On this episode of The Mobile Home Park Lawyer, Ferd discusses knowing when to sell and leave some for the next buyer. Ferd takes us through an experience he had with an MHP in Southern Illinois that wasn’t worth the hassle. This MHP taught him to leave some meat on the bone for the next guy.
“If you buy it right, you make your money when you buy, you get paid when you sell or when you refinance.”
0:00 – Intro
0:50 – Ferd shares a story with us that explains the difference between southern Illinois and northern Illinois
1:25 – It was very hard to find laborers/contractors
2:17 – Illinois has a more owner retailers processes than most states
2:26 – Ferd speaks about some challenges the retailer’s license and gives us some examples
3:48 – Ferd takes us through some of the ways he ended up making money on the MHP
6:46 – Ferd tells us the story of how the manager they hired was breeding Pitbull’s which added to making the MHP an uphill battle
10:24 – If you buy it right and make your money and you buy and get paid when you sell and refinance
10:50 – Ferd tells us about how he positively added to the park so that he could increase the rent
13:53 – After sharing a horror story from the park Ferd mentions how the local police couldn’t help much which made owning the park quite stressful
14:41 – Ferd tells us how he ended up selling the park
14:56 – Leave some meat on the bone for the next guy
15:34 – Ferd mentions how people that owning an MPH is passive income. It’s not
Welcome back mobile home park nation. Ferd Niemann here with another episode of the mobile home park lawyer podcast. Today, I’m going to continue on a couple of my case studies of projects that I’ve worked on. And this one, oh man, this one is from central Illinois. And it was a tough project, on this park about two years. To give you an idea of the difference between Northern Illinois and Southern Illinois, I have a broker that is regularly throwing me deals in Southern Illinois. And I told him, I said, I made almost 450, $475,000 on a deal in Southern Illinois. And it wasn’t worth it. Because it took so many years off my life, my dad’s life. And I’m from Illinois and it’s just the towns in the south are a little rougher in general. It was very, very challenging to find laborers, to find contractors.
We had about 15 park-owned homes remodeled. We brought in, we bought these homes, we bought them in bulk from some developer that wanted to get rid of all the old used ones. We bought like 10 of them for 20,000 and paid a guy, a thousand dollars apiece to move them. So we had a very low basis about 3000 a home. But what that meant was we had a really heavy workload to renovate these and they were toast. Some of them been in floods, we’d replace all underlayment floors, a underbellies of the home, all the, you know, water lines, appliances had replacing the walls, they were rough and tumble.
And the challenge was we had to go with used homes in my opinion, because Southern Illinois is not really a new home market. So we didn’t, and Illinois has a more onerous retailer license process than most states. I mean, Illinois has more onerous processes in general, but the retailer license had some challenges as well. For example, you have to have zoning that says you can have a retail storefront, retail sales. Well, have I was zoned or grandfathered in, I was owning residential in the middle of the neighborhood, but I had my mobile home park.
Well, the city wouldn’t give the sign-off that I was quote, zoned commercial or zoned in order to have retail sales, which was requirement of the retailer’s license. So that was kind of a challenge. There was other training requirements and costs and bonding, the associate with the one-way license, not that uncommon, but ultimately the decision was made by dad and me that the product will sell new homes in this market.
So anyway, with all those used homes, we had to try to find handyman and contractors and vendors. And we had a heck of a time. Dozens of calls. Dad probably met 15 legitimate general contractors. You know, guys, with the name of their company in the side of their truck. Those guys would show up even, they’d show up, they’d say look in the eye and I’ll give you a bid. Give me a day or two to put my numbers together, crickets, they wouldn’t bid. It was unbelievable.
We’d have guys that would bid it finally. And then they would, I am booked out two weeks, now two more weeks and they just disappear. We went through so many handyman on this park, but anyway, I ended up making money on it. So I am going to tell you a little bit about how that works.
