The Mobile Home Park Investing Podcast - Real Estate Investing Niche - Ep #62: How To Identify Unstable Income Sources on a Profit and Loss Statement and Avoid Overpaying for a Mobile Home Park

Ep #62: How To Identify Unstable Income Sources on a Profit and Loss Statement and Avoid Overpaying for a Mobile Home Park

04/13/17 • 15 min

The Mobile Home Park Investing Podcast - Real Estate Investing Niche

Welcome to the Mobile Home Park Academy podcast. In this episode, Charles and I will discuss mistake number 17 from our popular eBook, “The 21 Biggest Mistakes Investors Make When purchasing their First Mobile Home Park...and how to avoid them.”

When you start looking at parks, you will begin to notice revenue items such as Late Fees, Application Fees, and Other Income. Brokers and sellers alike will try to tell you that it is appropriate to capitalize these income sources. I’m here to tell you that that is not necessarily the case!

One of the great things about owning mobile home parks is that your average lot renter is an extraordinarily stable tenant. So, how much money do you really think you’ll be getting from application fees year in and year out?

The same goes for late fees. It is true that you will receive late fee income through the year. However, this should not be a significant source of income for any park. If it is, you may need to ask yourself if this is truly a stable and reliable tenant base.

The “Other Income.” We’ve seen “other income” run as high as half the park’s revenue. Brokers and sellers will put whatever they can think of in this category. Single family homes, small apartments, self-storage, vending machines, laundry income, etc. For these items, we prefer to break out the separate income streams and evaluate the reliability of each separately. We also want to see the expenses broken out for each to determine if they are truly worth having. This gives us a complete picture of what we are buying rather than lumping it together in vagueness.

When looking at your next deal, add together these revenue items and multiply them by 10. The number you come up with is the amount you could potentially be overpaying if you don’t have a handle on these items.

Click Here to Grab a free copy of our latest book “The 21 Biggest Mistakes Investors Make When Purchasing their First Mobile Home Park...and how to avoid them
Want to Learn How to Invest in The Lucrative Niche of Mobile Home Parks? Check out our Free Training that Will Teach You The Systems and Processes We Use To Find The Most Profitable Deals. Click Here to Learn More
Have An Interest In Partnering with a Team with a Proven Track Record in the Mobile Home Park Space? Click HERE to Learn More About Our Partnership Opportunities.

Click Here to Grab a free copy of our latest book “The 21 Biggest Mistakes Investors Make When Purchasing their First Mobile Home Park...and how to avoid them
Want to Learn How to Invest in The Lucrative Niche of Mobile Home Parks? Check out our Free Training that Will Teach You The Systems and Processes We Use To Find The Most Profitable Deals. Click Here to Learn More
Have An Interest In Partnering with a Team with a Proven Track Record in the Mobile Home Park Space? Click HERE to Learn More About Our Partnership Opportunities.

Previous Episode

Ep #61: Purchasing a Park That Has a Large Number of Homes Owned by an Outside 3rd Party Investor and Why This Can Be a HUGE Risk

Welcome to the Mobile Home Park Academy podcast. In this episode, Charles and I will discuss mistake number 16 from our popular eBook, “The 21 Biggest Mistakes Investors Make When purchasing their First Mobile Home Park...and how to avoid them.”

One of the great things about owning multifamily real estate is that it is just that, multi-family. On a 100-unit property, losing one tenant is relatively insignificant. What if that one tenant was an investor and they owned 10, 20, or 30 of the units in the park? This is something that we have seen time and time again in the mobile home park industry.

One might think, on the front end, that it would be nice to only have to collect one big check on those units. You may also like the idea of dealing with less tenants and having someone else handle tenant relations on those units. Where is the problem in this thinking? If this sounds like a nice arrangement, I would also like to pose the following potential problems:

What happens if your investor/tenant doesn’t screen their tenants properly?
What happens when your investor/tenant doesn’t like the recent rent raise or having utility costs passed along to them?
What happens when your investor/tenant doesn’t maintain their homes?
What happens when your investor/tenant moves these homes elsewhere?
What happens if your bank has the same concerns?

Having a third party investor in your park is not always a bad thing. It can sometimes be a good thing. However, you need to know how to remain in control of your park and protect your investment. We can show you how to maximize this arrangement and work with these investors properly.

Click Here to Grab a free copy of our latest book “The 21 Biggest Mistakes Investors Make When Purchasing their First Mobile Home Park...and how to avoid them
Want to Learn How to Invest in The Lucrative Niche of Mobile Home Parks? Check out our Free Training that Will Teach You The Systems and Processes We Use To Find The Most Profitable Deals. Click Here to Learn More
Have An Interest In Partnering with a Team with a Proven Track Record in the Mobile Home Park Space? Click HERE to Learn More About Our Partnership Opportunities.

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undefined - Ep #63: How To Avoid The Mistake of Buying a Park Without Having the Proper Amount of Operational Capital Left Over to Start Running Your New Business

Ep #63: How To Avoid The Mistake of Buying a Park Without Having the Proper Amount of Operational Capital Left Over to Start Running Your New Business

Welcome to the Mobile Home Park Academy podcast. In this episode, Charles and I will discuss mistake number 18 from our popular eBook, “The 21 Biggest Mistakes Investors Make When purchasing their First Mobile Home Park...and how to avoid them.”

One extremely common mistake that new investors find themselves making is that they don’t have enough capital to operate their assets after they buy them. Think of the following scenario. You are an investor who has $100,000 to invest. With this money, you conclude that the bank will match your down payment 4 to 1 and that you can afford a park that is $400,000. That’s great news! Time to get to work finding it right?

Maybe not! Let’s also think about some other things that could happen. Most parks need some form of capital repair on the front end. This may be in the form of resealing/resurfacing roads, putting up new signage, removing homes, getting rid of debri and junk, painting and/or renovating homes, etc. Where is your allowance for these items? How do you determine how high this amount should be?

As a general rule of thumb, you should set aside about 4% of your purchase price in order to establish an initial operating budget. Something else to consider is that normally your bank will want to see that you have some liquidity even after you purchase the asset and may require you still have up to 10% of the purchase price available in short term assets.

Click Here to Grab a free copy of our latest book “The 21 Biggest Mistakes Investors Make When Purchasing their First Mobile Home Park...and how to avoid them
Want to Learn How to Invest in The Lucrative Niche of Mobile Home Parks? Check out our Free Training that Will Teach You The Systems and Processes We Use To Find The Most Profitable Deals. Click Here to Learn More
Have An Interest In Partnering with a Team with a Proven Track Record in the Mobile Home Park Space? Click HERE to Learn More About Our Partnership Opportunities.