FAQ

Why a mutual fund?

• It is a simple model in which ownership and revenue is pooled and paid out based on the amount of initial capital invested (ex gst).

Why do you call them shares, not units?

• The normal industry term for rights to a percentage of a mutual fund is unit, not share, but cabins are often called units, thus use of the word can cause confusion.

Why would I want to exchange my cabin for shares in the fund?

• Your cabin’s resale value would likely result in a significant capital loss relative to the money you paid to Coastal Cabins. To maintain your capital investment, the value has to be in what it earns (rent), not what it would sell for as a used cabin. This value can be realised if, once rented, you found an investor willing to buy the cabin with the lease, but that is hard. If instead you own shares in a fund that pays over 10% ROI, you are more likely to have a liquid asset that is more easily sold.
• Also, as a pool, the whole pool is subject to an occupancy rate, rather than you being the unlucky one to have a vacant cabin. This allows ACF to measure PMP’s performance on an occupancy rate target.

What is the role of ACF and the role of PMP?

• ACF owns the cabins you used to buy shares in ACF. It receives a single weekly payment from PMP for all net rents and ACF then pays each investor an equal amount for each share they hold. Essentially, ACF is a paper-business dealing in money and documentation.
• PMP creates market demand through advertising, PR, connections, etc. It qualifies applicants and leases the cabins on behalf of ACF. It collects the rent, deducts the insurance and takes its management fee before paying the net to ACF for distribution to investors. PMP also manages recovery, delivery and refurbishment of cabins, with an aim to lowering the cost of these out-of-pocket expenses. PMP is a hardware-business dealing with people and with things on wheels.

Is the 25% commission fair?

• In our experience, yes. Market making is very different than market serving. A rental apartment is offered in an operative market where tenants know where to look, what to look for, and how it works. A mobile home is a relatively new concept, complicated by the fact that the tenant must find the land.
• Over time, as the rental book grows, ACF may ask PNP to review the commission to ensure it remains value for dollars. At this point, even at 25% it will not be a particularly lucrative business. PNP must take a long view with an eye to expanding the market.

I didn’t sign up for this. My lawyer/accountant/partner said just sell. Good advice?

• Unfortunately not good advice, especially now. Because the liquidator is not allowed to sign new business, a substantial number of vacant cabins are sitting idle. There is no market maker who connects buyers and sellers, and conceptually mobile homes address the bottom of the market, so unlikely to have active buyers knowing what they want. And if you want to preserve what you paid, you are competing against new products being sold by other manufacturers.
• The value of your cabin is not in what it would sell for on the used market, but in what it earns. If it is leased and you can show a consistent 10+ ROI for years, you may find an investor wanting to take it off your hands, but given the recent liquidation, the market will have questions.
• The point of ACF’s mobile home mutual fund is to monetise the cabins so buyers are not taking on cabin ownership, but investing in shares backed by a steady flow of rent. This is why it will not take on any cabins until they are leased and generating a cash flow.
• While right now you may want to exit the investment, once it has become stable in a mutual fund, you may find you want to acquire shares from other investors.

How does ACF get paid?

• The primary payment comes out of the 25% commission that PMP deducts from rent. The actual percentage has not yet been negotiated with PMP
• Additional payment comes as a broker fee when an investor wishes to sell their shares.
• Over time ACF may charge fees when it adds new inventory (additional rental cabins) to the fund.

I understand straight rentals, but how will LOP (lease with option to purchase) work?

• Initially, ACF will bring in rental units. LOPs are more complicated, but also except for breached contracts, less urgent
• LOPs have lower overhead because when the contracts are being performed, they are leased once and after that the job is solely a matter of collecting rent. Thus, a 25% management fee is too high. And when LOPs fail, recovery can be more complicated, although it generally means the owner will have benefited from a higher rent. For now, PNP will assist in LOP defaults on a time-and-materials-charge basis.
• ACF is examining how to fairly manage LOPs. It is likely the preferred LOP will be where principal is reinvested on a rolling basis and investors exit by selling shares.
• From a social wellbeing perspective, LOPs are good. They are a true hand up not hand out. After 5-7 years the tenant has an asset they can keep, sell or even possibly contribute to the ACF fund and begin a new LOP, meaning they get say 80,000 shares and restart their LOP contract.

What is involved in PNP Market Making?

• Unlike apartment rentals where there is a mature market, the mobile home market is not well established. PNP has to raise the profile through advertising, Facebook, TradeMe, news articles and networking. It needs to qualify applicants, negotiate security agreements (especially on Maori title land), build waiting lists so its sales team can move a vacant rental from one customer to the next without towing back to a storage yard. Coastal Cabins built up such a market, but after July 2022, with the eventually fatal injuries to its owner, that market fell apart. PNP has to rebuild it.