So first off, how do we find it? Well, www.mobilehomestore.com or www.mobileparkstore.com. I used to look at those listings every morning at seven o’clock. They’d go live for the day and I’d look at them. And if there’s any, most of them, just real cursory review, okay, it’s in Ohio. I’m not looking for Ohio. It’s in Arizona. I’m not looking for Arizona. This one was, it’s in Illinois. Okay. And I did a quick economics metrics on it, and it seemed to be reasonably priced. It was listed at 450,000. It was 65 Lots about 35-ish we were occupied. It was kind of a gray number because the owners were three children that were grown children who inherited this from their parents from years earlier. And they were all over the country. Like, I don’t know, Ohio, Indiana, and California. They didn’t want the property. They couldn’t really get along. They were difficult, I had a lack of good information. So I was like, I think there’s about 35 homes. We didn’t know how many were paying at that time. So it was 450. It was a residential land broker for his first MHP listing. So he didn’t have a lot of the information that, you know, normally you would see from a broker and park, because again the seller was really kind of out to lunch.
So got the deal tied up for about 345, right in the first week it was on the market. So got it well below list, thought it was a decent deal. Started kicking the tires on it and spent some money on it. Got a survey, you know, got some, got a title commitment, a preliminary talk amendment, looked at the exception documents and the title review. And Darren look around the market and realized, looking through seller financials that this part was not being optimally managed. And there were only about 20, 25 maybe customers were paying. My memory’s a little foggy, but there were, I think there were five people who had not paid rent in over a year. And this is back in 2018, early 2018. So before the, no, it would have been yeah, about 2018. So before the pandemic and all that, so people weren’t paying and there was one person that hadn’t paid in 62 months. It was crazy.
There were at one point six individual homes that had Neo Nazi swastika flags hanging from the roofs. So it was like, okay, this is a little scary. And that should have probably been a reason to bail to be honest, because that told me that my clientele were a little rougher than I would have wanted. And we had pit bulls all over, our manager, later hired a manager there turns out he was breeding pit bulls and he was making a bunch of money on it actually.
But anyway, it just made for an uphill battle. So had a title at 345. We started finding all these problems. It was too great of a difference in price to retrade the deal. So we didn’t even retrade price. We just said, we’re dropping the contract. So we dropped the contract. Seller was mad, but we’d kick the tires on, done a lot of work. We also found out that there were about, I have to think about it, call it 30 vacant, and about half of those and then two main streets, about half of those had a gas line that was running right down the middle of lot. Well, I had determined that the easement said the gas line was supposed to be in the alleyway between the homes. So that the actual lines of where the, I could tell when I was on site, that the gas risers were going from home to home, kind of taking the shortest distance between two points, which was cheating instead of going to the easement, down to the home, back the easement, down, back to the home, repeat.
So the gas company over time had taken a shortcut, which is a problem for me because I wanted to infill those lots. You can’t put a home on top of a gas line. You drill your drill into the earth to put your concrete and you’re going to blow up. So I was fighting with Amarin the utility company, and I said, you got to move them. They said, you got to move them. I said, they’re in the wrong spot. They’re in violation of the easement. So this was a, you know, good reason to read your title work and it was a $95,000 relocation cost. So obviously going to deal with this size, that was substantial and I didn’t want to pay for it. So in the meantime I’m not getting very far with them, other hair on the deal, we just dropped the contract.
Well, wouldn’t you have it, the next guy do the same thing and the next guy and the next guy, so that the seller is pissed. But they knew that dad and I had actually put some energy into this and some time to this. So they just said, we want to get rid of it. They called back and said, you’ve looked at this deal the hardest, make us an offer. What’s your highest and best offer. And in the meantime, when I’m out of contract, right at the same time, Amarin calls me back and says, they want to continue to talk about the utility lines because they recognize it’s a problem. And they want me to pay for it. We get out there with the surveyor title. I was remote, cause contract actually. But I was looking at the survey surveyors on site, utility companies on-site, somebody from gas, coming from electric, long story short, they said, you got to move them. I said, look, when somebody blows up who they going to Sue? Probably all of us, but they’re going to Sue the deepest pockets. And that’s you guys, and you guys are on written legal notice from a lawyer that your gas lines are in the wrong spot, illegally placed. So you need to move them.
