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How to Start Mobile Home Investing with Low Money Down

Introduction

Mobile home investing is an increasingly popular niche in the real estate market, offering strong returns with relatively low initial capital. However, this type of investment comes with unique challenges that must be carefully managed to ensure both ethical and profitable outcomes. This guide will walk you through the process of starting your mobile home investing journey, focusing on strategies that balance profitability with fairness to create mutually beneficial relationships between investors and tenants.

The Ethics of Mobile Home Investing

Mobile homes provide an affordable housing option for those who may not qualify for traditional homeownership due to limited funds or poor credit. Lease-to-own arrangements are particularly attractive, offering a pathway to homeownership. However, these deals come with complexities that can lead to ethical dilemmas.

In a lease-to-own scenario, tenants often pay more than they would in a traditional rental because they are working towards ownership. They also assume responsibilities like maintenance and repairs. Problems arise if a tenant falls behind on payments, leading to repossession of the home. This situation can leave tenants in a difficult position, having invested significantly without gaining ownership.

To avoid these pitfalls, it’s crucial to approach mobile home investing with fairness and transparency. The strategies outlined in this article will help you build a business that is both profitable and ethical, ensuring long-term success.

Seller Financing and Mobile Homes

While mobile home investing may initially seem less appealing compared to traditional real estate, it offers unique opportunities for those willing to explore this niche. Many investors start by purchasing mobile homes in parks or on private land, quickly realizing the potential for profitable investments.

However, challenges such as high default rates can arise, particularly when selling homes on payment plans. This often happens when buyers are placed in homes with high-interest loans or steep payments they cannot sustain. Experienced investors learn to offer properties at lower prices, often with little or no interest, and thoroughly vet potential buyers to ensure they have the financial stability needed for homeownership.

Black Calculator Near Ballpoint Pen on White Printed Paper

Creating Win-Win Seller Financing

Real estate investing, including mobile homes, should focus on creating win-win situations for both investors and tenants. One effective strategy is to purchase properties with the end buyer in mind. By buying below market value, you can sell the home at a lower price, making it more attractive to buyers and facilitating quicker sales. This approach not only helps buyers achieve homeownership but also allows you to generate a profit.

The Three Levels of Mobile Home Investing

Mobile home investing can be approached at three main levels, each requiring different capital investments and offering varying returns:

  1. Buying Individual Mobile Homes in Parks: This entry-level option is ideal for investors with limited capital. You can purchase, wholesale, or renovate mobile homes within parks and sell them for cash or on payment plans.
  2. Buying Mobile Homes Attached to Private Land: This approach requires more capital but offers greater stability and higher returns. Mobile homes on private land are often more attractive to buyers because they include the land, adding value.
  3. Buying Entire Mobile Home Parks: This advanced level of investing requires significant capital but offers the highest potential for cash flow. Investors can increase profitability by raising lot rents, adding more homes, and improving the park’s overall condition.

Starting with individual homes in parks allows you to build experience before moving on to more complex investments.

smartphone displaying a stock market chart lying on documents next to a laptop on the desk

How Much to Invest?

You don’t need a large amount of capital to start mobile home investing. Many investors begin with as little as $5,000 to $10,000. For mobile homes within parks, an initial investment of $15,000 to $25,000 is common, with the goal of doubling your investment quickly or recovering your money within 12 months. It’s advisable not to invest all your capital into a single deal unless you are confident in its returns.

Creative financing strategies, such as making payments or purchasing subject to the underlying debt, can be useful when buying mobile homes with land. If you’re considering purchasing an entire park, having around $100,000 set aside is a wise approach.

Cash Flow and Profit Numbers

Mobile home investing is particularly attractive because of its potential for strong cash flow. When purchasing a mobile home for $15,000 to $25,000, it’s crucial to assess the return on investment. Ideally, if selling for cash, you should aim to double your investment. If selling on payments, the goal is to recover your investment within 6 to 12 months, preferably through a significant down payment.

