When You Lose Control, It's Time To Move On
I bought this mobile home park several years ago. When it was pitched to me, the sponsor who was a good friend of mine and owned several MHPs in the area, was extremely excited about the deal. This park was located in Colorado. Had had several other parks not within the same area, but close enough that adding it into his management system didn't seem to much of an obstacle. The park had 10 vacant lots and the water was being paid by the current park owner. His basic plan was to fill the lots and submeter the water. The park was paying $2,000/month or so in water bills so that extra $25,000 / year in income at a 5-6 cap is an extra half million in valuation. Add the lot rent from 10 new homes and it's an easy $1M+ in upside.
What he said and what happened were to very different things. He only kept a small interest in the park and sold 50% off to some very well known mobile home park guys. The guys either didn't know his turn around plans or just didn't care. They did bring in 10 new homes. And when I say new, I mean they paid $30-40K each. They also bought up every home that went on the market. We started with just a couple of park owned homes, but within a few years, we had more than 30 of them. That bled all the cash flow out of the park for years. It was an absolutely terrible investment. I did receive a few checks here and there, but I would have been WAY better off just buying a beat up 3 bedroom, 1 bath fixer tract property in the ghetto. I could have collected rent on that home during the entire time I owned that park and then sold it when I sold the park and the value of the ghetto house had tripled by then.
One day out of the blue I received an email from my friend stating the 50% partners were planning a buyout. Basically, since he gave up control and I was now a minority owner, I had no choice. The first thing I did was consult with a lawyer. I showed him the offer. He took a few days and looked over the operating agreement, the offer, and all the other paperwork I had received from when they refinanced the park several years earlier. He seemed to believe, based on their poorly handled paperwork, that I could force them to pay me basically whatever I wanted for my share. After thinking about it over another few days, I decided it wasn't worth it to burn that bridge. I accepted their offer and got on with my life and investing business I did double the original amount of money I put into the deal and collected a decent amount of rent, but it was way less than I would have made if I had just bough that ghetto house.
Once you give up control, you're now along for the ride, even if you don't like where that ride is taking you. I was happy to get my check and put that experience behind me.
Are you in a situation where you no longer have control? Are you thinking about getting into a partnership or JV with one or more other investors? How will you document your exit strategy if you don't like the direction the deal is headed? Please leave any comments below and share this post with others and interested in investing in real estate.