Issue link: https://read.dmtmag.com/i/486601
APRIL 2015 22 THE JOURNAL The Ten Basic Steps To Finding The Right Manufactured Home Community To Buy BY FRANK ROLFE COMMUNITY CONSULTANT Everywhere I go, the most common question I get is "how can I get into the manufactured home community business?" Everyone is in complete agreement that affordable housing is the hottest sector of real estate, fueled by the 10,000 Baby Boomers retiring and downsizing per day, the fact that 20% of U.S. households earn $20,000 per year or less, and the perpet- ual decline in the U.S. economy. But how do you translate that to action steps in becoming an owner of a manufactured home community? Well as the owner of over 160 properties at this point, here's how I'd suggest one begin to in- vest in the affordable housing industry. Know what your goals are This would seem like a no-brainer, yet I'm amazed at how many investors do not think through their goals before jumping into to mak- ing offers on properties. The whole point to an- alyzing income properties is to have a benchmark to compare them against. Before you even look at something to buy, you need to decide what your goal is for cash-on-cash re- turn, as well as how long you intend to own the property, and what the overall plan of attack is. Know how much you have to invest The amount of capital you currently possess will have a significant influence on the size of property you can buy. The general rule of real estate is to anticipate a 20% down payment, with the bank providing the balance. As a re- sult, if you take the amount you have for a down, and multiply by 5, you now have a han- dle on the size of deal you should be seeking. Know where you want to invest geographically While we own properties that are over a thousand miles from where we live, it is often hard for a new buyer to access their investment via a commercial airliner. Even Dave and I began with communities that were only minutes from our homes. If you demand the ability to get in your car in a pinch and drive to your property to see what's going on, then I would suggest that you at least increase that footprint to around 4 to 5 hours radius from your house. From where I live near St. Louis, that puts you in six states – it's a lot of territory and freedom to find really great deals. So you need to note what your "territory" is before you start looking at properties to buy. Know the attributes of the type of community you want to buy Not all manufactured home communities are created equally. The most desirably variety begin with paved streets, city water, city sewer, and a decent-sized market with a good diver- sity of employers. But before you begin your search you need to go out and look at a large number of offerings to see what turns you on and turns you off. You will never be a great deal maker until you can quickly process a deal and put it in a "this is an opportunity" pile or "this is not an opportunity" pile. Build your deal pipeline Once you have perfected your sorting crite- ria, it is time to start pouring as much raw ma- terial into your "sorter" as you can, in order to find the true gems out there. This has been a successful strategy since gold mining in the 1860's. The truth is that the buyer who sifts through 1,000 deals will always do better than the one who looks at 100. It's a volume busi- ness. So how do you build your volume to the highest level? We use a mixture of deal sources: 1) on-line listing sites such as Mobilehome- parkstore.com and Loopnet 2) brokers (with a focus on pocket-listings) 3) direct mail 4) cold calling 5) driving by and talking to owners. Make offers and tie up properties Don't hold back on making offers – even if they are substantially less than the asking price. Many sellers deliberately put a large amount of "fluff" in their offering price. We have bought communities for 50% less than asking price many times. You need to get in the habit of making offers all the time so that you don't miss out on any opportunities, and become profi- cient at this skill set. Learn how to negotiate average deals into great deals An average deal sometimes becomes a great deal at a lower price or with seller financing. As you become better at negotiating, you will dis- cover tricks that make you able to cut much better deals. One technique is to set a firm "walk away price" before you start negotiating, and then work against this price with resolute firmness, which will be conveyed in everything from your voice to your body language. And learning how to convert a cash sale to terms has launched many a career in community owner- ship – especially if you have less than great credit. Obtain proper financing While a huge number of our deals utilize seller financing, you cannot be a great deal- maker and be weak in the category of obtaining financing. It's not that hard to understand banking. There is an old saying "before you can have return on principal, you have to have re- turn of principal". A bank wants to see that there is a solid business plan that can survive the regular bumps in the road that any new property can experience. Think like a banker, not a borrower. If they are comfortable in your plan, then the hard work is done. Perform great due diligence Benjamin Franklin said, "diligence is the Mother of good fortune" – which means that you make your own luck through properly vet- ting the property you are buying. If you can personally attest that the budgeted revenue and expenses are 100% correct, and that there are no hidden issues with the property such as en- vironmental contamination, easements, and other deal killers, then your purchase will per- form as planned. Without great due diligence,