A steady cash flow of at least $400 per month over a five-year period is a good target. For those renting out the property, the timeline to recoup the investment should ideally be within 16 months. This rapid turnaround allows you to reinvest your profits and continue growing your portfolio.

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What to Look Out For

While mobile home investing offers enticing profit margins, it’s important to manage the risks effectively. Mobile homes can deteriorate quickly if not properly maintained, especially if they are not watertight. Regular maintenance and inspections are essential, particularly if you are renting out the property, as renters may put more wear and tear on mobile homes compared to traditional houses.

Selling on a rent-to-own basis can reduce management burdens, as the buyer typically assumes responsibility for repairs. However, it’s important to establish clear expectations with buyers so they understand their responsibilities. Renting, on the other hand, requires more hands-on management to address ongoing maintenance issues.

Selling as Real Property

When selling a mobile home, especially one attached to land, it’s important to determine whether it’s being sold as personal or real property. If you plan to sell through traditional bank financing, the home must be affixed to a foundation and meet specific standards. This process can be complex and requires thorough due diligence to avoid unexpected complications.

Investors should clearly define their exit strategy before purchasing. If selling the home on payments, bank appraisals or comps may not be necessary. However, if bank financing is involved, every detail, from the foundation to the title, must be in order.

mental female specialist speaking to group of clients

Advice for New Investors

For those new to mobile home investing, it’s crucial to seek guidance from experienced investors. Mobile homes are unique, and the learning curve can be steep. Partnering with or consulting someone who has navigated the challenges of this niche can help avoid costly mistakes. Despite the lower entry costs compared to other real estate investments, risks are still involved, and it’s important to approach this venture with caution.

Why Invest in Mobile Home Parks?

Investing in mobile home parks has gained significant attention in the commercial real estate sector, often being referred to as one of the last hidden gems. Several factors make mobile home parks a compelling investment opportunity, and understanding these can help guide your decision-making process.

1. Shrinking Supply, Growing Demand

One of the most critical aspects of mobile home parks is their shrinking supply combined with growing demand. Cities across the United States are increasingly resistant to the development of new mobile home parks, often due to zoning restrictions and the stigma associated with mobile homes. This resistance means that new parks are rarely built, leading to a static or shrinking supply.

On the other hand, demand for affordable housing continues to grow, driven by a nationwide housing shortage. Mobile home parks are one of the last affordable housing options available, making them an essential part of the housing market. The imbalance between supply and demand creates a favorable environment for investors, with the potential for steady occupancy rates and increasing rental income.

2. Strong Investment Returns

Investing in mobile home parks can yield strong, consistent returns. When purchased at the right price and in the right location, mobile home parks offer long-term cash flow with lower operating costs compared to other types of commercial real estate. This is partly due to longer tenant stays; mobile home park residents are less likely to move frequently, given the cost and effort involved in relocating a mobile home.

Additionally, the tax benefits associated with mobile home park ownership can be significant. Depreciation and other deductions can reduce taxable income, further enhancing the overall return on investment.

four men looking to the paper on table

3. Financing Options

Financing mobile home parks can be more complex than other types of real estate, but understanding the options available can unlock opportunities for both small and large investors.

Small Park Financing (Loans Under $1 Million)

For those starting out, small park financing is a viable entry point. Loans under $1 million are typically offered by small local lenders or community banks. These lenders are more likely to approve loans for mobile home parks, especially if they have a mandate to lend within their communities. Even beginners without prior commercial real estate experience can secure financing if they have good credit, a sufficient down payment, and if the park is in decent condition.

Small park financing generally involves loan-to-value ratios of 70-80%, with loan terms ranging from five to seven years, amortized over 20-25 years. However, borrowers should be prepared for higher interest rates and the need for personal guarantees (recourse loans).

Creative Financing

Creative financing strategies are often necessary when traditional bank loans are not an option, either because the buyer or the park does not qualify. Common scenarios include parks with high vacancy rates, low income, or those in poor condition. In such cases, creative solutions like master lease agreements, seller carry-back financing, hard money loans, and bridge loans can be utilized.

