Want to generate a large income from your property portfolio? If so, there are 3 Mistakes you must AVOID LIKE THE PLAGUE. I’ll tell you what they are in episode 5 of The Savvy Mobile Home Park Investor Show.
In Mobile Home Park investing, it’s all about the FUNDAMENTALS. When you do the FUNDAMENTALS well, it’s easy to create REALLY attractive financial results.
Alas, there are 3 horrible mistakes that will ruin your fundamentals every time… which can take a very attractive double-digit return down to single-digit squalor… or even into the loss category… and I’ll tell you what they are right now:
Mistake #1: Being a Do-It-Yourselfer
Ah yes, why pay someone else for something you can do yourself, plus you could really use the experience. Sounds like a great idea , so why not? Then the midnight calls start coming in, to fix the toilet, and repair the sink or the leaky roof. Chasing down the tenants for unpaid rents. Filing for your first eviction, then your second. Listening to the stories, and trust me, there is always a story. You didn’t sign up for this, you wanted to sit back and collect that cash flow, but What a drag real estate investing is turning out to be. Congratulations, you just bought yourself a job. This passive source of income is turning out to be alot more active than you bargained for, and thats just a couple of rentals, imagine having several Mobile Home Parks with say 150-200 tenants?.
There are differing opinions on this. Some people feel it’s important otherwise just want to save a little money. Take it from us at Apex Communities, it’s simply not worth it. Time is our most precious asset, that time you spend managing tenants is better spent doing more productive things like growing your business, llooking for new deals. While you can always generate more income you can never generate more time.
This is a business so you have to treat it that way. If you don’t have the heart to play the “bad cop,” then let the property manager/management company handle it. It will take a huge load off your mind (literally). A good property manager is worth his weight in gold. Especially if you and your investment properties are located in a different state.
So, avoid being a do-it-yourselfer. But beyond that fundamental mistake comes…
Mistake #2: Failure to perform proper due diligence. Especially if you’re buying with owner finance. It’s easy to get emotionally involved. Especially if you’ve negotiating with the owner for some time, you’re finally making progress, why kill the deal over some seemingly “small item’s?
At Apex communities, we like to identify our deal killers first. For example acquiring the Certificate of Zoning, Does the property have a legal permit?
Another big one is failing the phase 1 environmental site assessment ? for example the park might have been around for 35 years but 40 years ago it might have been an auto repair shop with an underground storage tank and potential contamination. It seems obvious, but we’re going to want to know that before we make the purchase not After.
Are the utilities Public or Private? If they’re private, what are the conditions of the septic system and water wells? We hire qualified experts for those. Having a plumber inspect water and sewer lines by running a camera through the sewer lines
Want a sure fire way to fail? just follow the pro-forma rent roll provided by the seller or his broker. Always do your own homework
Again, the trick here is not to get emotionally attached to the deal. Ben Franklin said it best“Due diligence is the mother of good luck” We interpret this phrase to mean that success has more to do with careful planning and doing your own homework than it does being just plain lucky. And speaking of failure to plan, that leads nicely into…
Mistake #3: Failure to have sufficient capital reserves for challenging times.
Reserves refers to the cash on hand that we’ll need in the event that we need to spend on items we were not counting on. It could be anything, a leaky pipe, roof repair, items not covered by insurance, or what we’re seeing a whole lot of as a result of the Covid-19 pandemic. Unpaid rents! Remember we still have a mortgage loan with our bank, and the bank is expecting their money.
There is a fine line Syndication teams play with when they offer an investment. A 16% cash-on-cash return looks awfully attractive vs 10 or 12%. But what if the 16% only comes with 2 months worth of cash reserves vs 6 months of reserves that came along with the 12%?
Before Covid, few investors were even paying attention to cash reserves because all they could see was that “sweet” 16%. In fact, before Covid some might even be tempted to give back some of those reserves back to their investors.
The one that has become blatantly clear from this pandemic is that many syndicated deals do not have sufficient cash reserves to weather the storm of the pandemic and as a result many will default on their loan commitments. This could be life changing news for everyone invested in that deal.
The last item we want to talk about is the law. There is a growing movement in many states to establish rent control laws. California is trying to go one step further by introducing a bill that would cut all rents by 25%. This is horrible news if you’re an investor. Obviously, we want to steer clear of purchasing properties in those states. Lets stack the deck in our favor further by purchasing Mobile Home Parks in landlord friendly states. Laws across Southern states favor Landlords. He’re at Apex Communities, we love Texas and Arizona but we particularly love Florida
Although the Sunshine State has one of the highest populations of renters in the US, the Florida landlord tenant laws are not very detailed. This creates a favorable environment for landlords and owners of rental properties. Florida law prohibits rent control and has no restrictions on late fees. There is also no limit on how much a landlord can charge for a security deposit, though it must be returned within 15 – 60 days after the tenant moves out of the property. Landlords can deduct from security deposits to cover the costs of repairing excessive damage caused to the property. Evicting a tenant for not paying rent in Florida starts with providing written notice that gives the tenant 3 days to either pay the rent or leave the rental property. If you’re evicting a tenant for causing intentional destruction to the property or repeatedly violating the lease, you need to give an Unconditional Quit Notice giving the tenant 7 days to move out before proceeding with the eviction in court. Try that in California!!
Folks, that’s all I’ve got for you today, except for this: The most common question I get is this: Eloy, I’d love to get involved… can you connect me with some of these great mobile home park investments that you’re describing? And the answer is: Maybe! Most of our projects fill rather quickly, and all of them require a minimum of $50,000 to participate, so if YOU would like to be notified whenever we have exceptional opportunities just open up that web browser go to www.partnerwithapex.com that’s PARTNERWITHAPEX A-P-E-X.com to get on our VIP investor list right now and I’ll reach out to you when the next great opportunity comes along.
Until next time, I’m Eloy Retana REMINDING YOU That “The goal isn’t more money. The goal is, life on your terms”