fbpx

Ep. 97 | Case Study – Follow The Basics And Make Six Figures On Your First Deal

Share:

Share on facebook
Share on twitter
Share on linkedin

On this episode of The Mobile Home Park Lawyer, Ferd introduces his new mini-series about case studies on projects he’s done over the years. In this episode, he speaks about his first park which he bought in his hometown, and how he made $450,000 dollars on it when he sold it in 2018.

 

HIGHLIGHTS:

0:00 – Intro on the new miniseries
2:23 – Ferd talks about a park in his hometown of Quincy, Illinois, and recommends starting close to home, where you are familiar with the market
3:13 – Ferd put together a very detailed business plan for his first deal
4:05 – Ferd goes through everything he had in the business plan
4:55 – Ferd got a 100% loan on his first park worth $650,000
5:40 – Ferd goes through some strategy
7:47 – Ferd sold the park for $950,000 in 2018 which worked out to about $450,000 in profit
9:59 – Ferd tells a story about how he had a resident on Quincy’s top 10 most wanted
11:41 – Ferd still owns some of the homes in the park

 

FULL TRANSCRIPTION:

Welcome back mobile home park nation. Ferd Niemann here with another episode. Today, I’m going to begin a little mini-series on some case studies. These are some projects in mind that I’ve worked on over the last number of years. Really just want to offer these kind of guidance and encouragement for those good start in the industry, but also just some lessons learned. I haven’t done anything Perfect. Try to learn a little bit from every project. Knock on wood, I’ve done over 20 projects now, and they’ve all been profitable. But some of them could’ve been more profitable. Some of them were, you know, barely worth it. Some of them are beyond worth it and I’ve learned a little bit over the last I don’t know a number of years, I started in real estate investing in 2010 and I really started focusing on MHP in 2014 for several years in there did real estate law and did retail development, some single-family, some duplex, but really MHP since 2014, mostly more primary the last two or three years, I guess now three or four years.

But anyway, I want to just cover, I don’t know how many of these I’m going to do maybe four or five, just not going to do repetitive ones. A lot of the business plan, if you will, is the same from one project to the next, but they’re not all the same. And there’s lots of ways to make money and make money ethically not easily, but to make money ethically, morally responsible. And with the risk that is mitigated and you always want to have that risk-reward analysis going on your brain. Sam’s L’s being on that and his book, am I being too subtle? He really just gets into, you know, is there a risk here? Well, yeah, but if the risk is small and the reward is potentially great, then it might make sense to do it. If the risk is high, we may not want to do it even if the reward is potentially great.

So anyway, the first park I’m going to talk about, this is one in my hometown of Quincy, Illinois, and I advise people to try to start as close to home as possible. You can watch it, you can kick it, you can touch it, you can visit it a little better. You probably know the market. You probably, maybe not the MHP market. You know, I didn’t know the MHP market. I didn’t even, I didn’t even recognize how many trailer parks that were in my hometown until we started looking to buy trailer parks. And then you also can just supervise better. Now, my dad was my business partner on this and he was local. I was in Kansas City. So I wasn’t watching as closely as he was. I wasn’t doing the management of the project or property as much. I was doing more financial legal review operational consulting type stuff, you know, bank relationship, things like that, but we didn’t have investors. This is not a syndication. I didn’t have a lot of money to throw at it.

What I did on this property, it was really valuable was I put together a very detailed business plan. I don’t remember many pages. It was, but he made, it was probably a 20 page binder. And my lender told me, my current lender, it used to be at a different bank and I took this to two banks in town and he told me that they still would use that booklet as like an example, when people come in with a back of napkin business plan, oh, here’s my project. And it’s like, no, no, no.
That’s like, if it all goes right and you know, there’s the old joke in the banking industry that there’s nowhere in a Microsoft Excel proforma do you see a bankruptcy, nobody’s business plan includes a bankruptcy. No one includes the rosy picture. What I’ve tried to do is paint an accurate picture and tried to just go through, you know, my strategy, my vision, my implementation of my vision, and in that business plan included in the docket, you know, included my resume, included my written business plan, included my dad and my background and bio included our tax returns, our personal financial statements, stuff on the park. You know, our day one budget, our capex budget, or implementation to increase occupancy and increase rents and increase value. Our resources that we were going to use, you know, strategy-wise and vendor lists. We had market research like rent comps.

I had a detailed proforma on a discounted cashflow analysis. Some of you have seen them on my podcast or you bought it off my store on my website, but the bank still uses that to train people in underwriting. Like this is what, you know, Performa supposed to look like. So what I lacked in experience I had in preparation and it got me in loan approval. And what’s really cool about this one is this was a 54 pad park and the purchase price was $695,000 and my first mobile home park and I got a 100% loan, which was amazing. The powers that be at the bank later changed, like the different guy became president and I did had more experience, had more network, more liquidity. And he never gave me one of those again, he was like, Nope, he actually did one other time, I guess, but it was with a cross-collateralization, but a 100% finance my first deal. We put about 80,000 in this deal. It was a 54 pads, 46 were occupied. It came with four park-owned homes, got nicer Park owned homes like two and three years old. This, we bought this in 14s. So these were like 11s and 12s. So they were pretty nice models, the strategy in this was fix the roads, the roads were rough, spend $25,000, $30,000 on roads, improve the curb appeal, picket fences, rose bushes, improve the tenant home, and tenant quality. Kick out some bad guys. We had a couple of bad guys in this park, general park cleanup and junk removal, paint some houses and increased the occupancy. We filled up all but one, we filled up 53 to 54 lots. I wish I would have filled all eight. We were a lesson learned as we had a park greeter who lived in the park and they live next to a vacant lot. And they built like a gazebo on it and had a fire pit. And they had a soda machine out there and it was like their little hangout spot.

