Defining Your Exit Strategy BEFORE You Begin Investing in MHPs

Transcription

1 MHP Exit Strategy

2 Defining Your Exit Strategy BEFORE You Begin Investing in MHPs Find Resident-Owned Mobile Home Parks These Parks Are Sometimes Difficult to Find Plan on Converting Park-Owned Mobile Home Parks to Resident-Owned This Will ELIMINATE Your Maintenance Requirement Eliminating Maintenance DROPS Your Overall Gross Operating Expenses

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7 Implementing the Lease-Option Method on a Park-Owned MHP Give Each Tenant the Option of Becoming a Home Owner Abolish Current Lease Implement New Lease-Option Immediately Instantly Eliminates Maintenance Issues Instantly BOOSTS Bottom-Line Cash Flow (Since Lease-Option Payments Are HIGHER Than Tenant Payments)

8 Lease-Option Term is Typically 1 Year

9 But What About the Cash Flow? It INCREASES Not Decreases! Most Lease-Option Tenant-Buyers Will NEVER Complete Their Lease Term Most Will MOVE OUT and Cancel/Forfeit the Lease-Option Contract

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11 The Best Part About This Strategy No More Maintenance! Instantly! Increases Income Immediately Giving Tenants an Incentive to Become a Homeowner Homeowners WILL Help with Better Upkeep of Your Property (Pride of Ownership)

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13 Sell Them! And Fast! Sell Each One for CASH to a Cash-Paying Buyer (Who is Not Necessarily a Tenant) Sell Each Unit to Each Renting Tenant for CASH Giving Them a HUGE Discount Finance the Transaction with Your Tenant (Using a Slightly Different Contract than a Lease- Option) Sell Them in BULK to an Investor Who Wants to Rent Each Unit Out (and Will Pay You the Pad Rent for Each Unit)

14 Here s How It Would Work 9-Pad MHP Park-Owned $622 Per Pad/Unit Per Month GOI = $67,176 Currently Operating at a 50% Expense Ratio (Which is Extremely High) NOI = $33,588 Debt Service on $230,000 Purchase Price = $18, (Full AM 30-Year Term at 7% Interest) Cash Flow = $15,225.60

15 Option A: Lease-Option Method Lease-Option Term = 1 Year Minimum Lease-Option Contract Fee = $1,000 to $5,000 (Depending on Property Class) Contract Fee is Added to Monthly Payments if Tenant- Buyer Cannot Come in with Cash for Lease-Option Term (and Typically They Will Not) One Year Lease-Option Term

16 For This MHP in Dallas Each Lease-Option Contract Can Be for a Low $1,500 Each Negotiate on a Sale/Purchase Price of $25,000 for Each Single-Wide on the Property (x 9) in the Lease-Option Contract This Gives Tenant-Buyer One Year to Secure His/Her Own Funding for the Unit within the Next 12 Months Can Extend Term Another 6 12 Months

17 The Fee is Added to the Payments Most Tenant-Buyers Won t Give Up the Lease-Option Fee Upfront You Can Give Them a Cash Fee Option (i.e. $1,500) or a Deferred Fee Option (i.e. $2,000) for Adding the Fee to Their Monthly Rent This Increases Their Monthly Payment by $167 Per Month (at the $2,000 Deferred Fee Option)

18 If 50% of Your Tenants Do This $167 x 4.5 Units = $751.50/Month You Instantly Increase Your GOI by $9,018/Year No More Maintenance on 4.5 Units You Instantly Drop Your Expenses from 50% of Your Initial GOI to 35% of Your Original GOI or to $23,511.60/Year