  • Master Lease Agreements: This allows investors to take control of the park without immediate bank involvement, often with low or no down payment.
  • Seller Carry-Back Financing: The seller acts as the lender, holding the mortgage and allowing the buyer to make payments directly to them.
  • Hard Money Loans: Used for value-add deals where traditional financing is not available, these loans come with higher interest rates but can be a bridge to more permanent financing after the park’s value is increased.
  • Bridge Loans: Temporary financing that helps investors stabilize a park before securing long-term financing.

Large Park Financing (Loans Over $1 Million)

For larger parks requiring loans over $1 million, the financing landscape includes options like regional banks, Fannie Mae and Freddie Mac loans, and commercial mortgage-backed securities (CMBS). These loans are typically non-recourse, meaning the lender cannot pursue the borrower personally if the loan defaults, which reduces the investor’s risk.

However, these larger loans come with stringent requirements, including a strong track record, a matching net worth to the loan size, and liquidity reserves. The ability to meet these requirements positions investors to tap into more substantial and often more favorable financing options.

4. Lower Default Rates

Interestingly, mobile home park loans have a lower default rate compared to multi-family loans. According to Freddie Mac, mobile home park loan defaults are 50% lower than those for multi-family properties. This statistic underscores the stability and resilience of mobile home parks as an investment, further bolstering their attractiveness.

Conclusion

Mobile home investing, whether in individual homes or entire parks, offers a viable path to strong returns. However, like any investment, it requires knowledge, diligence, and a commitment to ethical practices. By approaching mobile home investing with the right mindset and strategies, you can build a profitable and ethical business that benefits both you and your tenants. Whether you’re starting with $15,000 or looking to scale up, mobile home investing presents opportunities for those willing to learn and grow in this unique niche of real estate.

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White and Brown Concrete Building

The 2024 Multifamily and Commercial Real Estate Forecast from Commercial Property Advisors

Peter Harris and Julia Sheean from Commercial Property Advisors (CPA) discuss the outlook of commercial real estate for the year to come in the US. See the summary of their forecast:

2024 Interest Rates: Predictions suggest that interest rates will likely drop in 2024. The forecast attributes this potential drop to an election year strategy, anticipating a move by the president to boost the economy and secure re-election by lowering interest rates.

Multifamily Market Stability: Expectations are that the multifamily market will remain strong in terms of pricing and rents. The analysis points to the continued demand for rental properties, driven by high home prices and economic factors, leading to an increase in long-term renters.

Impact of Maturing Multifamily Loans: The market may witness distress in the multifamily sector due to maturing loans, with an estimated $49 billion worth of loans set to mature in 2024. The prediction suggests potential opportunities for investors as distressed properties become available, particularly in value-added deals.

Dynamics of Other Real Estate Sectors: Self-storage and industrial flex space are anticipated to perform well in 2024. The self-storage sector is expected to benefit from downsizing trends during economic uncertainties. Industrial flex space, driven by the growth of e-commerce, is seen as a strong investment.

Office Market Challenges and Opportunities: The office market faces challenges, with high vacancy rates, especially in C-Class office buildings. However, opportunities may arise in repositioning and upgrading A-Class office buildings, requiring significant capital investment.

2024 Economy and Consumer Sentiment: Consumer sentiment is noted as a crucial factor in the economic outlook. The analysis suggests that the average consumer might feel hesitant or fearful about the economy. Despite this, the overall sentiment is seen as an opportunity for commercial real estate investors to capitalize on potential deals.

Investment Wisdom: The advice for investors in an uncertain market includes actively seeking opportunities, becoming a continuous learner in real estate, and seeking mentorship or professional guidance. The emphasis is on making informed decisions, especially in a market with potential opportunities for those who are well-prepared and strategic.

