The following are questions asked by Investors about Our Mobil Home Park s and Investing.
A: $25,000, With the average investment between $100,000-$200,000
Q: What is the rate of return?
A 1: The investor gets an 8% preferred rate of return, plus up to 50% percent of the excess free cash flow. The average cash flow return is estimated at 14%-16.9%
* Each Park syndication is slightly different.
A 2. The return if the park is sold at the end of the investment period the profit on the sale could add 50%-100% of the invested amount plus the cash flow returns, giving a total annualized return of $19%-33%
A 3: If the park is refinanced (about year 5) the investors would get their capital back and retain their cash flow ownership.
Q: Have you purchased land for the park?
A: We have land under contract for the first park. The goal is to keep the property holding cost as low as possible. We are using the feasibility period to start the design and complete the due diligence, and raise additional equity capital.
Q: How much of your (the syndicator) own money is in the project?
A: Typically, I invest $50,000 to $100,000 myself as an investor just like you. In the beginning, I put up the money to fund the startup and promotional cost. These can run 6% to 10% of the amount raised. We also pay all our own expenses during the 1-2 years it takes to get the projects of the ground.
Q: What happens if the minimum investment amount is not reached?
A: If the Fund does not reach the minimum investment the investors’ money is returned to them. This is not likely.
Q: When does the invested money start earning interest?
A: 2. On some Syndications: The preferred rate of return starts on the investment date. The preferred rate of return is accrued to the investors account, but not paid until the park makes a profit. The investor’s preferred rate of return is paid first, then their share of excess free cash flow, then the syndicators’ get their profit/cash flow participation. See the PPM for a particular project exact details.
Q: Does preferred rate of return mean the developer/syndicator gets paid after the investors get the preferred rate of return?
A: Yes, as developer/syndicator, we do not participate in the profit or free cash flow until after the equity investors get their preferred rate of return. The balance left after the preferred rate of return payout is used to calculate everyone’s profit participation.
Q: What other fees are paid to the syndicator?
A: Each Syndicate is slightly different: Fees paid to the syndicator is covered in the operating agreement. To summarize, A real estate commissions on the purchase or sale of the property. A onetime 2% syndication fee. A 2% to 6% management fee. The management fee may get paid to a third-party management company. This varies a little depending on when the investors preferred rate of return begins to accumulate interest.
Q: How much leverage (borrowed money) is used?
A: That depends on the park, as a rule, 60% to 80% of the total development cost.
Q: Who is responsible for these loans
A: The syndicator and the park LLC. The investors Risk is limited to their amount invested.
Q: Will there be investors calls for additional money?
A: We do not anticipate a need for the investors to put up more than their original amount.
Q: When do the investors get paid?
A: The preferred rate of return is paid quarterly (when the park is making money). Profit participation in the free cash flow is paid annually.
Q: What is the exit strategy?
A: At the end of 5 years the park is evaluated and a determination made of one of 4-actions, or combination of these actions. Note: if the park is an opportunity find investment the exit strategy will be designed to maximize the tax advantages)
- Sell the park and cash out with investors getting their initial investment back, then their percentage of the profit from the sale.
- Refinance the Park, giving the investor’s their original investment back. With everyone keeping their portion of ownership interest in the free cash flow.
- Continue the investment as is, with an annual evaluation.
- Expand the park.
Q: How long will the investment run?
A: The typical investment of this type runs 5 to 10-years; if the decision is to sell at that time it could take an additional two years, give or take.
Q: Can we invest with IRA Funds?
A: Yes, this type of investment can be done using a self-directed IRA. We can assist with finding a self-direct IRA custodian.
Q: Can I invest using a 1031 exchange?
A 1: The answer is NO! as the investment funds are currently structured. Please check with your tax advisor.
A 2: We would need to create a custom investment deal (structure) with anyone wanting to do a 1031 as the property would need to be held as Tenants In Common (TIC). If there where one or two investors with $500,000 to $1,500,000 we think this could be done.
