How to analyse a deal with insufficient data

Question

Hi all,

I'm sure you've all seen something like this before in the mobile home market. I'm viewing a property tomorrow that has 1 sfh and 6 mobile homes (some park owned) on 13 acres. There Are two wells and two septic systems, so already I'm leary. They purport gross rents to be  $4,500/month.

I asked the realtor for 5 years of tax returns and rent rolls to see if it was even worth viewing. He said the other agent responded "they have nothing like that". He went on to say that most MHP's in the area are owned by amateurs who dodge taxes by keeping poor records.

What is the minimum amount of information you'd ask for to make an offer on a MHP?

Paul Bowers · Answer

They should be able to at least furnish bank statements.  That will show the deposits of rent, see if it matches up.  It will also show outgoing monies for expenses.  If they have been pocketing the cash and cheating the system they will have saved in taxes and now it will cost them in sales value.

Gulliver R. · Answer

On the income side I would get signed estoppel statements, a certified rent roll, etc that way you have something on record saying that’s how much the monthly income is. And even STILL I would also get last two years of Schedule Es and bank statements (if they have it). Then I would go on site and count every lot and note which lots appear vacant and which appear occupied. Those that appear occupied you calculate the rental income (lot rent and home rent x occupied lots = rental income). Any lots that appear vacant should be notated and you would want to inquire about those if they are actually supposed to be occupied.

On the expense side you can call the vendor directly to get the amount and you can use your own common sense to find out how much an expense would be. For example call the water company and the power company to find the average monthly costs for the last six months. For certain things like management you can figure that out yourself. For the lawn mowing I would call lawn mowers in the area and get bids.

Matt Swearingen · Answer

Agree on the 'can't beat the IRS' sentiment, I think that was the realtor's excuse. Will definitely request leases.

Also contacted the township about the cost of permitting new pads, if they even allow it. If I could cash flow from day one and increase revenues by adding pads this could be a good investment.

Corby Goade · Answer

Well, you can't dodge taxes with poor records- an auditor would laugh you right out of your deed. It's very possible that they have poor records, but you could ask for leases. I'd definitely be talking to tenants about the management when I view the properties.

If you familiarize yourself with the area and rents for that class of property, honestly, rent rolls and taxes won't do much to sway you. You'll either decide that you can get the rents and property to where you expect them to be regardless of what the current owner has done. The most important thing for me would be to see the leases.

Matt Swearingen · Answer

Submitted an offer letter with a Master Lease with Option to Purchase. Payments were $50/paying tenant/month. Purchase was in year 5 for $200k.

Offer letter was detailed and described my reasoning for the offer and had a picture of the family and kids on it (play to the audience).

Offer was refused. I set a 1 month reminder on my Google Calendar to resubmit the same offer. I'm betting they won't get any more than $200k.

Matt Swearingen · Answer

So the township called me yesterday and had a nice chat. They haven't paid their $25/lot permit fees in 2 years. They will only ever be allowed 18 lots on that property because the DEP deemed the flat space below the park to be wetland. So the max gross rents from the park will be $315x18 = $5,670/month (tenant owned homes).

If I paid sticker $289k that's the 1.9% rule. I don't plan to pay anywhere near that.

Matt Swearingen · Answer

For anyone following along at home. I viewed the property today and the results were predictable. The owners were both in their 80's and the husband who ran the place died in August 2017. All the information about the park died with him. They had next to no data available. 12 lots had homes on them (out of 30 available). "We don't do leases."

"How many people are actually paying?"

"Some of them, I think.

The SFH on the premises was built in 1800 and was occupied by the owner's deadbeat son. It was condemnable, I wouldn't store tools in it.

This looked like a bulldozer special. Just start completely over.

They want $289 for the 13 acres, might offer $100.

How to analyse a deal with insufficient data

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