Focus on Income, Appreciation, and Depreciation: The key focus for investors in 2024 is on investments that provide a combination of income, appreciation, and depreciation. This three-pronged approach is highlighted as crucial for long-term wealth building and financial success.

Closing Remarks: The video concludes by urging viewers to focus on opportunities in 2024 that align with the principles of income, appreciation, and depreciation. The overall tone remains optimistic, labeling 2024 as the “Year of Opportunity” for commercial real estate investors.

Execute a commercial real estate deal like a pro!

In a Youtube video, Petter Harris from Commercial Property Advisors reveals a 10-step plan to realize a successful deal, from start to finish

The 10-Step Plan

woman with long nails writing text in diary

The plan can take between 45 to 60 days from the contract date to closing and the logic is the same regardless of the size of the property:

  1. Locate an off-market deal
  2. Analyze the deal
  3. Make an offer
  4. Due diligence
  5. Decision point
  6. Prepare for closing
  7. Closing day
  8. Post-closing duties
  9. Accounting & Reporting
  10. Execute exit strategy

Locate an off-market deal

man and woman near table
  • Engage with the seller
  • Get their motivation for selling
  • Build rapport
  • Obtain key figures (income, expenses, rent roll)

Analyze and evaluate the deal and the market

person pointing paper line graph
  • Calculate key metrics (cash flows, cash-on-cash return, capitalization rate, debt coverage ratio)
  • Get sales and rent comparisons, ongoing market cap rate
  • Make an on-site visit
  • Make a GO or NO GO decision
  • Eventually, the deal and the figures must make sense and fit to your life goals
  • Keep in mind that decision-making is to be exercised as a muscle and should always be supported by data and fact
  • Though, if under analyzing a deal can be identified as gambling, over analyzing can lead to missed opportunities

Make an offer with a purchase contract or a letter of intent

sign pen business document
  • Handle counter offers from sellers
  • You may need coaching if you have little experience in negotiation
  • If your offer is declined or the counter-offer does not make sense financially wise, move to the next deal (future follow-up is possible)
  • If your offer is accepted, you are now under contract

Conduct due diligence while you are under contract

person in yellow reflective safety vest holding a pen and checklist of house inspection
  • Physical inspection (walk through the property, get repair estimates and bids from contractors)
  • Financials : apply for a loan, prepare a forecast of income and expenses and analyze results
  • Legal : check title, form a LLC and/or prepare syndication documents with an attorney
  • Property Management : interview local property managers

Decision point : GO or NO GO

man and woman negotiating
  • Does the deal still look as good as your thought before conducting a deeper analysis?
  • Are you able to re-negotiate the terms of the deals with the seller to create a win-win situation following what the inspections revealed?
  • Do you have favorable lender terms?

Preparing for closing the deal

person holding black pen reviewing a document
  • Review appraisal documents
  • Finalize the loan agreement and clear the conditions
  • Finalize the property management agreement
  • Create an operating budget and a CAPEX schedule
  • Finalize your asset management plan (exit strategy, cash flow and proceeds re-investments)
  • Wire the down payment funds

Closing day

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  • Lots of documents will have to be signed that day
  • Should be quite uneventful if well prepared though
  • Celebrate, you officially own the property

Post-closing activities / Asset Management

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  • Work with the property managers and the general contractor to start improvements
  • Execute your value-add and renovation program
  • You will need a military mindset for timely execution and to stay within budget
  • Keep in mind that repositioning a property takes a lot of time, especially if totally or partially occupied
  • This is where the money is made eventually but where beginners mess up

Reporting and Accounting

accountant counting money
  • This is how empires are built
  • Having proper figures is an absolute must
  • Understand the financial implication behind the 4Ms : Management, Money, Marketing, Maintenance
  • A brilliant tax planning can and will change your financial life

Execute your exit strategy

black and white exit signage on roadside
  • This is how you can experience the fruits of your labor
  • Cash-out refinance to take out some of the forced equity you have built?
  • Keep the property as a long-term hold for your retirement?
  • Sell and retire?
  • Sell and use the proceeds tax efficiently to exchange the property for a larger one?