And that did the trick and they caved and they said, fine, we’ll move them. But we need like six weeks or eight weeks or something. I said, I don’t care. And then right about that time, the deal fell back in my lap. And that was a lesson learned was I dropped the deal gracefully and respectfully. So then they brought it back to me. So I said, I now have this new information that a utility lines weren’t as big a problem as I had previously thought they were. Or as I previously had told the seller because new information came to me. So I just kind of dumb luck on the timing. And I told them, I said, I’ll pay one 120 cash, you know, close in 10 days. And I put up 100,000 earnest money, which let him know I was serious. And they said, make it 135. I said, deal. So 10, 15 days later, we closed on the deal for 135,000. So lesson learned here is I bought it right. If you buy it right, you make your money when you buy, you get paid when you sell or when you refinance. So we had it, we had a low basis in the property, and then we spent a bunch of money. We trimmed, I think it was 65 tons of trees that got taken down. We repaved the streets. We painted I don’t know, almost every house, but pretty much every house, we demoed a few houses, we need to buy some houses on tax sale.
We had a couple more abandoned and we brought in a bunch of houses and renovated them and it was a labor of love. Let me tell you, and we increased the rent, rent was 122. The oldest lease I saw was nine years old and the rent was 122, 9 years ago. But I suspect it was 122 for much longer. So I mean, market rent was about 200. So we took the rent. We improved the park immediately. The first two weeks spent a bunch of money on it. I don’t know, 75,000 or something like that on the park. And then we sent out a rent increase notice, and nobody even complained. And they realized we went from 122 to 180. So huge increase. Generally, don’t try to increase that much, but this was so below market and the park was so rough and we did so much. We put in a playground and you know, we did a bunch of other stuff that just made it look a lot better immediately. So nobody even complained. And we ended up getting everybody, but about three people to pay. The ones that didn’t, we bought their houses off them for a hundred bucks and demoed them or gave them away to the next guy.
And the lady that hadn’t paid in 62 months, what do you know? She started paying, you know, her story was well, I’ve got cancer. Well, she, I don’t know if she ever actually had cancer. But she’d been telling the, everybody in the park had listened for the last five years, Oh, I’ve got cancer. So that was her excuse. That was the excuse before you could say COVID is the excuse to everything.
So anyway, we fixed the roads. We improved the curb appeal. We improved the tenant quality, improved the Home quality. We increased occupancy, we increased the rents, but you know what? The lesson learned on this deal was, you know, pigs get fed, hogs get slaughtered. We didn’t need to be hogs in this. We bought it right. We put about 250,000 cash in this deal. And like, you know what? This is going to kill us, chasing these skinheads around trying to get them to fall in line. And I’m like, I don’t think I’m going to die on a job. But I mean, I told my dad, if you ever die on the job, it’s going to be at this trailer park. And we had a guy, he was a sex offender, took forever to get rid of him. He’d been through the court system. So he knew when you’d evict him, you could ask for a jury trial and he just made this thing a huge nightmare.
And he was sleeping with any girl get near him. And apparently, there was a 16-year-old girl who live in the park and our twin six-year-old brother was aware that this 45-year-old sex offender was sleeping with his sister. So he went into his house and took a baseball bat and hit him over the head like 15 times with the baseball bat. This is as I’m getting to list this park for sale. And I’m like, it’s going to really ruin my sale among other things that person to be murdered in this park. And it wouldn’t murder, like drive-by shooting bad gang neighborhood. It was with a baseball bat, but it was going to sound the same. So the guy didn’t die. He had a coma. He had a bunch of staples in his head. He was knocked out for several days. He was in the hospital for several weeks and he gets out, he starts carrying a baseball bat around and I got two guys walking around with baseball bats, just kind of puffing their chests out. And the local police were worthless. We’re like, guys, please, there’s going to be a murderer. These guys are beating each other to death. And they’re like, well, if you catch them in the act, call us. There were drugs going on. It was like, if you catch them in the acts, the cities didn’t want to, they wouldn’t do anything.