And they just begged us don’t fill this lot. So we decided not to, and I didn’t have a stronger grasp, you know, seven years ago as I do now for the financials of these parks. And I thought, oh, it’s only 200 a month. I was like, no, it’s only 200 a month, you know, 10 to 12 months. So he’s due my value here. I mean, here’s the evaluation 200 times, 12 times 0.7 equals at an eight cap, $21,000, only $21,000 value I gave up. So that was pretty foolish in hindsight. But we increased the occupancy and we increased the rents.

The other thing we did that was kind of, I say, I’ve been a foolish, but it was just, it wasn’t growth-minded. It wasn’t scale-minded, it was we didn’t bring on partners, financial partners for bringing park-owned homes. And we had to demo, when we filled seven lots, but we really had more than that. We had about 20 houses all in because we had demoed some homes and we were bringing some more homes. We bought some homes, people were evicted and we bought some homes at the tax sale. We bought a home from a bank foreclosure. So we used, we regurgitated the same 80,000. I didn’t have $250,000 to throw it all those home. So we just regurgitated it and then brought one in, sold it over a year or rented it for a year and then sold it and sold it over terms maybe for two or three years, and then regurgitate the same cash. And that required us to grow slow. And those park-owned homes made gross low as well. So not necessarily ideal. Now, all in, we sold this park in February of 18 for $950,000. And by the time you add up, some principal pay down, some money from the home flip, some money from cashflow. We made about $450,000. So on an $80,000 equity investment, that’s an equity multiple, you know, 6.5, 6.6. So pretty strong you know, first deal. I know it took several years of operations. So it wasn’t like we were getting rich on that, sounds like a big number, but divided by two. And you spread it out over, you know, three years and it’s nice, but it’s not like you made it every month. You were pouring cash in and pouring energy in, in the meantime.

But that was really the business plan. It was just your regular blocking and tackling story we all hear from the Frank and Dave bootcamp, you know, and we also sub-metered the water. So we sub metered the water, increase the rents a little bit. We increased the rent from, I think it was $180, and then we took it to like $190. It wasn’t big of an increase. Then we took it the next year to $200 and then I think $205. So the rent increases were kind of modest. So we had a combination of rent increase, capex, beautification, some sub-metering, we had just a little better operations from a local operator and all in, we made, you know, several hundred thousand dollars. So pretty good deal. Nothing too sexy or earth-shattering in that. But that was our first park. And it got us going, that put some hay in the barn as you will, and gave us a taste for it.

I mean, we’d already had a couple others going by then. We actually owned three at the time we sold it. And since sold all three of those, right about the same time actually, but that was the one that like, okay, we execute the business plan. It also had a small two acre parcel with it that we didn’t need. So we sold that parcel off, made like $15,000 and had to, you know, fight with the seller on some surveys. Some issues, road access. So it wasn’t, I didn’t have no hair on it by any means. I remember one quick story on this. I’ve given you a couple of little lessons learned, but one quick story is we had a resident that was on Quincy’s top ten one, and we went to, I was in town. It was like Thanksgiving or something. We went to collect rent and dad and I went up there and the guy came outside, big, huge guy. It was cold out like 40 degrees, no shoes, no shirt, and jeans. And he’s got his arm all bandaged up. He’s got wires coming out of him. Like it looked like the back of a VCR, like red, white, and blue cords. And he’s yelling, I can’t pay rent. I already shot one thumb off with a gun. And now I cut another one off at work. And general assistance has given me the rent check. I don’t have to get you, get away from me. And it was like this guy’s going to pummel my dad to death. And I sat there in the truck and I didn’t do anything. And he was out there and he just kept his distance, you know, 8 or 10 feet away. And he got back in, he looks at me, he’s like where was my backup? And I was just like dad, if I had gone out there, it would have caused a confrontation. And the guy would killed both of us with a torque wrench. So decided to just leave you on your own. He’s like, thanks a lot. I go, that way if he would have killed you, I could at least call the police. And my dad didn’t appreciate my strategy. But I thought it was a good idea to not escalate the confrontation that this giant man who had been recently released from prison.

So anyway live and learn. We lived through that park. We sold it. Unfortunately sold it to private equity group that has mismanaged it from day one. I don’t think they’ve honestly been there. It’s as I record, it’s been almost three and a half years. I don’t think they’ve been there since then. And it shows, you know, it’s pretty rare in this industry for homes to be pulled out of a park, but there are numerous homes they’ve just left on their own, just saying we don’t want to be in this market anymore. So another interesting point from that parking lot, I’m thinking out loud is I still had 15 of the mobile homes at the time we sold the park and the buyer, their CMBS lender would not allow them to own any park-owned homes. So as a condition to sale, we kept the park-owned homes and I’ve sold them off over the years. I still own five or six out there and just been paying lot rent and using, I guess I’m your, I’d want to say your world’s most sophisticated dealer, but it was a condition of the sale that I also couldn’t move them out. So I didn’t take them out of the parks. I just been selling them when they go vacant rentals, I put them for sale and sell them. And just few years, I’ll probably be done with them on about another year or two. But I’ve whittled them down from 15 to, I think five tax return time is usually pretty good to get a pay off on some of them.

But anyway, one deal made several hundred thousand dollars. So got me excited about the industry. And here I am now, got my own podcast. What do you know? Thanks. God bless, have fun.

RECENT

BLOG

RECENT

EPISODES

Get new posts by email:

You can have results or you can have excuses but not both.

Arnold Schwarzenegger