The philosophy of a successful investment lies in your personal mental attitude toward life. We do our best to learn from experiences and gain knowledge from others – which is then applied to real life situations. This is where we begin to realize how it all works. While risk is never eliminated one hundred percent, some opportunities are better than others depending upon the individual. All one has to do is look out at the world to see what is there. It all began with a single idea, then a goal commitment and persistence to succeed.

Each specialty requires specialized learning. In our business of mobile home parks (income property), the best operators rarely offer any formal education program. There are a few, yet only after much trial and error do we find these outstanding experts. The vast majority of time is spent finding out who, and what “fails” to work. However, as Jack Miller says, and to which I totally agree, we always “fail upward.”

Communications and situational awareness are also key ingredients. In many business situations the principals are kept apart by their representatives which always results in message translation. We find that direct communication between a buyer and seller always yields a superior transaction because they get to know one another. This interpersonal relationship is highly desirable because of our unique human nature. It leads to situational awareness of each others issues and needs. When buyers/sellers of valuable assets decide to do a transaction, it is because of an important change in their respective lives – family, business, tax, financial or health issues. They are all relevant aspects to the transaction.

Dr. Alex “Sandy” Pentland, Professor of the MIT Media Lab said in an interview, “…most of the communication that’s complicated, that’s really important, still happens face–to–face. Some of it happens over the telephone, but it’s person–to–person; it’s not by email, it’s not by memo.”

This face–to–face connection is missing when representatives do your talking and thinking. Although contrary to what many brokers suggest, it’s critical that the principals initially get acquainted to establish rapport, have social interaction and understanding. Most people are unaware of how interpersonal relations affect major decisions. This is when the best deals happen and I have first hand experience this is true.

We need to understand the park business in it most simple terms. Unlike sophisticated investments which few can figure out, even experts, parks are very simple. Find an opportunity that is poorly managed or mismanaged that needs fresh energy and ideas. Real estate is like a relay race. Each runner holds the baton for a period of time. As runners become weary and slow, fresh athletes (buyers) that are more efficient and skillful take over.

Advice and opinions are plentiful in business life. Part of your responsibility is to know the quality of information given by the provider. Sometimes people will mislead you and other times they are just ignorant. Be very careful who you listen to because well meaning people will offer ideas and suggestions, yet they lack knowledge, experience, attitude, or any combination. Only after much effort and time do we find the best teachers. We listen then make little detours against their advice to find out we should have listened better. We then begin to ask better questions too.

Some investors like the liquidity of the stock market. Other investors like the lack of liquidity in real estate. Money is like water because either too much or too little is a problem. When too much in a short period of time, it spills over the side and is lost forever. If too little, things dry up and shut down. Keeping a low–medium speed growth rate at all times is the best for long term stability.

The lack of liquidity in real estate forces an investor to think forward and allocate financial resources. If an investment projects a three year holding period, you know going in that is the commitment. If you need liquidity, then keep those funds aside.

Time is our most precious resource and we value it as the number one priority. Efficient systems and methodology help us maximize time. There is time for business and there is time for leisure. On a financial calculator such as the powerful HP–12C, the very first key is ‘N’ which is the symbol for time.

This also applies in our approach to scoping out new park opportunities. Pictures and worksheets are great, yet nothing ever compares to walking the property and seeing the surrounding area – both day and night. This is essential yet only takes a few hours. Most of these properties are hundreds of miles away from the southern CA coast, e.g., Yuma or Tucson AZ, Clovis NM. Driving is a two–three day dedicated trip. Too much wasted time. This is exactly why we use airplanes.

One pronoun often used in business is, “they.” When you hear this word from a person, take note. This means that a decision or information is coming from another source, other than who you are talking. If it relates to what you can or can’t do that’s important, ask “where can I read that rule written down?” What is the original source? This might lead you to question the differences between permission and forgiveness. You are smart to know exactly ‘where is the line’. What are the consequences of each action?

So much of rules and regulations are what is frowned upon or prohibited. That is the historical design of our systems worldwide. Individuals must navigate these rules throughout life and in business. The entrepreneur looks for new opportunities while others only see obstacles. This is what sets them apart. They ask, “don’t tell me what you won’t do, tell me what you will do.”

