All Forum Posts by: Bryan Scott

Hello Bryan,

I too am interested in MHP's from the standpoint of the value of individual units and personal property tax liens.

I don't have any idea what lot rents should be in NC, but in Colorado, the same lot would cost a tenant between $450 and $550 per month more than likely. The competition in the immediate area should provide good data on what the market rent should be, but suspect as well that one needs to compare apples to apples and include the effects of amenities. Larger parks probably have swimming pools, clubhouses, offer storage sheds, etc.

On your numbers, I think you might be a bit light on current value, but my opinion is based on a 10% cap rate calc, which might value it at around $80K. My other litmus test comes from my prior cable days, which might place it at 9X to 11X cashflow (NOI), which also places value very near $80K.

The capital improvement required in the water distribution system seems like a no-brainer, but absent separate metering, I wonder if you could immediately divide the water bill by the current quantity of tenants and have them begin to pay this immediately? State and local laws may prohibit this, but this may be an interim strategy.

In any case, part of the real, future value of the property, other than simply filling up vacant lots, might also revolve around the new owner (maybe that will be you) buying up cheap manufactured homes, placing them on the vacant lots, then renting both land and home. Rents won't quite match stick-built, but I know of a really large company in the space that does this quite successfully. "Yes Communities" is making money hand-over-fist doing this with over 12,000 units (my Wife works for them here in Denver). Anyway, I digress, but you might also consider buying units out of personal property tax liens for near pennies on the dollar, then moving them to your new park.

I wish you well!

Hi Mike,

Congrats on finding what sounds like a great deal! From the perspective of a long-time RE investor and Realtor, no, you do not need a buyer's agent, however, unless you know the usual details about this investment in terms of rehab expenses and the resulting ARV, you may want to enlist the help of someone who does. This could be an REI-friendly agent, or a seasoned member of your local REI group, but a second opinion may be very useful.

Title/escrow companies will make sure the T's are crossed and I's dotted, but will definitely NOT guide you as to the value of the investment.

So far as other legal E's are concerned, most competent Real Estate attorneys will be happy to look over your shoulder for $500 if needed, but again, still will not likely be able to counsel you on the true value of the investment.

Good luck!

Hi Todd,

Whenever this happens to me, I simply gin up a letter/addendum referencing the pertinent points in the lease, then list the differences, including any changes to any terms/conditions, then sign in front of a notary, have your tenants do same, and it's done. Probably best to have your real estate attorney handle this for you in order to maintain arm's-length to the transaction, but I handle these myself whenever the need arises.

Hello Hector,

I am no attorney, but seems like you need more info in order to make the best decision. First and most importantly, is the judgment still valid? I heard you say that title said it was on the list of exceptions, but this does not mean the lien is still valid. No question that judgments run with the person and any real property owned in same county of record, but if the then record owner died and title passed to the daughter through the probate process (read that as administrators deed, or executor's deed, or other) then that judgment very likely got wiped out when title passed. You see, when someone dies, in most states, there is a process by which creditors are notified of this by way of legal publication in the local paper of broad distribution. That said, prior to completion of probate, or before title to the real estate passes, the creditor has a chance to become part of the probate, but if they do not act, then they may not have any standing. So, number one, check that out.

If still valid, you simply need to re-run your calcs and see if the financial metrics still line up with your goals for the property. If not, perhaps you need to negotiate with the seller and reduce the purchase price accordingly.

Depending on the creditor and the aging of the debt, could be that they will gladly accept pennies on the dollar, but if they learn that there will be a change in ownership, there is little chance they will negotiate much depending on the value vs. encumbrances.

Good luck!

Hi Chad, In response to:

@Bryan Scott Question regarding your LLC suggestion, likely a silly one. I've been told I overthink things on occasion :-P In any event, when the investor purchases the LLC, rehabs the house, and then goes to sell the house to a homeowner or what have you, how does that work? I don't imagine the homeowner purchases the LLC, so does the investor sell the house out of the LLC and then just close the LLC, or...? Thanks for the input by the way, seems like a pretty good way not to confuse the title.

NEVER SILLY. I UNDERSTAND "OVER-THINKING" AS WELL - I WAS AN ENGINEER FOR 20 YEARS. THEY ARE PAID TO OVER-THINK. TOOK ME YEARS TELLING MYSELF IT'S OK TO MAKE QUICK DECISIONS, BUT BASED ON FACTS, NOT HERE-SAY, BUT I DIGRESS:

THE SHORT ANSWER IS: YES, THAT'S IT. SELL TO OWNER-OCCUPANT, THEN FILE TO CLOSE THE LLC IS HOW IT IS HANDLED AT THE END OF THE CHAIN.