A strong year 2022 for RealT with many more to come in 2023!

The investment platform that offers tokenized real estate (mainly in Detroit, Chicago and Cleveland) has achieved several milestones in 2022 and expects a new year of growth through 2023.

Full presentation article

New products lauched in 2022 and events

person sitting facing laptop computer with sketch pad
  1. The RMM platform on which tokenholders can borrow xDai in 2 clicks by depositing their property tokens as collateral
  2. Walletless, which allows new investors to participate without the creation of a crypto-wallet (which was a barrier to mass adoption)
  3. YAM (You And Me), the peer-to-peer platform to buy and sell real estate tokens securely
  4. The detokenization of a property (token holders to enjoy the proceeds of the sale)
  5. A meetup in Paris

RealT 2023 figures

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  1. Gross sales increased by 44% year-over-year
  2. Number of token holders grew by 90% year-over-year
  3. 265 properties tokenized since 2019, totalling 1140 units
  4. Average token price of $53.60
  5. Expected average return of 10.56%
  6. $120,000 paid to token holders every Monday
  7. Total Value Locked (TVL) on the RMM platform close to $10 millions
  8. 46% of new investors choose the Walletless option
  9. 14% of Walletless adopters switched to a crypto-wallet to enjoy the full power of DeFi

Proposed assets

RealT has already tokenized 200 properties since its launch in 2019, mainly detached houses at the beginning and now multifamily complex. The assets are located in class C neighborhoods but still with a robustness in the selection of tenants.

RealT’s expertise in select Detroit neighborhoods allows the company to have a waiting list of serious potential tenants. Rents for certain properties are also paid in full or in part by the federal government through housing assistance (Section 8). RealT was also able to tokenize a vacation residence in Florida near Disneyland and a high-end house rented to a company for its executive.

Affiliation

To accelerate its development and expand its investor community, RealT remunerates its business providers via a subscription commission of 2% of the amounts invested by referred clients.

Disclaimers

This information does not constitute an offer to invest in any token, fund or other opportunity and is provided for informational purposes only. Performance results are shown net of all fees, costs and expenses associated with the token. If an investor chooses to redeem a token through RealT or on a secondary market, other processing fees may be assessed which are not factored into the returns presented. Past performance does not guarantee future results. Yields are calculated based on rents spread throughout the year and appreciation in the value of the underlying property. The appreciation in value is based on the difference between the purchase price and the annual revaluations of the property. Returns for individual investors may vary depending on the timing of their investments and redemptions. This site is operated by Cyril Soigneux, who is neither a registered broker nor an investment adviser. Cyril Soigneux does not provide investment advice, endorsement, analysis or recommendations regarding securities. Nothing on this site should be construed as an offer to sell, a solicitation of an offer to buy or a recommendation. You are solely responsible for determining whether any investment, investment strategy, security or related transaction is suitable for you based on your personal investment objectives, financial situation and risk tolerance. You should consult legal professionals and licensed investment advisers for any legal, tax, insurance or investment advice. All securities listed here are offered by the relevant issuer of such securities and all information contained on this site is the responsibility of that issuer. Cyril Soigneux does not guarantee any investment performance, result or return of capital for any investment opportunity published on this site.

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The 4 Types of Successful Apartment Investors

You may find many articles on how to buy apartment buildings. It seems easy after all…

But what if you follow all these steps only to find out that you have overpaid, you get no or negative cash flows and that you will lose money when you dispose of the property…

The one-size-fits-all method for regret

man comforting crying sorrowful woman with hands together
  1. Find a good property
  2. Get it under contract
  3. Do the inspections
  4. Get bank financing
  5. Hire a local property manager
  6. Close the deal
  7. Realize the deal was not that good and/or did not fit into your strategy and/or was outside your skill set!

