Discover how to purchase a value-add mobile home park for HUGE returns! In this case study you'll learn how investor Gilda is turning a mess into a goldmine with a 4-phase strategy that will grow her mobile home park into an asset worth 5x the purchase price!
2 Rules of Value-Add Commercial Real Estate Investing
Be Intentional: No one goes up hill by accident. In other words, you need to be intentional when you do a value-add commercial deal. Gilda is adding huge value to her mobile home park. With her 4-phase plan she’s turning a mess into a goldmine, and she is purposeful in her uphill climb.
You Need Eyes to See the Future: With value-add deals you need to take the blinders off and see what a deal can be. This is Gilda’s first commercial deal and we helped her see the potential for huge value add in this deal.
Meet My Protege Gilda
Gilda is a single mother of four beautiful, adopted children. As a realtor and residential real estate investor, she has had the freedom to enjoy her work and at the same time be a mother to her children. Being in real estate has given her the flexibility she needs, but one of the things she learned over the years, is that real estate is better in numbers and the numbers add up quicker in multi-family. For her, transitioning into commercial real estate is a continuation of building that legacy for her family, enriching their lives and the experiences.
Numbers Don't Lie
When Gilda was envisioning transitioning into commercial real estate investing, mobile home parks weren’t part of her portfolio. Her impression of them was that they all look like they are on life support, not to mention they seem to be a magnet for tornadoes. She needed help to see the potential in investing in mobile home parks and as a Protégé Program student, she was able to learn from other mobile home park investors in the program. They helped her remove the blinders and see that the numbers don't lie. No matter what the properties looked like, the numbers were amazing. This helped her be more openminded about opportunities in mobile home park investing and she started doing her own research, looking at properties and communicating with other investors.
Value-Add Mobile Home Park Case Study
A Vison for a Distressed Mobile Home Park
The property is an 8-unit mobile home park that is distressed. But Gilda could see the HUGE value-add potential. The park is two acres; however, the mobile home pads are positioned haphazardly leaving most of the two acres unused. By simply reorganizing the existing pads, that unutilized space can accommodate 16 more pads and still be within the county regulations. It is located ten minutes from a town that has three small colleges and there's a military base nearby so there is a need for affordable housing in the area.
How Gilda Found Her Value-Add Deal
Being a realtor, Gilda gets listings on and off the market from other realtors. Gilda saw the 8-unit mobile home park property and immediately reached out to the realtor who had listed it. They were able to meet, discuss the property in detail and after negotiations they settled on a purchase price of $240,000.
Deal Details and Financing
Financing the Purchase: Gilda financed the deal with a 12-month hard money loan with a 19% down payment. The loan includes money for upgrades to the property and putting down new pads. Also, in further negotiating with the seller, she was able to get another $15,000 back from the purchase to facilitate some repairs.
Financing for Additional Mobile Homes: Gilda intends to purchase mobile homes for the new units directly from the manufacturer at 10% down. Once those homes are in the park and occupied by tenants, Gilda will make the payments to the manufacturer with the income generated.
Her strategy is to develop the park in phases. The first phase requires $120,000 in additional capital. It includes grading and excavating the sites, creating a community area for tenants and the down payment on six mobile homes. The projected costs of the remaining phases of development is $300,000. This value-add strategy will increase the value of her $240,000 gold mine to over $1.3 million.
Once the first two phases are complete, Gilda will be repositioning to more traditional long-term financing. She will do a cash out refinance and use that money to fund the additional phases. With this strategy the property is paying for the expansion and it's growing the same time that the community is growing. Once all the expansion is complete, she intends to hold the property long-term.
Gilda plans to continue to create a real estate legacy for her children. Her goal in commercial real estate is one-hundred doors in three years. And she would be thrilled if her children would take up the torch and continue it but as she says, “As long as there is blood in my veins, I will continue…It's in my blood. It's what I do and what I love.”
4 Phase Value-Add Strategy
Stabilize the property – When Gilda purchased the property none of the tenants had leases, so she will need to implement a lease policy.
Approval for expansion plans - Gilda met with the city to discuss the expansion plans and get approval for them. She has hired a civil engineer to lay out the grounds for the expansion and plans are underway.
Grading/water and sewer installation – Before more mobile homes can be put on the lots, they will need to grade the two acres to get it ready for water and sewer insulation.
Budget/Financing - $35,000 which was built into her hard money loan, and she also negotiated $15,000 cash credit at closing on her deal.
Timeline - 3 months
Income - $37,800 with the eight existing tenants
Add 6 new mobile homes – Gilda is partnering with a general contractor and the homes will cost $45,000 each, including labor and materials.
Budget/Financing - The entire project is going to cost her $270,000. Gilda has a construction loan set up that will allow her to pay for each home as each home is completed.
Timeline – It will take about four months to complete this phase. This timeline may seem unrealistic, however the mobile homes are kit homes, so all the contractor has to do is assemble them together on the concrete pad.
Value-Add Income - With the eight original homes plus the six new builds, the income per year will be $95,400.
Refinance the original loan - She has one year to refinance and get out of her hard money loan, so now that she has increased her cashflow in phase 2, she will refinance and pullout additional money to fund the phase 3.
Replace original units – Gilda will replace the eight original mobile homes with new ones.
Value-Add income – Now with 14 new mobile home units, her income increases $142,800.
Add six to eight more homes – Gilda graded the two acres to give her the ability to add additional plots. Her plan is to add 6 to 8 new pads and homes.
Value-Add income - $224,400.
Total Timeline – Two to three years of hard work to complete all the phases.
- The completion of phase 4 will bring the income of the mobile home park to $224,400
- Subtract 35% for operating expenses, which leaves an NOI of $145,860
- Divide the NOI by the current 10% market cap rate
- New property value is $1.45 million
This is how Gilda added huge value to her mobile home park, but the principal is the same for any commercial property. For more teaching on value-add commercial real estate watch my video How to Make Big Bucks with Value-Add Commercial Real Estate.
Protege Program: It's the Real Deal
Here's what Gilda had to say about her experience in the Protege Program,
“This program has been so helpful, so spot on, informative, inspiring. Your team is fantastic to work with and even some of the other proteges. When you are listening to other student's transactions, you find out the solutions because in this business, nothing is the same. It really lets you know it's real. There's so much going on out there these days. You don't know real from not, so it's just breathtaking to listen to real people do real things. And it's not so out of reach. If I can do it, you can do it. We all can do it. And just imagine if all of us are doing it, how much better off we're all going to be in the long run.”