Hi Chris,

Just wondering how this worked out for you in MA? Notwithstanding IRS code dealing specifically with such rebates (check with your Real Estate proficient CPA), in Colorado, it's pretty straight-forward. The real key is advance notification to the buyer's lender as the underwriter will have it's own rule book in this regard. Next, is to make sure the rebate is fully disclosed to both sides of the table. This does not have to be as formal as a signed disclosure statement, but then again, that depends on the underwriter. As well, if you are licensed as a RE Agent, your Broker may or should have an office policy papering this type of transaction. In any case, I have done this where the interest rate was bought down (PPD interest), another where the purchase price was reduced (requires a new Amend/Extend to the CBS contract), another where the buyer needed to repair the roof and paint the exterior, but did not want to come out of pocket, so a repair escrow account was established for this purpose. Just know that it is not likely that the buyer will actually pocket any of the cash from such a rebate. As well, if they are obtaining new financing for their purchase, the underwriter may not allow any of the above. In any event, if it is allowed (most are), it must appear on the HUD-1 settlement statement, otherwise it could be considered Mortgage Fraud. BTW - so far as tax treatment, subject to further review by your CPA, the amount of the rebate will likely be just a reduction in Cost Basis, which is nearly always muted by the fact that the code allows a certain amount of tax-exempt gain from sale of a personal residence. That said, though the buyer must receive a 1099 for the rebate amount, it usually won't become a part of their adjust gross income.

Sorry about the novel. There are a few moving parts to these. Best of luck.

Hey Chad, Notwithstanding new flipping rules, pitfalls with disclosure (RESPA) etc., a double-close (or back-to-back as some call it) is typically used when the "B" principal in an "A-B-C" transaction does not want the "A" or "C" principals to know how much of a flip fee they are actually making when the property is flipped to "C". So, on balance, one has to question how ethically acceptable such a transaction actually is in the first place, right? As a Realtor, I will NOT do such a transaction either for a 3rd party client, or for myself (read this as "I want to keep my license"). However, a more ethically acceptable approach in my opinion, which also avoids some other pitfalls, may be to contract a property in the name of a single-property LLC, (e.g. 123 Main St, LLC), making sure that your seller understands why you are doing this (disclose, disclose!), make sure the box about "Assigning" the contract is selected, then just flip the contract, which includes the LLC and it's interest in the property via the contract, to your "C" principal (your end buyer). If such a double-close is not doable, and you do not have available funds to close the "A-B" side, you can use Transactional Funding to get this done, so long as you know who your "C" buyer is.

As an aside... Do you have a good Real Estate Attorney on your power team? Discussions about Double-Closes compels me to suggest you find a good one in your area to look over your shoulder on anything where there is not a Realtor representing the seller. This is major CYA.

Good luck!

To Mike H from Manteno:

I have done many wholesale flips for $5K, but none of them involved anything more than me finding the property, based on the more common, investor purchase metrics, putting the property under contract, then flipping the contract to one of my investors.

The problem with your assumption is that $5K may not even represent the amount of a broker commission in return for all the risks you wish them to take.

Why anyone would spend their time, use their money to purchase, close, fund and manage the rehab, procure a tenant and, if needed, a management company, then sell to anyone for $5,000?

Is that seriously what you believe such risks and efforts are worth?

Nerissa,

An option to purchase might be more expensive in terms of earnest money/option payment. If you use a standard, commission-approved purchase and sale agreement, just modify your dates to allow time to find someone to assign the contract to. Just be sure to check the appropriate boxes, or add appropriate language, which allows you to flip the contract to a 3rd party. Then, if the deal is sound, find you buyer and flip the contract, or, you could double close a deal like this if you are sure the numbers all work. In other words, ARV minus Rehab - carry costs - sales expenses = Bid/offer price. This is true of a flip or a longer-term buy/hold, because everyone is thinking the same way in the investment community. To be more competitive, leave the costs for hard/private money out of the equation so long as the net before taxes is still favorable and matches your goals. If not, pass, or treat as a "bird-dog" sort of deal flip to someone else. Good Luck!!

William,

Not sure about Landlord/Tenant law in your state, but in Colorado, a landlord can state similar language in the form lease, but as a practical matter, you will only be entitled to be made whole. In other words, if the tenant signed a lease for a gazillion years at X amount per month/year, you will only be able to obtain your losses to re-lease the property during the lawsuit you might file against the tenant. This would include recapture of most expenses associated with collecting these funds, and any reasonable repair expenses associated with re-leasing to a new tenant. In other words, you may not collect normal wear and tear expenses and you typically may not be entitled to expenses related to the normal turn-over of a property; i.e., cleaning beyond the norm, including dealing with pet odors, etc. True, you can very likely keep deposits, but if such deposits exceed the cost to rerent, then the tenant will be entitled to a partial refund if the issue is pressed in small claims, or other. Good luck!