Q: Does the investment qualify as an Opportunity Fund?
A 3: Yes some of our developments are opportunity fund investments, which is even better then a 1031 exchange as it has fewer limitations and greater rewards. One of the properties under contract is in an opportunity census track, and our next planed park is also.
Q: How can you pay such high returns?
A: When we develop a new mobile home park or rehabilitate an existing park we are creating value. Because we increase a parks income or create income where none existed, we add value, or have added value. Other investors and institutional investors will pay to acquire steady, predictable cash flow. Additionally, with the use of leverage by borrowing part of the total cost, we increase the return on the investor’s equity cash. By building larger projects, we can take advantage of the economies of scale to control cost and thus make higher returns than one person can do with a smaller investment. The investors get to profit from the syndicator and his team’s years of experience.
Q: Why have I not heard of this type investment before?
A: Private equity investing has been around for decades, the syndicator just could not advertise them. The Jump-start Our Business Startups Act, or JOBS Act, was signed into law by President Obama on April 5 of 2012, it took about additional two years for the rules to be written. The act allows general solicitation to attract accredited investors so long as we comply with the SEC rules and state security laws. In the past, we had to do limited partnerships and restrict investors to people we knew.
Q: Are you building or buying parks just in San Antonio?
A: No, in the beginning, we will concentrate in Texas. We want to build ten parks or more in the next five years. The state of Texas is an economic hot spot that is likely to continue in that vain for the foreseeable future. Texas has historically wealthier economic downturns better than other parts of the country. Keeping all the parks in Texas helps control cost.
Q: Will all the parks be Senior Living?
A: No, the property location might dictate otherwise. Also, the price of land, terms of financing and other factors might cause us to consider doing an all ages park instead.
Q: What amenities will the parks have ?
A 1.: This will vary somewhat by the parks size and type of park (senior living or all ages) and by the amount of rent that can be charged. Additionally some items are required by code.
List of items considered for a park during the planning stage: club house, pool, fitness center, party room, card room, general use room, play grounds, community gardens, tennis courts, shuffleboard court, basket ball court, Horse shoe court, picnic area, walking paths, pavilion, covered mail boxes, wide streets, underground utilities, cable, FREE Wi-fi, welcome home entrance ways, gated community, off street parking, fenced, each home has a storage room. All homes are decked and skirted.
Q: Will the park rent the homes?
A 1.: In most cases no, our business plan calls for us to rent the mobile home spaces.
A 2: It is important that the park spaces be filled up as quickly as possible one way to do that is to rent homes on a rent-to-own program or a rental program where the rented home is sold on the 60th month (both of these programs return a 15% return on investment) .
Q: Will the homes be single-wide or double-wide.
A: Both, about 60% to be single-wide units. Both will be offered for sale with the buyers making the choice, most of the lots in the park will accommodate either one.
Q: Will the homes all be new?
A: Most of the homes will be new, we will consider move-ins of older homes if they meet aesthetics and condition requirements.
Q: Will the park sell homes?
A: Yes, the park will sell new homes and finance some of the homes for the buyers as an additional source of revenue for the park.
Q: Will the park contain Tiny Houses?
A: It is a consideration. That decision will need to be made based on the parks location, demand for tiny homes, density per acre, and if it provides an economic advantage to the park’s overall business plan. We would lean more towards park model R-V style rather then tiny houses.
Q: Will future park Funds be on the same terms?
A: No, once we have a Park or two to show, and hard numbers to present, the terms will change. The preferred rate of return will more than likely remain between 6% and 8%, but the percentage of profit and or cash flow participation will be less.
Q: Will all the parks be syndications?
A: No, each park will is a separate investment and might be funded with a syndication or with a direct partnership.
Q: I have decided to invest, now what?
A: Complete and send us the subscription agreement, we will review that form for compliance with the SEC and state regulations and contact you with instructions. We are available to meet with you to answer any additional questions you might have.
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