Montrose Mobile Home Park

George says, "Properties like this are cash cows. They are not going to appreciate wildly in value, but they are generally steady income producers. Here we have lots of evidence of commitment to the property because one sister is buying out the other two sisters, and she is giving them approximately $65,000 more cash than our loan provides. We also have an interesting oddity. The two real estate brokers who provided BPO’s actually came in considerably higher than the appraiser. Normally it's just the opposite.”

Blackburne & Sons is pleased to present this new first trust deed secured by three (3) single-family residences and a 27-space mobile home park, all on an 18.993 acre parcel, located in Montrose, Colorado.

In southwestern Colorado, Montrose County lies approximately 269 miles southwest of Denver, in the Uncompahgre Valley. Delta and Mesa Counties are located to the north of Montrose County, with Ouray and San Miguel Counties to the south. The county’s western border is the State of Utah. The Montrose Business District began its development after the Denver and Rio Grande Western Railroad moved into town. It was around this time that Montrose became an established railhead, primarily shipping livestock. Later, a trade center developed which served the high-country mining towns of the valley region. However, during the first half of the twentieth century, mining activity declined. This left their economy to turn to agriculture as a primary source of wealth generation.

The City of Montrose is located in Montrose County. Approximately 40 miles to the north of this city is the largest flat top mountain in the world named the Grand Mesa. Traveling 40 miles to the South, one would find themselves at the San Juan Mountain Range with Mount Sneffels being the main attraction of the range, sitting 14,150 feet above sea level. The city of Montrose is the county seat and is one of the most populous cities within Montrose County. Looking at the city’s growth in real estate over the past six years, there seems to be a promising sense of optimism in terms of new residential and commercial construction. As for destinations in Montrose, the majority of the sites are natural attractions like the Montrose Botanical Gardens, Shavano Valley and Baldridge Park. However, there are also many museums and historical sites like the Museum of the Mountain West and Ute Indian Museum. The two main highways in Montrose City are Highway 50 from the east, and Highway 550 coming from the South. These two highways intersect right at the heart of the Montrose City.

Located on the north side of Spring Creek Road, about a quarter mile south of Highway 50, the subject property was built in 1967. The current improvements consists of three (3) single family residences, and 27 lots on 18.993 acres of land. The single-family residences vary in size and story, but range between 2,000SF and 3,000SF. See appraisal for specific details. The mobile home park, which consists of 27 mobile home lots, is stated to be professionally regarded as a Housing Oriented Park. These parks are usually located in areas of high employment concentration and their principal function is to provide housing with low economic burden and high convenience for people who prefer mobile home living. The drive through the mobile home park is aggregate with speed bumps located throughout the road, and the park itself covers approximately 5 acres out of the property’s total acreage.

Currently, 24 of the 27 lots in the mobile home park are leased, with all but one rented for $230 per month. Monthly rent includes water, sewer and trash removal. The scheduled gross monthly income at current occupancy for the lots is $5,420. There are no written leases available for the lots and all tenants are month-to-month.

Of the single-family residences, all three are occupied but currently only one is generating income. One of the guarantors of this loan (more on her below) currently occupies one of the homes, and another is occupied by one of the seller’s. This seller is being allowed to live there rent free for 4-months after the purchase, then will vacate in order for the house to be leased. The third home has been leased for $1,250 per month since 2016. That lease expired in April of 2018, and tenant has been on a month-to-month term ever since. Per the appraisal, market rent for these homes would range between $1,000 and $1,300 per month. In 2017, the subject property reported net income of $33,290, and net income of $34,816 for 2016.

The subject property has been owned by a Colorado limited liability company since 2010, in which the members of this LLC are all sisters. One sister (along with her son and daughter-in-law) are buying out the other sisters in the LLC for an agreed upon price $575,000. Title of the property will not be transferred, but rather ownership interest in the LLC will exchange hands. Even after our loan, an estimated $65,000 of cash will be required to complete the buy-out.

As mentioned, title to the property will be held in the name of a limited liability company. This loan will be personally guaranteed by three individuals; one widowed woman and a married couple. The husband and wife have mid-credit scores of 656 and 661, and their stated net worth is $323,581. The husband is a Digital Controls Technician for R&H Mechanical and his wife is a secretary for Thompson Welding. Their combined income for 2017 and 2016 was $121,709 and $137,999, respectively. The 2018 tax returns have not yet been filed.

The widowed woman has a mid-credit score of 724 and a stated net worth of $195,710. She lives in the third house on the subject site, and will continue to do so after the purchase. She has worked as a cashier at Walmart in Montrose for the past 29 years. Her total income for 2017 was $53,374, and in 2016 was $74,396. She has not yet filed her 2018 taxes.

We engaged a local MAI appraiser who valued this property at $850,000. We also engaged two local brokers who each performed an opinion of value, and valued this property at $1,450,000 and $1,200,000.

At an 9.0% yield to the investors and a 65.0% LTV based on the appraised value, this appears to be a reasonable investment. Investing in any first trust deeds involves substantial risk, so be sure to read the Risk Factors section of the Offering Circular carefully before investing. A large and prolonged decline in real estate values is possible. Foreclosed commercial properties almost always need to be renovated before they can be leased or sold, so be sure to maintain some liquidity.

You should spread your mortgage investment portfolio out among lots of different deals. If you have $300,000 to invest, you should invest $10,000 to $20,000 in 15 to 20 different fractionalized first trust deeds. For example, if the deal is a $300,000 first trust deed on an office building in Boise, with a $15,000 investment you would own 5% of the loan. By spreading your money out into a bunch of different deals, you are achieving the diversity of a fund without the failed fund sponsor problem. If you are extremely wealthy, you could double (or even triple) my suggested investment amounts, but be careful about pouring too much money into a single deal. We once had a whole building fall into an old coal mine. Ouch.
Be wise and resist investing in any first trust deed yielding more than 9%. I would personally never invest in a first trust deed with a double-digit yield. The payments slowly grind the borrowers into the dust.
Blackburne’s Law theorizes that a portfolio of 8% and 9% first trust deeds will outperform a portfolio of 11% and 12% first trust deeds over a seven-year term. Only our wisest (and eventually the happiest) investors listen to me.
You can also buy some of our smaller deals in their entirety, but I only recommend this if you are richer than Crassus.
It is very easy to lose money in hard money first mortgages, so fight-fight-fight against the temptation to invest in high-yield deals. As Nancy Reagan used to say, “Just say no.” But if you choose 7% to 9% first mortgages, I predict that you will be very, very pleased.

Blackburne & Sons Realty Capital Corporation--For more information, contact Angela Vannucci
4811 Chippendale Drive, Suite 101, Sacramento, CA 95841
Telephone: (916) 338-3232 * Fax: (916) 338-2328
Real Estate Broker -- California Bureau of Real Estate -- License Number 829677 -- NMLS Number 103430
Publicly advertised to California residents only under California Department of Business Oversight business plan permit.
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