Large MH Park possible purchase, need advise please

[Ron Edward]

I could use some good advice from the very knowledgable members of this board.  I found a gem of a MH park that I "might" be able to purchase.  It is 15yrs old, on approx 15 acres of flat land, city water/sewer, very clean and well maintained with wide paved streets.  No MH's owned, lot rentals only.  Of the 66 lots, 9 are currently vacant. Rent is $180 per month and I believe this could easily be bumped up to $200 or more with a new owner. Tenants are responsible for their own yard maintenance. This park is in an area where no more are allowed to be built. Taxes are approx $7k per year and the tax appraised value is approx 1mill. These are the main points that I can gather from the present owner and tax records.  There is an onsite manager but I have a person that could manage this park for $500 a month if that manager does not work out.

This park is owned by an elderly widow who is smart but also very skeptical of anyone trying to buy her business on the cheap.  I heard about this park through word of mouth and that she wanted to sell it about a year ago.  I called her yesterday and she said she didn't want to sell now but I could read between the lines that she might, if the price was right.  During our conversation she said that she has had many people call her from out of state wanting to buy it but "no one had any money to buy it with".  She asked me at one point what I would give for it and I responded that I couldn't make an offer because I didn't know what she charged for rent or the expenses involved.  She told me the rent price and said that it's easy to figure out an offer price by knowing the amount of MH's multipllied by the lot rent!   It was a very strained conversation and I could tell I was treading on thin ice, especially if I said the wrong thing, so there was no way I would dare make her an offer over the phone.  I asked if we could sit down one day and discuss this and she said there was 'no use in that!'  Knowing she would be a hard nut to crack, I politely asked her to keep my phone number and call me back if she decided to sell.  I could tell from our converstation how proud she is of her park and rightfully so.  There are also strong emotional ties as her recently deceased husband was the one who built it.  I informed her that I am local, can look after it, have the money to purchase and am looking to buy an investment property soon.

I would absolutely love to buy this park if the numbers are right and I can convince this lady to sell.  I can, at least, provide a 20% downpayment and my banker is willing to give me a 20yr loan, with the first 2 yrs at a fixed rate of 3.75% and the rest of the term adjustable.  I think he would instead give me a fixed 20yr rate of 4.5% - 5% now, if that would be the better option?  I might be jumping the gun talking financing now as I first need to get a commitment from this owner to sell.

Knowing the above scenario, what strategy would you suggest in trying to purchase this park?  Would you risk making an offer and possibly offending the owner in the process (which seems could easily happen) or would you give it time and hope the owner calls you back one day?  Most importantly, what would you value this park at if you made an offer or if she called you back ready to sell?  Thank you.

[Douglas Dowell]

I personally think make a reasonable offer often.   Emotions are a variable thing but if you make a legitimate offer based on reality its all you can do.

The flip side is she may not be rational...and nothing you do will matter.   The only way to find out is to make the offer monthly until she gets a temporary restraining order. 

The risk of waiting for the seller opens the door for some other buyer.  Nice people can finish first.

[Adam Johnson]

I would not push this to the point of a restraining order by any means!  It sounds like you had a decent conversation and that your instinct is good with the owner's attitude.  Don't push your luck, if you tick her off, you will likely no longer have your calls answered.  Having been developed by her late husband, she is probably well tuned in to the property and has a business mind.  I doubt you are dealing with an amateur here.  You need to make a friend, not an enemy.

I have had similar situations.  I would tread lightly.  If you are nearby, maybe make a point to stop at the park during business hours in the next couple weeks and see if you can introduce yourself to her, give her a business card, and simply say that you spoke with her recently and wanted to put a "face to the voice on the phone".  Keep the door open, but don't force your way in.  Ask if she minds if you check in once in a while.  If she is ok with that, then maybe make a phone call every couple months and leave it at that.  Stay visible, but not annoying.

Good luck!

[Michell P.]

Its hard to say without knowing what the costs are.  Costs for a MHP can vary depending on the water / sewer costs and if they're billed to the tenants or not.  But, I'd probably feel comfortable offering $700k based on the rents.  Don't count the empty pads - and keep in mind the cost to fill the pad with homes.  And I wouldn't want an adjustable rate loan.  But I'm in Oregon, maybe our MHP market is different than yours.  

[Account Closed]

@Ron Edward  

It sounds like it may be a bit early too talk numbers here. 123,120 is our appx gross income. I don't see you pointed out where who pays the water. Based on Frank and Dave expense rule of thumb ratios, if the park pays water then you might have a NOI of 73,782 or if the tenants pay it 86,184. So if you ten capped both those numbers.... 737K or 861 k to give you a range.

If she has already talked numbers with people who she say don't have money, she has a number in her head.  

She has also indicated that those people don't have money.  That leads me to believe those were all offers on seller financing maybe with low/no down.  One advantage you may have is you actually look like a legitimate buyer to her. 

