STRATEGY
Upside Potential. There are nice parks with 200 homes that sell in the 7-10 CAP range. Many large investors compete for these parks as they are well-oiled cash flow machines. Mid-sized parks are often owned by individuals, not professionals, and are loosely managed. When these parks come up for sale they have many vacancies, stay on the market for a long time, are hard to finance, and sell at a discount to cash buyers. These parks sell in the 8-12 CAP range, based on their current not potential income. These are the parks where we can add the most value.
Cash Purchase and Refinance. All nine of our residential projects were purchased with cash offers. You often hear people say that real estate investors don’t make money when they sell a property; they make money when they buy one. We find motivated sellers and negotiate a significant discount on the purchase price. After rehab, with a few months of rental history, we refinance.
While looking at parks for sale, I often see that they are poorly managed. The owners are desperate to be rid of them and will sell at a discount. It only took us five months to get the park near Yosemite from 55% occupancy to 90%. When we buy and operate a troubled park, the old owner gets out of a tough situation, the tenants get a cleaner and safer community, and the park becomes fully occupied by paying tenants.
MANAGEMENT
Replace or retrain the on-site management. Good management is the key to fixing parks. When we purchased our park near Yosemite, there were tenants openly using drugs, breaking windows, and not paying rent. Some tenants hadn’t paid rent in 6 months. When we took over management and demanded rent be paid on time, three tenants (and their families) left and we had to evict two more. Sure enough, the tenants who weren’t paying were also the ones causing trouble in the park. The other people living there were happy to see them go and one old-timer, Gene, has told us repeatedly that we were the first people in 10 years to pay attention to the park. Replacing or retraining management is often enough to turn a park around.
Off-site management and bookkeeping. Elkhorn Group provides in-house off-site management to closely watch the progress of park rehabilitation and operations. Weekly calls with the on-site manager keep us up to date on the park and it’s cash flow. We are more motivated to decrease expenses and collect timely rents than any hired off-site managers.
In addition, all the bookkeeping is done in-house. We get a report of the park operations from the on-site management, and we are able to confirm our report with deposit details, expense reports, and bank reconciliation.
Word Travels Quickly. The park that we bought near Yosemite was in disrepair and tenants were upset with the state of the park but not able to fix it themselves. We removed 9 tons of garbage. The tenants causing trouble left the park. This particular park has many park-owned units, and we remodeled each of them. Word got out in the small town that the park was being cared for. Empty homes filled as soon as we had them ready. One of the local workers that I hired fixed up a trailer and then moved in with his family. When the park is well cared for it is easy to find good tenants that pay on time.