The Builder

man wearing black denim pants with carrying hammer on holster
  1. Buy the property
  2. Renovate the buildings and amenities
  3. Stabilize the income and tenant turnover
  4. Improve the Net Operating Income to show strong cash flow during a 12-month period (seasoning)
  5. Refinance to cash-out the forced appreciation gained through the improvements
  6. Repeat the process

The Holder

man and woman walks on dock
  1. Buy the property
  2. Renovate the buildings and amenities
  3. Stabilize the income and tenant turnover
  4. Live off totally or partially from the strong cash flows
  5. Keep the property as a long-term investment (passive income)

The Exchanger

contemporary tall building with glass facade
  1. Buy the property
  2. Renovate the buildings and amenities
  3. Stabilize the income and tenant turnover
  4. Enjoy the strong cash flows on the medium term
  5. Sell the property to cash in the forced appreciation
  6. Immediately reinvest the proceeds tax-efficiently for a larger property
  7. Repeat and enjoy the snowball effect and the deferred taxation

The Syndicator

woman in white long sleeve shirt standing beside woman in white long sleeve shirt
  1. Have relationships in place to find and convince partners
  2. Extensive legal documentation to have in place (especially if the deal falls under security laws) to highlight rights and duties of the parties involved and the strategy
  3. Buy the property with investors
  4. Renovate the buildings and amenities
  5. Stabilize the income and tenant turnover
  6. Improve the Net Operating Income to show strong cash flow during a 12-month period (seasoning)
  7. Collect fees at the different stage of the scheme
  8. Exit / Sell the property
  9. Pay back the investors with the proceeds
  10. Repeat with another deal

Challenge the numbers from the seller or their agent (past vs present)

close up photo of survey spreadsheet
  1. Income : add the vacancy rate of the area to decrease potential income
  2. Expenses: do not use the standard 30% rule, know your market to find the relevant cost per unit
  3. Net Operating Income : to recalculate with the adjusted income and expenses
  4. Cap Rate : may be accurate from the start but to be checked with recent transactions
  5. Property Value: greatly revised down when income and expenses adjustments are factored in
  6. Use this value as a base for your offer

Prepare a pro-forma to find out projected values (future)

man using a laptop
  1. Income : do your research to find the potential rent increase per unit
  2. Expenses: use the relevant figure per unit in the market (same as when adjusting the seller’s figures)
  3. Net Operating Income : to recalculate with the rent increases and correct expenses
  4. Cap Rate : conservatively keep the same current rate
  5. Property Value : derive the potential future value given the projected Net Operating Income
  6. You just found out the upside potential of the deal

To sum up

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  1. You verify the numbers (past vs present vs future), if you cannot, do not go further
  2. A goal : buying under-priced properties, in a good location, with the ability to raise rents
  3. Know what type of investor you want to be
  4. In-depth description of the four investment strategies will be provided in further articles
Acknowledgements

Peter Harris from Commercial Property Advisors in this video

vibrant green trees and small cottages in town in sunlight

Investing outside your local market

Most of the times, investing in your local market can be simpler and safer. But what if your city is expensive, not suitable for cash flow investing or no longer attractive? Why not going elsewhere to get larger properties, higher cash flows and better return on investment?

Investing local is easier

narrow pedestrian street between old residential buildings at twilight
  1. You can drive by your local market to look for properties
  2. You live there so you know the market and the trends
  3. You know the demographics and therefore the type of people you will rent to
  4. You are familiar with local landlord / tenant laws
  5. Eventually, you will feel safer

Going long distance may be worth it

vibrant green trees and small cottages in town in sunlight
  1. Properties are more affordable outside large cities
  2. With lower price points, you can buy larger properties
  3. Potentially, higher cash flows and return on investment
  4. Eventually, you can build your portfolio faster
  5. Take advantage of other long distance investors who failed to manage their properties properly
  6. The benefits of long distance investing are likely to outweigh the risks

