretty much line up with the cost of replacing entire systems. In other words, you’re not really saving much money in the long run with Wells. There are some cases where you can get the municipality to pay for the installation of city utilities for you, sometimes those local governments get federal grants and they’ll help low-income areas so that you can improve the living conditions. If you could be worth the time and energy and cost of schmoozing with local officials to see if you can get this accomplished, then you might want to consider it. But in a nutshell, there are all of these utility infrastructures that you have, sometimes you’ll have all-inclusive utilities with water, sewer, gas, electricity included. Mostly those are RV communities, for the most part, but it’s more common in the Midwest and out west than it is here in the east or the south. Most mobile home parks here are going to have the electric or gas sub metered and the tenants must pay directly to the vendor. All of these variables will make the value of the mobile home park fluctuate. That’s why it’s so important for you to have a specialized mobile home park broker on your team, i.e., The Mobile Home Park Broker. Why wouldn’t you have someone on your side that will look at all the 1000s of deals that we look at every year? The risk factor is huge when buying a mobile home park on your own. Our company does a ton of upfront due diligence on every one of our deals. That’s how we know. That’s how we know so much in such a critical area, such as like water, sewage, you just don’t want to make mistakes in that area.
1:19:21 Maxwell Baker
Moving on to Big Tactic Numero Ocho Big Tactic Number Eight, How to write a contract that protects your interest as a buyer? This is where the rubber meets the road you want and need a contract that is thorough or protects your interest, but not so long. It requires a team of attorneys to review and make a zillion edits and scare off your seller. The key here is to be thorough, but not to hire a legal guru who drop a contract the size of the city phone book, and you’ll scare away any mom-and-pop seller you’re expecting in the 10- or 12-page range of or less. The thing about the guru contracts is they’re so thick because they want to cover their own asses. I like the ones our company use. Obviously, I’m a little biased, but which they’ve been made to be a little shorter, and they point do we use a local state purchase and sell agreements, and they’re pretty equivalent to those we had an attorney basically cut it up and create our own version of it. The seller will always know that there are state documents most agents use when buying and selling homes, and sometimes they’ll even have a commercial version for you to use the state will or the commission. Now let’s talk some of the language I like to use in my contracts. I like to label however many lots the park has; However many mobile homes will be transferred to closing. I had to learn the hard way that the importance of very accurately reflecting quantity counts on lots in the homes. Next, I’ll insert what happens if a home is removed or lost while under contract. Will the seller give the buyer a discount? If that happens? How much? Spell it out, as a broker, I always add the number of days the buyer has to see the property from the effective date. This is for obvious reasons. You need to get that park ASAP. If it isn’t for you, don’t waste your time or everyone else’s move on and get another deal. Cancelation terms are another critical component of the contract. I always insert the condition that the buyer can unilaterally, that means you cancel this agreement and have all earnest money returned. Why is that important? I’ve been through so many occasions in the past that I finally learned that it’s probably best to just have the buyer cancel it if they do not want the deal, otherwise it could get messy, tie up your deal, and ultimately, just kill a bunch of time that nobody wants to kill. So, try to get that in your contract. Arrears in rents. This is another big one. I’ve had sellers go to the old tennis after closing and try and collect rents that they were behind on before ownership was transferred. That’s a recipe for disaster. Include language in the contract that the seller must collect rents prior to closing. Operational equipment. You need to have the seller give you a list of equipment included in the sale, if any. I’ve seen sellers after the sale of trying to sell new buyers, tools, garden hoses, lawn tractors, snowplows, whatever it is that they can get an extra buck on, they’re going to try and sell it to you. But it’s best you can do that up front and negotiate up front, because if you do it afterwards, and they see that you need it, probably not going to get that much of a discount.
01:22:29
Next, we’ve got natural disasters. This one is all about liability here in the state that I live in Georgia, and probably some of the other states that are weather prone when you’re under contract and you technically have equity in the seller’s Park. If a tornado goes through the park before this final sign off, by law in some states, you will be required to pay for the park repairs. That’s why we put in the contract the stipulation that the seller will bear all financial responsibility if an Act of God occurs before the deal is closed. Encroachments, we’ve talked about this before, and in case the park has a home touching on the neighbor’s border, get in contract that they will protect you in this area. Meaning you need to do this by stipulating that if there are encroachments on the neighboring mobile homes, that the seller will bear any and all costs to remedy the issue. I went through this once, and now I have a contract language that solves a problem before it even comes up. The end, no more problems. Walking through all Park owned homes. Don’t make the mistake of trusting someone’s word of the condition of the mobile homes or in the sale agreement, make sure you first walk through all the homes that are in there, that are Park Owned Homes, and maybe some of the tenant owned homes, if you can. Just make some high estimates on what you think it’ll cost a rehab based off of where you feel the condition should be when you go rent it out or sell it, when you take over. Next, we have utilities. You can save significantly on the utility cost by paying attention to what I’m telling you in this area, include contract language insisting that all utilities in the park or the seller’s name shall be read within 24 hours before closing the resulting charges paid by the seller when invoices are received, you want to prorate this based on the day and the month and when the city sends the bill, otherwise, you’ll have an awkward conversation with the former owner when you try to get them to settle up after the fact. One of the last points about utilities, sometimes in larger parks and municipality would charge some outrageous deposit to service your park. I’ve seen it go as high as 25 grand. Talk to seller about this upfront. You might be able to negotiate some of the costs with them or leverage it against some other point in the negotiation,
01:24:39
Evaluating homes, infrastructure, land and equipment. One word here, depreciation. Figure that out when you’re putting the contract together, and you’ll be in a good spot when it comes tax time. At this point, there are contractual terms of primary interest to the buyer, but we’re always coming up with new ones that reflect what we experience day to day. That’s another. Reason why you should be hiring our company to be your advisor during any park sale you become part of we’re professionals that uncover all the variables when buying and selling your community. Why wouldn’t you want experience that on your team? It’s a no-brainer. It’s worth its weight in gold, and ultimately, it’s going to put more money in your pocket. It’s like an insurance. Insurance is there to protect you; your broker is there to protect you! Pretty much. No brainer again and if you want to call us, love to walk you through all that stuff, or if you just want some free data, information or anything, I’m always happy to give that to you (678) 932-0200, or email me at info@themhpbroker.com moving on to the very secret, because I didn’t even mention it, because I only said there were eight, but big tactic number nine.