We tried to hire off-duty cops, off duty sheriff deputies. They’re like, we’re not interested. You know, some cities will let you do it at a high rate. Some of them do it at a reasonable rate. These guys wouldn’t even try. So anyway, we decided that we got up to about 51, I took them like 25 or so paying loss of 51. And you know, it was valued a lot higher. We thought it was valued in the eight, nine hundreds. You know, we bought it for 135. This is all about in 18 months. So we ended up letting it go, sold the deal for 905, had to commissions and stuff and closing costs, it wasn’t all profit. But we made that $450,000, $475,000.
So a lot of cash, took some years off our life, unfortunately. But one of the lessons learned was, you know what, leave some meat on the bone for the next guy. The next guy who was able to, you know, he’s bought it from us, brought in some more houses, he’s going to sell it probably in a couple of years for definitely north of a million. So good for him. So I hate to give up on a project, but I also recognized this project has taken up so much time and so much energy. And we had people that, you know, if you try to evict them, they’d call the attorney general and say that you were selling homes with black mold, things like that, which wasn’t the case. We had two attorney general complaints we had to fight through, got through those. We had a bunch of evictions and this is one of those, you know, people think this is a passive business. It’s not, it’s get rich quick or get rich easy. It’s not, especially rural markets. Southern Illinois was tough. I’ve got other parks. I think I still have three parks in Illinois. One in the St. Louis, Metro, but I’m okay with Illinois. But the further south you go, the tougher it is. I’ll just be honest. Is it as obvious and evident from this little podcast here.
But overall we did the regular blocking tackling, you know, we didn’t have to submit meter this, which was great. It was direct bill water, sewer. So city utility, so that was good. Another little fun tidbit. When we did our due diligence, we noticed there was no snowplow costs. So we’re like maybe the city plows the streets because the streets were, some of them are private, but the outer boundary street was a public street. So we’re like this, maybe the city’s plows all the streets. And we don’t want to tip off the snowplow company, the snowplow department that this is not city streets. So when the first snow came, we had a snowplow guy on the ready, but we told him do our plow last. And he said, why? I said, because the city might do for free and we might call you off. So we wait and we wait, we wait. It’s like eight o’clock, nine o’clock. There’s like five inches of snow. And finally like, okay, the city is not coming. So we hired a guy, you know, 300 bucks. Okay. That stinks. So we asked the old manager who we had replaced and I don’t want him to ask him earlier, but we asked him his name was Barry, Barry, there’s nothing in the last three years financials about snowplow. Who plowed the streets? Did you plow at like no cost? Or he said, well, nobody plowed them. I said what do you mean nobody plowed them? Like it snows in Illinois, nine inches sometimes. And he’s like, yeah. I mean if it snows, you just, you can’t go to work for a few days.
I was like, wow. So the last owner, I thought they were just, the city was doing free. They just weren’t plowing the snow. That was how much they were you know, just leaving this park to be, there was a slide and that they had a playground. You climb up the ladder to the slide and the slide was gone. It had fallen over. So basically you have just like a diving board, if you will, in the middle of the playground. So lots of safety issues in this place, but overall we got it done.
Oh, here’s another, I think about this nightmare. We got a phase one, right. We bought this spark. We always get a phase one. It came back clean, no big deal. We go to sell it. I tell the buyer, look, there’s no need for you to pay for your own phase one, I’ll pay my company to update it, $250 instead of paying $3,000. He’s like, I don’t trust your company. It’s not like I own the company. It’s some engineering company. So he gets a different company, fails the phase one. I call my guy and say, what the heck? He goes, well, it was on the fence deal. I was probably a little aggressive, but yeah, I could see why the other guy says this, you should probably do a phase two.
So I’m sitting here under contract, going to make nearly half a million dollars. And I might have a phase two problem. So of course the seller wants me to pay or the buyer wants me pay for it. So we ended up having to pay for phase two. And then we had to dig and do some core samples and borings and crap. And ultimately it came out fine, cost me an extra $3,000 or $4,000. But that was just like the cherry on top of the deal that gave me gray hair.
But all in all, nobody was killed and there were no more violent fights. There were no more sex offenses. There was no more drugs and we improved this community and made some money in the process and got out alive. So anyway, that’s my story. I’m sticking to it. Until next time be safe. God bless.