First mobile home park

[Mike Reynolds]

So I am under contract to buy a MHP. Was supposed to close on Friday BUT....the owner has refused to show his financials. We can assume why that is. Perhaps he drew cash out all this time and has no physical record of it. Perhaps he doesn't like the IRS. Whatever the reason I am unsure of what to do next. Here is where I am at.

25 space/225 per month minus 6 vacant (I have 3 of these rented after close at 350)

The park is for sale at 240k. 

The land appraisal came in at 205k not including any homes or money coming in. The "commercial" appraisal stated they could not include any income in the appraisal because it couldn't be proven. 

The bank says they will still make the loan work if I come with more collateral. Out of principle I dont want to do this. I offered collateral in the beginning and almost pleaded with them to use it. Now I am just mad at a banker that doesn't seem to know his job. AND an appraiser. 

I sent the buyers agent to see if the seller would renegotiate. Haven't heard back yet but I thought if he would seller finance it I could be like Johnny Paycheck to that banker. But that wont really cut it as I am pretty sure he wont go for it. It is one reason he went with us instead of another offer.

So I thought about offering the 205k plus do a side note to the seller for 35k. How would that work if anyone has ever done anything like this? Could this even be done? 

Another thought was to take a loan from my SOLOK. I am not sure this would even be above board since I am not using it in this transaction at all and didn't want to. This one is completely out of the retirement accounts. 

Maybe there is something else I am missing? 

[Daniel Smithson]

@Mike Reynolds - welcome to the MHP game! It's not an asset that banks or appraisers understand very well. Be thankful, not angry, that the bank is willing to underwrite it at all. Look at your job as educating them, but being willing to work around what their comfort level and underwriting rules allow. At the end of the day, you don't want ego to get in the way of a deal so roll with the punches and get it done!

To answer your big question - yes, it's totally normal for a seller to carry a second note to get the price they want. Your title company or closing lawyer should be able to draft this for you and file it with the county. Remind the seller that this note is sellable as well, they don't have to hold it for the full term. Just make sure the terms work for you. That's a reasonable accommodation for the seller to make given their lack of financials. 

Based on your numbers, there's a lot of potential in this deal to build equity quickly. Just make sure you have enough capital going into this deal to make the necessary improvements to the park and homes, not just the closing funds. 

A couple of DD questions to look into - don't feel like you have to answer them here:

1. How is demand in the area? If you've already rented 3 lots prior to closing, it seems like demand is good. If so, don't sweat the current tenants too much, just make sure you have some reserves set back for tenant turnover. You're likely going to turn over most POH tenants in the first year anyway. Remember that evicting for non-payment of rent is difficult right now so reserves are even more important.

2. What is the condition of the POHs? This is where you'll get burned. Walk them all. If every turn over leads to several grand in rehab to bring homes back up to sellable standards, it could eat into profitability for a long time. Grade them from A (just cleaning), B (light rehab - a few grand), C (heavy rehab - up to replacement cost), or D (tear it down and replace with new) and plan accordingly. 

3. Why are you pricing your rents so far below market ($450/mo?)? You should take your time easing your current resident into the market rent, but new lots and residents should be at market. If your park is nicer than the other park down the road and only two lights further, don't sell yourself short. This allows you to do more cap-ex projects and make your park as nice as it should be. Trust me, you want to attract the best tenants possible. You don't want to compete on price alone.