Contracts – these represent the agreements between principals, sellers and buyers. They are usually in writing because a sizeable sum of money is involved. Many clauses in modern day contracts are for the protection of the buyer/seller’s agent. The essence of a purchase contract is this ––– you agree to sell and I agree to buy at a specified price and terms then we sign the bottom to consent. The buyer gets a time period to inspect the property and arrange financing. If there is a problem with the property, it’s either a deal adjustment or deal killer. With financing, if I can obtain a loan, then I’ll complete the transaction. People get too fussy about contracts and forget common sense. They are important yet think of it this way – a bad contract won’t keep a good deal from closing and a good contract won’t keep a bad deal from closing.

If you’re the buyer – set up the deal so that liquidated damages are the end if no closing. Skip the legal threats, just move on. The moment you hire an attorney, you’ve already lost.

Another part of this philosophy is privacy. In the contemporary world, everything about everybody is now known or discovered via the internet. Yet there’s an alternative to this public billboard. Back in the old days when somebody asked you how much money you have, the answer was, “none of your business.” In today’s world, people think you’re hiding something. It’s perfectly okay to keep your finances private.


FAQs

At acquisition, a park must at a minimum break even cash flow – as a function of financing. You design it this way upfront. This means we never have negative cash flow (unless principal paydown).

The only two factors subject to internal control are net income and loan amortization. Everything else is external beyond the investor’s control. Over time, the spread generally improves with higher gross income and lower expenses while loans are paid down. This result directly effects the cash flow and valuation.

For example, if a park produces $100k per year of gross (lot rental) income and has $40k of expenses, then $60k is the net income. If your desired rate of return is 10% (also called the ‘cap’–italization rate), then the park is worth $600k.

With improvements (higher income/lower expenses) then you might see $70k in net income. Using the same 10% rate, gives you a value of $700k. The net income of a park determines its value.

NOTE: Cap rates are determined by the local market for income property. Appraisers know these numbers which are generally within the range of current interest rates – 7 to 8 cap. We seek a 10 cap when buying.

When acquiring a new park, we always seek out seller financing. This means we put down cash and make payments without any new bank loans. Sometimes the seller owns the park free & clear or with an existing loan. We make payments on the balance. The other alternative is to use equity funding, which is to buy with all cash. In any case, this setup allows the transaction to move quickly and without delay. These custom solutions result from getting to know the seller and having that personal connection.

Our goal is to double the cash flow within a 3-5 year period at a minimum. Through a process of simple analysis, managment, expenses, vacancy, local market and demongraphics, we can quickly sift through many opportunities.

The only two factors subject to internal control are net income and loan amortization. Everything else is external beyond the investor’s control. Over time, the spread generally improves with higher gross income and lower expenses while loans are paid down. This result directly effects the cash flow and valuation as we previously calculated.

Appreciation (depreciation) is a function of market supply & demand based upon financing – factors which are totally external and beyond the control of any single investor. This is more applicable to residential housing. Sometimes investors (speculators) will endure negative cash flow hoping and praying the market will appreciate. Although it can work, timing is uncertain and it can devastate years of hard work.

Real estate finance can take the form of debt, equity, or a combination. This is similar to a corporate bond or common stock. In one case there is a secured lender, the other is the unsecured owner. Leverage occurs with debt because the owners equity can be allocated over multiple investments.


Individual Investor Opportunities

Private investor funding is different than bank loan debt. Who are private investors? – everyday people who have CDs, pension funds, or IRA accounts. They are also money managers and equity capital providers.

What do private investors earn? Depending upon the size and period of investment, they can realize 10–20% annual returns. Transactions are flexible. When investors and businessmen deal direct, they truly connect and communicate for higher quality transactions.

Of course analysis and understanding is essential to doing smart business. If the investment plan is simple and understood by all parties, then it stands on its own. Try to figure out what is a credit derivative swap or collateralized debt obligation, or tranche. Few if any really know how they work yet billions of dollars invested into real estate.

Manufactured home communities (mobile home parks) are plentiful and widespread nationwide. Everybody knows someone that has either lived in one, or does right now. They’re low cost living communities that many people find affordable and enjoyable. Well understood, slow and steady.

Investors in real estate syndications can realize unique benefits. This comes from a personal discussion of needs, whether they are income or tax related. Designing a transaction at the inception has tremendous benefits – income, capital gains or a future exchange.

Other investor benefits include privacy. No public reporting of assets to anyone.