19 $34,320 Per Year Or $2,860 Per Month

20 Side-by-Side Comparison 100% Park-Owned 50% Park-Owned (with Lease-options) $622 Per Pad/Unit Per Month GOI = $67,176 Currently Operating at a 50% Expense Ratio (Which is Extremely High) Expenses = $33,588 NOI = $33,588 Debt Service on $230,000 Purchase Price = $18, (Full AM 30-Year Term at 7% Interest) Cash Flow = $15, $ Per Pad/Unit Per Month GOI = $76,194 Currently Operating at a 35% Expense Ratio (of Original GOI, NOT the New GOI) Expenses = $23, NOI = $52, Debt Service on $230,000 Purchase Price = $18, (Full AM 30-Year Term at 7% Interest) Cash Flow = $34,320

21 Option B: Finance Method Finance Term = 5 Years Minimum Choose a Sale/Purchase Price = $15,000 to $25,000 (Depending on Property Class) Finance Interest is Added to Monthly Payments if Tenant- Buyer Cannot Come in with Cash Outright Finance Term Includes Purchase Price Amortized Over 5 Years!

22 For This MHP in Dallas Each Sale/Purchase Price Can Be for a Low $20,000 Each CASH Negotiate on a Sale/Purchase Price of $25,000 for Each Single-Wide on the Property (x 9) in as a Finance Option This Gives Tenant-Buyer Five Years Pay Off the Debt Amortized at a 5% Interest Rate Pad Rent Will Be $320 Per Month

23 Mortgage Is In Lieu Of the Rent Payments Trade Rent Out for a Mortgage Between You (the Owner/Seller) and the Tenant (the Tenant-Buyer) This is Provided that They Didn t Go with the Lower ALL CASH Buy Out Option on the Unit This Increases Their Monthly Payment from $622 to $ Per Month

24 Mortgage Terms Fully Amortized Over 5 Years 5% Interest Rate (Although You Can Go Higher; Don t Be a Loan Shark!) Pad Rent (Without Unit) is $320 Monthly Fully Amortized Loan of $25,000 Over 5 Years is $ Per Month $320 + $ = $791.78/Month

25 If 50% of Your Tenants Do This $ x 4.5 Units = $764.01/Month You Instantly Increase Your GOI by $9,168.12/Year No More Maintenance on the Other 4.5 Units You Instantly Drop Your Expenses from 50% of Your Original GOI to 20% of Your New GOI or to $23,511.60/Year

26 Side-by-Side Comparison 100% Park-Owned 50% Park-Owned (with Financed Purchases) $622 Per Pad/Unit Per Month GOI = $67,176 Currently Operating at a 50% Expense Ratio (Which is Extremely High) Expenses = $33,588 NOI = $33,588 Debt Service on $230,000 Purchase Price = $18, (Full AM 30-Year Term at 7% Interest) Cash Flow = $15, $ Per Pad/Unit Per Month GOI = $76, Currently Operating at a 35% Expense Ratio (of Original GOI, NOT the New GOI) Expenses = $23, NOI = $52, Debt Service on $230,000 Purchase Price = $18, (Full AM 30-Year Term at 7% Interest) Cash Flow = $34,470.12

27 Side-by-Side Comparison 50% Resident-Owned (with Lease-options) $ Per Pad/Unit Per Month GOI = $38,097 Currently Operating at a 20% Expense Ratio (of New GOI) Expenses = $7, NOI = $30, % Resident-Owned (with Financed Purchases) $ Per Pad/Unit Per Month GOI = $32, Currently Operating at a 20% Expense Ratio (of New GOI) Expenses = $6, NOI = $25, New NOI: $56,131.27

28 Side-by-Side Comparison 100% Park-Owned 100% Resident-Owned (with Lease-Option + Financed Purchases) $622 Per Pad/Unit Per Month GOI = $67,176 Currently Operating at a 50% Expense Ratio (Which is Extremely High) Expenses = $33,588 NOI = $33,588 Debt Service on $230,000 Purchase Price = $18, (Full AM 30-Year Term at 7% Interest) Cash Flow = $15, $ Per Pad/Unit Per Month GOI = $80, Currently Operating at a 20% Expense Ratio (of the NEW GOI) Expenses = $16, NOI = $64, Debt Service on $230,000 Purchase Price = $18, (Full AM 30-Year Term at 7% Interest) Cash Flow = $46,320.10

