My company, Affordable Communities Group, LLC (ACG), based in Cary, NC, specializes in purchasing distressed mobile home communities at distressed sales prices, rehabbing the properties over 9-15 months and then either obtaining a refinance from a financial institution or flipping the property for significant gain. We have done 16 full cycle deals (buy, sell, rehab) for sales proceeds exceeding $65 million over the last 9 years. We also currently own over 3,000 mobile home spaces amongst 12 parks throughout the Southeast and Midwestern U.S. for cash flow purposes.
We have just recently finished a 12-month rehab project amongst two parks in the northern Cincinnati market that we run as one combined park, (they are 10 minutes apart). We use one manager to cover both parks. We purchased the deal on October 26th of 2012. Both parks were REO (bank owned) parks that we bought via a broker. This was an off-market deal that was not listed on any public websites. In my business, knowing the brokers and establishing a track record with them is very important. We like the greater Cincinnati – Dayton market because of its large population (over 3 million combined) and strong base of employment. The multi-family business, whether apartments or mobile home parks, is all about having strong employment near the property. Lot rents are solid in this market as well , ranging from $325 – $375.
We purchased the two parks for $1,150,00 all cash. One park had 306 spaces with 55 resident-occupied homes and 120 empty homes. The other park had 84 spaces with 34 resident-occupied homes and 3 empty homes. Both parks had been in steady decline for 5 years. In fact, we had to tear down 101 homes at the large property because they were in such bad shape (a goal in any purchase is to save as many homes as possible).
The first move we made was to “zonedown” the properties to create immediate higher occupancy. We zoned the larger park down to 132 spaces by creating one lot from two spaces. We did the same with the smaller park going from 84 spaces to 60. Existing residents loved the larger lots, but our goal was to get it prepared for financing, which means we need a minimum of 65% physical occupancy (actual homes on lots) at both parks. The “zoning-down” process took us approximately 4 months to accomplish with a total cost less than $20,000. Less density is almost always well received by local municipalities.
Many investors ask me why I would “zone-down” a park instead of simply filling it up with a repo home. Although we added 5 repo homes to each park, this process is time consuming and expensive. A typical repo home will cost you $15,000 — $20,000 to purchase, move, set-up, and rehab. “Zoning-down” parks is a much cheaper way to get occupancy up immediately.
Once we zoned the park down, we executed our “rehab playbook” to perfection with the following steps:
1. Repaved the roads – cost $79,000
2. Trimmed many trees – cost $21,000
3. Rehabbed 22 existing homes and sold them to residents – net cost $88,500
4. Added 5 repo homes at each park – cost $180,500
The additional cost in this project was the tear-down of 101 homes, which cost $111,625. A little bonus at the larger park is that 8 owners of nice RV’s are leasing lots from us in the back of the park.
Total rehab costs for this deal were right under $500,000. I was fortunate to use a bank line of credit for half of the rehab. Our total cost into the two parks is $1,650,000. We now have 126 residents combined from both parks (up from 89 a year ago when we took over). We will add 6-10 more repo’s in the Spring to get to 70% occupancy. We just had the parks appraised and the valuation was $3,225,500. We will get all of our original capital and rehab funds back upon a refinance this Spring. More important, the parks have been positive cash flow from day one (I can’t stress the fact enough that you never buy a negative cash flow property) and the monthly net cash flow (after all expenses and mortgage payments) now exceeds $15,000/ month. You can see a positive article about our project written by the local newspaper on our website, just go to: www.acgmhc.com
Mike Conlon is the founder and majority owner of AffordableCommunities Group, LLC based in Cary, NC. He is also the author of Unconventional Wealth: The New Mainstreet Millionaires that is available through Amazon.