I personally would NOT make an offer.  You want her to tell you what she wants here.  Work on trying to build a relationship.  Show your genuine interest in the park as well as her history to the park. If you are local , take the time to meet with her and learn about the park (but make sure it is ok with you to stop by there; i.e. get her approval).

She may be realistic, she maybe unrealistic.  She may also not be an easy seller with her emotional ties to the property.  

Tread carefully here as you may have something here but it needs to be handled property.  You have the advantage of being local and can see her which is a lot more than someone like me can do over a phone and you need to take advantage of it. 

[Dawn Young]

So interesting, I had a really similar discussion with an owner a couple months ago!  Only he was very, very rude, initially he seemed to think I had bags of money i wanted to give him, and then he expected me to already know all the financial details about his park! Then, he seemed to think I was trying to get it for nothing.  I think that some parks get a lot of calls about buying, lots of yellow letters, etc.  I can see how that would be annoying.  I do wish they would just set a price, though.  They think they have a golden goose (and they do) but even a golden goose has a market value!!! At least, that's my 2 cents.  So, sympathies!  Keep us posted!  

[Bruce May]

@Ron Edward the info provided above by everyone is sound advice except for, IMO, that of @Douglas Dowell. My partner just bought a park in Grand Rapids from the heirs of an estate. He started his conversation with their father three years ago and built a rapport with him over time. His children eventually contacted him to buy the park because of the relationship he had established with their dad.

I'd stop by and introduce myself in a week or two. I'd send a follow up letter to the owner and let her know you appreciated her time. Make the park a secondary comment in the letter. Ask if it would be okay to send her an offer for consideration.

Ask her if she could give you any advice on how to buy a park. She may or may not know someone else selling but it gets you two talking about parks. Be personable with her and let her talk.

Send her an offer or an LOI so she has something tangible to review. Include a copy of your deposit check and a letter of approval from your banker so she knows you are serious. Just be consistent and persistent but not a pest. That's a very fine line to walk. Best of luck.

-bem-

[Ron Edward]

What a wealth of information everyone has provided...I can't thank you all enough! Very eye opening to read all of these knowledgable insights and perspectives.

I have to say I was kind of stunned to see valuations of under 1 million come in as I was thinking right at, or a little North of 1mill in my assumptions. With the approx gross income being $123,120 and knowing now that the water is paid by the tenant (I inspected the park again yesterday and found individual water meters), I had expenses figured at $19,296 per year (property taxes of $7,396, a "guess" of insurance at $3,500, management fee of $6,000 and a "guess" of mowing of vacant lots/perimeters along with yearly incidentals of $2,400) this would leave a NOI of $103,824, hence my assumption of the park being worth at least 1 million. Jack's figure is $861k so I must clearly be missing something here and/or figuring something too low or incorrectly?

In regard to timing, establishing contact and building a rapport with this elderly lady, all of your advice is well received. I think taking it slowly and giving her a week or two to think, might be a good start and hopefully she will decide to call me back during this time. If this doesn't happen then plan B of trying to put a "face with the voice on the phone" as Adam suggested. I also really like the idea of sending a nice follow-up letter along with a bank letter of credit included (thanks Bruce) and then staying lightly visible thereafter as also as suggested.

Thanks again.

[Jay Hinrichs]

@Ron Edward

  must be something in the air... I bought a park in Eugene Oregon ( closed last week) and it was an elderly lady... But she could not run the park and it was full of  low lifes had 35k in back water and other county fines.. its 14 spaces and 2 houses and 2 studios.. we got a pretty nice buy on this one.

I bought one a few years back in Vancouver WA... again from retiring older couple but the lady was the one who ran it.. this one was nice... it was 42 spaces.. and over the course of 3 years I got the rents from 250 a month up to 400.. I sold that for 1.9 mil cash to a very astute CA park owner who owns about 50 of these on the west coast.

I have one in escrow right now in Charleston another ghetto dog and the elderly lady who runs it I am not sure she is even collecting rent... but I want to build a housing subdivision on it so its not a cash flow play.

Plus it really depends on your quality of tenant.. My Vancouver one was a dream.. the Eugene one is Ghetto so lots of issues.

@Michell P.

  not sure were your thinking you can buy a MHP in our market for that low of rent to price ratio... or maybe I just got lucky. ! the one in Eugene I picked up once stabilized I think will sell for around 500 to 550k...

[Michell P.]

Nowhere that I know of in OR... didn't mean to imply those deals were available here.  Everything I'm seeing is ~35 pads or less for ~600 - 700k.  

BTW - If you're thinking of selling your Eugene park anytime soon I have a buyer who may be interested after you stabilize it  

@Ron Edward

I'm guessing your management fee may be too low, and your lawn care budget may be too low, though its hard to say without seeing the property.  And you have nothing saved for reserves... like, in case a water line breaks.  Or a tree needs to be removed... 

And the tenants may pay for their water, but there may still be water or other utilities you have to pay for?  

[Jay Hinrichs]

@Michell P.

  send me a V card we should be on the market in Sept... will give you a preview shot at it.