Why was relocation so cheap under John Brown, but now we are getting $3,000+ quotes?

• When the factory was manufacturing new cabins, it employed an inhouse team of drivers using company SUV’s to tow the 3,500 kg trailers. It was not run as a profit centre, and the rentals were just an added job. When GT took over, they contracted with professional movers with expensive hiabs and trailers where it is a profit centre for them.
• For now, PNP has few options so it may have to use contract relocators. But as it progresses the business, it is looking at the costs involved in running its own relocation team. Having said that, since PNP does not manufacture new cabins, it will not have the same economies of scale that the factory had.

Any issues with towing?

• Unfortunately yes. Current NZTA rules allow a 2.55m wide trailer (or hiab/truck) to tow an oversized load. Category One overwidth is 3.1m max width. Category Two is over 3.1 and it requires a pilot vehicle. However, if the cabin on the trailer is not a payload, but part of the trailer, it is an automatic fail on a WOF. So if the cabin can be shown to be payload, it’s OK, but if permanent, it’s not. In practice, John Brown just put on a dealer plate, light kit, towed the units and was not bothered. The police have other things to do, and unless there is a crash they tend not to get involved. There is another loophole to get a Rego plate and WOF, but we won’t put that one in writing.
• And then there is another problem. While John Brown’s cabins were supposed to be 3.1m width, some seem to be just slightly wider, meaning Category Two rules kick in, including having to pay for a pilot vehicle. It’s not hard to get a pilot vehicle driver certificate, but a delivery company will add $95/hour to include one.  Again, when John Brown did it, he was paying staff, using his own vehicles and took the risk. A delivery company has no incentive to cut corners, and the pilot vehicle is a profit centre.
• Ultimately PMP will need to focus on how to get delivery prices under control, or an annual relocation could eat up ten weeks rent. Solutions include focus on long-term placements, require two way delivery payment up front, or invest in a hiab or suitable separate trailer.

What do I need to know about GST? 

• If a business transacts no GST activity, it is not permitted to register for GST. The IRD states financial services and residential rentals are exempt from GST. This means if the sole activity of the Fund is to earn and pay out income from residential rentals, it will neither receive rent with GST, nor pay out with GST.  However, it is recommended you take your own professional advice on this matter, as will ACF.
• For entry into the Fund, the shares issued are based on the price of the cabin paid to Coastal Cabins ex GST. In this way, it is a level playing field, since some investors may have been registered for GST and claimed back the GST on the cabin they purchased, whereas others did not.

What do I need to know about depreciation? 

• Ask your accountant.
• Some of you may be taking depreciation against your cabin’s income. When you invest in the shares, it is based on the initial capital outlay not the depreciated value. But you are not selling the cabin, you are using it to buy shares.
• On the other side of this same question, ACF has not yet taken professional advice on how it should handle depreciation. Caravan depreciation is 10.5%. However, unlike cars which have built-in depreciation, Coastal Cabins made with LGS steel frame and easily replaceable lining, cladding and flooring can be perpetually refurbishable, like an aeroplane, and their value may actually increase so long as it is based on rental income not resale as a used chattel. This answer can be expected to change when professional advice is provided.

What is the story with the FMA (Financial Markets Authority)? 

• We have been told that when the FMA was asked they said the process by which investors were invited to fund LOP cabins required further approval than was the case under the now-liquidated company. Thus, before soliciting future LOP investors, compliance measures would need to be established and approved. These cost money and take time. Thus, for now, no new LOP contracts are being marketed to investors. For existing LOP owners, we understand there is no issue with the FMA, but we do not have a formal opinion, just what we have been told.
• Rather than continue with the informal methods of soliciting new investors, ACF is securing quotes to make the Mobile Home Mutual Fund an approved investment scheme for the general public. This is called a Managed Investment Scheme where ACF is the manager. See https://www.fma.govt.nz/business/services/mis-manager/

What’s next? 

• The first priority is for PMP to get itself established and determine how many cabins/investors it will be managing. Please sign up unless you plan to manage your cabins.
• Second is to know where the cabins are, how many are paying, how many are vacant, problematic or the lease is ending soon.
• PMP then needs to focus on leasing, selling or LOP the vacant cabins.
• At the same time it is doing this, the owners are being invited (by this website), to agree to contributing their cabins to the Mutual Fund
• Once the pressing challenges have been addressed, market making needs to engage at a policy level.
• Mobile homes should become part of the government’s answer to the affordable housing crisis. 
• There are at least 15 mobile home manufacturers who would prefer to focus on manufacturing, not sales and leasing. We see PMP as filling that role, and ACF as becoming the financing arm.