What long distance investors do wrong – Learn from the mistakes of others

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  1. They invested beyond their knowledge
  2. They were under-capitalized and ran out of money
  3. They did not manage their property managers

Best practice for long distance investing – the MOP methodology

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  1. Market knowledge (income = rents ; entry point = price per unit ; exit point = market cap rate)
  2. Operations (expense ratio, expense per unit, CAPEX for big ticket items)
  3. Property management (have a system in place to manage the manager to keep them accountable for the money, the marketing and the maintenance)

Acknowledgement

Thanks to Peter Harris from Commercial Property Advisors in this video

Investing in Self-Storage Units

What if you choose self-storage as your next investment in commercial real estate? This asset class is fairly simple to understand and to operate. Besides, there are many opportunities to increase revenues and create value!

Benefits of Self-Storage

  1. It performs great during good economic times (people consumes and buys a lot of stuff) as well as in recessions (people downsize and need a place to store their belongings)
  2. Sticky tenants even in case of rental rate increase (the nominal value of the increase for a storage unit is far less than the cost of moving out)
  3. Easier to capture inflation and to increase rents due to month-to-month leases
  4. Easy eviction (people do not want to have their stuff auctioned off) and less emotional than evicting people
  5. The storage industry is large but heavily fragmented (53,000 locations in the US but 40,000 operators), leaving opportunities to acquire and upgrade small businesses to institutional level by actively managing the property (increasing rates and capacities on the most demanded units), using technology, marketing and social media.
  6. Inexpensive and simple value-adds possibilities for ancillary income (see next section)
  7. Tax benefits of owning commercial real estate
  8. Tremendous value can be created
    1. Buy low from a small operator
    2. Operate and Upgrade (cash flow increasing)
    3. Sell (with a higher net operating income and lower cap rate to a national operator or a fund) or refinance (at a higher valuation)

Upgrades and Value-adds

  1. Maximize occupancy through marketing (website, social media) to lower vacancy
  2. Utilize unoccupied land (cell phone tower, vending machines, billboard, propane filling station…) and/or use it for boats and RVs storage
  3. Truck leasing franchise
  4. Showrooms (point of sales items) such as boxes, scissors, tape, locks
  5. Add tenant insurance
  6. Review your contracts and charge late fees or admin fees
  7. Climate-control units

Ways to get into Self-Storage

photo of professor teahcing his student
  1. Start with a small value add facility, fix it, upgrade it with value-adds, lease it to the optimal level and sell it to a larger operator. Use the proceeds to buy a larger facility and repeat.
  2. Raise capital through your network for self-storage deals for which you are the general partner
  3. Be a deal finder and exchange the deal for equity and involvement in the business (to be paid a commission, you need to be a licensed broker)
  4. Go big and hire a team around you (asset manager, property manager, lawyer…) to convince brokers and lenders to work with.
  5. Get a job in the real estate business to know the trades, the lingo and the people so that it is easier to become a deal finder or a capital raiser
  6. Invest passively (active-passive strategy where you vet each deal and opportunity or either passive-passive where you trust an operator)
  7. Get a paid coach or mentor who has a track record so that you can learn from them
  8. Offer your expertise in one domain to an investor or an operator (unpaid mentor) to get you track record
  9. Riskier strategies can include ground-up development or retrofitting and remodeling a property (eg. an abandoned supermarket sitting on a large parking lot)

Red flags to look for when buying a property

BiggerPockets’ James Dainard (Heaton Dainard Real Estate) shares the most common red flags that could cost you tens of thousands of dollars when buying a house. Walk slow, bring your camera and start taking notes when you check for the following items

The visible parts

desperate evicted male entrepreneur standing near window
  1. Sloped floor (one corner or on both) – may be leveled with sub-floors if the house settled, unless it is caused by a massive foundation problem (very expensive).
  2. Signs of asbestos (HVAC wrapped with tape, popcorn ceiling, type of siding). You can also check the asbestos survey.
  3. Water intrusion (walls, basement, gutters). Check for signs of moisture in the basement, leaking on the window edges, mold or leaking in the attic.
  4. Square footage not matching the tax records (house looking bigger and/or have extra rooms or an atrium) can mean non-permitted work and the property potentially not to code.
  5. Broken concrete or stress cracks in numerous spots can be a sign of a problem with the soil or the house not being framed properly and therefore not structurally sound. Walk all the concrete services and inspect all retaining walls. Check for leaning retaining walls or sunken sidewalk.