01:25:52
Big Tactic Number Nine, make mo Money with TV, internet and phone. Oh, my mobile home park owners are now able to tap into revenue benefits previously offered only traditional multi-family properties. I’m talking about the profit center benefits of Internet, TV and phone service contracts for tenants your next mobile home park purchase may now qualify for some pretty attractive upfront cash compensation plus ongoing future revenue residuals in this area. This is something that typically was only used by the big boys, but now, with my new friend Bob Jones from Touch and Connect, we’re able to bundle these parks together into bigger packages to maximize your profits when it comes to selling media to residents. Typically multifamily property residents, for a while, had the freedom to shop about contracts with their communication service provider, choosing ATT, DirecTV costs, Comcast, all those different ones that are out there. Traditionally, in most cases, the residents paid a premium price for said services, and the property owners gained little to no, little to nothing for controlling that market. Fortunately, times are a changin and my buddy Bob has gone bat for smaller and medium sized communities to get bigger paydays from these media companies throughout the group of buying program. Better value pricing for your tenants. Tech providers simply want the easiest path to marketing services to your residents. These providers will offer exceptionally discounted pricing to your residents in return for exclusive marketing rights. But don’t worry, these marketing rights don’t prevent your residents from selecting competitive provider offerings. The rights simply give the provider the ability to promote their offerings directly to your residents, while preventing competitors from doing the same the provider can host promotional events at the property to offer specials, they are not available to the general public, or to distribute sales of literature to your resident stores. For this exclusive arrangement, your property can now be rewarded with attractive compensation. More cash to your bottom line. Tech providers are constantly jockeying for market share and are willing to compensate property owners in order to seclude exclusive access properly negotiated marketing right agreements typically include upfront fees per unit, commonly referred to as door fees, along with ongoing revenue sharing. The revenue sharing part of the deal pays for your property owner a percentage of what your resident pays to the TV provider, phone or internet. Such agreements routinely run for a 10 year program period. Net compensation offers can range from anywhere between 30 to 80 units per door, door fees, plus ongoing revenue share based on several factors. Bob specializes in these helping mobile home park owners gain these types of new revenue and secure the really discounted media services for the residents. So, it’s kind of like free of money. So, who doesn’t like that? These auditors, analysts are on your side. They’ll help you establish a new and anticipated profit center and squeeze every penny of benefit from the tech companies. Bob is here to provide all that kind of stuff for you and give you an audit on your community and if you want to talk to them, give me a call. (678) 932-0200, or email me at info@themhpbroker.com.
1:29:21
Moving on to the final commentary. Now that we’ve gone through the entire Buyer’s Guide, we’re going to talk about the next steps that you should be doing when you start investing. If the information I’ve read has been value, we’d love for you to join our team, and here’s what I’m working with that might be like when someone comes into our system, our goal is to ride shotgun on your journey to mobile home park. Investing, we’ve seen so many stories of buyers come into the industry with capital behind them and ending up losing their butt by not reviewing all the different variables or risk factors that the community has. It could eat you alive if you just make one critical mistake. Our Job is to guide you to success, so you can get the most out of your investment and continue to grow. First, fill out that buyer questionnaire we’ve sent you, or you go to our website, www.themhpbroker.com, and there’s another buyer questionnaire that you can fill out by creating a profile and from there, we can start hunting deals for you. You could hire us as your broker, perhaps on a flat fee basis. We’ll lend you our years and years of experience that we’ll be able to provide to you. Also, if you’re looking for debt, we do have the ability to source debt now, and are sourcing debt for a lot of our own deals and providing competitive rates that most people don’t see on the streets. So, give us a call, (678) 932-0200, or email me at info@themhpbroker.com. If you have any other questions on deals, we have listed, then give us a call, happy to jump on a conference call with the with us and the lead agent go over the numbers and explain kind of how we get to our numbers. We never try to buy listings. We try to price things at the market and make it fair for everybody. So, give us a call. Happy to help you write an offer and see what the seller does. We’re here for you, riding shotgun on your journey. So, happy investing and as always, let’s keep moving forward!
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