29 But What Happens in 5 Years? Ideally You Will Own NONE of the Mobile Home Units on the Property All Lease-Option and Purchases Will Be Completed You Will ONLY Be Receiving Pad Rent

30 Here s What You Can Expect Raise Pad Rents from $320 to $450 Monthly Lower Expenses from 20% to 15% GOI on Pad Rents Will Be $48,600 Expenses Will Be $7,290 NOI Will Be $41,310 Less Debt Service of $18,362.40

31 Side-by-Side Comparison 100% Park-Owned (Original Figures) $622 Per Pad/Unit Per Month GOI = $67,176 Currently Operating at a 50% Expense Ratio Expenses = $33,588 NOI = $33,588 Debt Service on $230,000 Purchase Price = $18, (Full AM 30-Year Term at 7% Interest) Cash Flow = $15, % Resident-Owned (Receiving Pad Rent Only) $420 Per Pad/Unit Per Month GOI = $48,600 Will Begin Operating at a 15% Expense Ratio (of the NEW GOI) Expenses = $7,290 NOI = $41,310 Debt Service on $230,000 Purchase Price = $18, (Full AM 30-Year Term at 7% Interest) Cash Flow = $22,947.60

32 A Secret Strategy You Should Know! Dump ALL Extra Cash Flow Into Your Mortgage Principle If Any Tenant Cashes Out and Pays for a Unit (or Gets it Financed by an Outside Source), Dump 100% of Each Sale into the Mortgage Principle In 5 Years, Your Total Cash Flow Will Total $231, Not Including Possible Unit Buy Outs

33 So Pay Off Your Mortgage Early! Add $3,000 Per Month to Current Debt Service Monthly Mortgage Payment Will Increase from $1, to $4, Annual Debt Service Will Increase from $18, to $54, You ll Pay Off the Entire Mortgage Balance in 5 Years

34 New Numbers for the First 5 Years $ Per Pad/Unit Per Month GOI = $80, Currently Operating at a 20% Expense Ratio (of the NEW GOI) Expenses = $16, NOI = $64, Debt Service on $230,000 Purchase Price = $18, Added Principle Payments = $36,000 Cash Flow = $10,320.10

35 Here s Your Cash Flow After 5 Years Raised Pad Rents: $450 Monthly GOI on Pad Rents Will Be $48,600 Expenses Will Be $7,290 NOI Will Be $41,310 No More Debt Service!

36 Then Your Pad Rents Increase 10 Years: $550 Monthly $50,490/Annual or $4,207.50/Month Cash Flow 15 Years: $700 Monthly $64,260/Annual or $5,355/Month Cash Flow 20 Years: $850 Monthly $78,030/Annual or $6,502.50/Month Cash Flow

37 And When You Add Opportunities You Immediately Increase Cash Flow NOW You Increase the Value of the Property

38 Value-Add Opportunities Laundry Room Soda/Snack Machines More Pads/Units (Depending on Lot Size)

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41 Important Things to Remember Class C Properties WILL Be the Best; They Have the HIGHEST Cash Flow Older Parks Are Generally Better; Tenants Have Their Mobile Homes/Trailers Paid Off and Will NEVER Move Because It s Too Costly to Do So Mobile Home Park Tenants Have the Highest Tenancy Rate Over All Residential Investment Properties Average of 12 Years vs. 3 Years for Apartment Buildings

42 Things About MHPs That Will (Possibly) Kick Your Ass Septic Systems (Need I Say More?) Plumbing/Piping Underground; Private Water Lines The Riff-Raff Parks Where You Have to QUICKLY Eliminate Loser Tenants or Quickly Lose Good Tenants Abandoned Trailers Where You Can t Get a Title Transfer on the Units City Permitting Problems; Grandfather Building Codes Repaving Your Property; This is VERY Expensive

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