The hidden costs of “weekend warrior houses”

friends having barbeque party
  1. “Weekend warrior” refers to owners and their friends doing most of the work themselves not using qualified tradesmen without permits.
  2. To distinguish pro versus amateur remodel, check for the flow of the house such as the location of the rooms, outlets or the mechanical, unequal heights (floors and ceilings), plumbing and electrical
  3. Framing issues such as bedroom walls that do not line up
  4. Decks that lacks an actual footing (not lag bolted to the house structure) and built without pressure treated lumber. Check for moving parts.
  5. Pools – make sure they are not leaking and that they are serviced well (boiler, tiles, surroundings…)
  6. When you notice such red flags, use a home inspector and a license and permit bond professional. Even a contractor can tell what is wrong with the house.
  7. You can also visit the local administration to pull the permits associated with the property
  8. Have a seller’s disclosure statement stating that some of the works were performed personally and without a permit

How to hire contractors and get bids the right way

BiggerPockets’ Tarl Yarber gives his tips to avoid losing money when hiring contractors for renovations

civil engineer planning dam
  1. Cheapest is not always the best: pay trades what they are worth.
  2. Get multiple bids, at least 3 if it is a market you know and have referrals, and between 6 or 10 if you are new to the market and have no referral.
  3. The bids must be broken down by line items.
  4. Depending on the project, you can prioritize speed or pricing but never give up on quality.
  5. Keep in mind the current economic cycle as material and labor are impacted by demand.
  6. Have a clear scope of work and study bids details line by line.
  7. The scope of work can also be broken down and awarded to different contractors.
  8. Have a clear contract with your contractor (draws, escalation of issues, delays, change orders…).
  9. When you grow, you can have your own construction attorney-reviewed contracts.
  10. Have a clear draw schedule based on work completion and do not pay a large deposit upfront (20% maximum).
  11. Keep track of work completion and payments.
  12. Know how to handle change orders and how to effectively approve changes and pricing (always in writing)
  13. Spend the most time planning what you want to do with the property in order to have the clearer scope of work. You will avoid further issues or change orders.

How to find Commercial Real Estate Deals?

Here are 11 tips to help you find your first or next CRE property

man in gray sweater and black pants sitting on purple couch
  1. Prepare yourself – know what you want (property type, market and investment goals)
  2. Do your research on the property type you are looking after (market prices, rents, volatility) to have a background knowledge to be used as leverage during a negotiation
  3. Make your search known and make it known again by reaching to people in your database consistently
  4. Underwrite every deal that comes your way because you could find one that meets your investment criteria
  5. Hire a commercial real estate broker to be your representative and therefore negotiate in your favor (fiduciary duty). The broker will help you with the letter of intent, the vendors and the lease negotiations (rental rates, allowances, abatement periods)
  6. Networking : the more eyes and ears you have working for you, the better
  7. Social media to make your search known, share contents and connects with other investors or decision-makers
  8. Cold calling to have a direct path to the owners. Keep their contact details even if they are not interested to sell at the moment (follow-up!)
  9. Direct mail to the registered office of property owners
  10. Drive or walk your market and look for boarded windows / deferred maintenance, sale signs or empty parking spaces during peak hours. Do not forget to bring a notepad so that you can make more research on the selected properties when you go home
  11. Search online on listing portals even if the descriptions are not always comprehensive or up-to-date. Portals are still useful to filter properties by location, size, price range, type and amenities. Use a lawyer if you want to bid on a CRE property.