11 Rentals in our Park (They want a BULK DISCOUNT on rent)


#1

Hey Friends!
REALLY APPRECIATE YOUR ADVICE!!

We own a 53 unit park. (purchased last year)

The previous park owners maintained ownership of 11 mobile homes, which they now rent out.

They are threatening to move all 11 trailers out of our park, unless we offer them a discount on their LOT rent. (which they pay directly to us monthly).

They pay faithfully each month.

We currently have 2 vacant lots.

Would you offer them a bulk discount?

We feel like this will always be held over our heads… Luckily we have extra cash to bring in our own trailers and sell on contract for deed.

Our park is very rough looking, so people usually don’t want to bring their trailers to our park. Thus the need for us to move trailers on ourselves.

Summary:

-They own 11 trailers.
-Lot rent is: $330 mo
-They are very wealthy developers and have the means to move trailers.
-We could still make the bank mortgage payment - if they decided to move all 11 trailers out of our park. (But things would obviously be tighter)

Would you offer them $20 mo discount for each of their 11 trailers? Or what would you do / offer?

Really appreciate your advice!

THANK YOU!


Buying park but not POHs?
#2

Interesting scenario. My initial reaction would probably be an emotional one and I’d tell them to F themselves. However, I would suggest a pragmatic approach. But doing some basic arithmetic, you’re out about $2,640 a year by giving them the discount (is there a way to write this off on your taxes?). Is that worth it to deal with the headache of bringing in new homes? That answer is probably different for every single person on here.

If it was me and I planned on flipping the property in 1-3 years, I’d probably say screw it and give the discount, but if I was going to hold for 5+ years I’d tell them to start packing.


#3

Give them a discount IF they pay AHEAD for a year, but why did you put yourself in that position when you knew they could possible control over 20% of your income???


#4

Thanks Carl, I appreciate your response and good point! We got a great deal on the park and felt before the purchase that if this happened the benefits outweighed the risks…That said our cash cow park will be tighter if they chose to take the trailers.

Thanks!!


#5

Give them the $25 discount then raise the rent for the park in 3 months


#6

Thanks for your reply! We are planning on keeping this park long term. Luckily we knew this could happen before the purchase but it still frustrating that it is actually happening. The good news is that we could potentially fill some of the spots with RV’s to help offset the losses while we work on filling vacancies. We are right next to a huge RV park and we are approved to do either for the spots.

Thanks for your reply!!


#7

I don’t like the idea of caving to extorsion. If you reduce their rent you should be reducing every tenants rent otherwise it is favoritism.
I would tell them to pound sand. If they want to make more money they can raise their tenants rent. There is no reason and no way I would take the hit. What will they demand next.
Tell them no and offer to buy the homes.


#8

I’m going to comment on a slightly different aspect regarding your situation. Regardless of your decision you need to be prepared to know how to get homes into your community and sell it. You need to have a good idea of demand as well as the entire install and sales process.
If I were you, I would immediately look to move in homes into your 2 vacant lots. If you think you can move in new homes and get them sold then great.

The sooner you know

  1. the process,
  2. demand,
  3. financials on moving in and selling a home (or rent)

the more prepared you will be in dealing with this group. You will also know how much leverage they have over you. Hope that makes sense.


#9

Thank you!

Great comment.

It looks like it costs about $20,000 to get an older single wide pitched roof home purchased, moved, and set up. Nothing special but livable. The problem is selling the trailer, the only way to sell them is out contract. We think that we could get a 2k down payment and hold a contract for 18,000 for 10 years at a fixed 15% that way we could keep that payment, plus lot rent($290 +$330) around the $700 mark; which is what the market can handle for that kind of housing.

The demand is great for a contract for deed, but we know for sure that selling outright would be impossible.

A lot of money to come up with up front but eventually we feel like we would get it back.

Thank you again for your feedback and we encourage any other thoughts!!


#10

FYI you should be aware that this kind of deal is a disguised mortgage and subjects you to various state and federal laws including TILA and Dodd-Frank Act. You can end up in very hot water; be careful selling homes on payments. It is not legal unless you follow all the rules, including licensing and registering as an authorized creditor under your state’s laws.

People do it all the time, but it’s still illegal.


#11

What is your long term strategy…what does “good” look like for your park? Do you want a park full of TOH?

Why not offer them a credit for selling their homes to the tenants directly? I’d be happy to offer them $500 per home to go away. Structure it however it is most impactful for them - discount or whatever. This is cheap compared to the other alternatives. They get return of principle and don’t have to deal with moving homes. Everyone wins.

Do that before you start thinking about infilling 11 pads.


#12

@ngrov This is a great thread because this always comes up in deal scenarios from what seems ever 4 -6 months .

This is the absolute risk worst case scenario. It sounds like you assessed it and the deal still penciled out so its important to go in with eyes wide open.

My initial thoughts is where you say the park is rough looking, can you elaborate on that? Just older homes? or roads with potholes, no skirting, crocodiles tied to porches? I would immediately try to get a plan and start working to make it a desirable place to live ( this can also be hard with POH that you dont own)

I think what @howardhuang33 said is tremendously valuable. Because if you can see how you can manage the process and what it looks like to fill a vacant lot it will give you an accurate position of what you are facing. But i would get the place in order first. Who knows , if you get nicer, maybe you find you can lure in new home purchasers who are buying at a dealer ( best case scenario) and avoid the hole lot filling process your self.

I also like what @jhutson Says, i didnt even think about this option. See what their long term play is and see if they will consider selling to the tenants and maybe you can spiff that somehow on your side. This will come with secondary options but idea definitely carries merit.

I may have not seen it mentioned but maybe you can also see if they have a number in mind to sell the package for.

Lastly, did this stem from a recent rent increase, meaning they just want to go back to the old rent. Or did you close last month and then they are saying they want the break or have they been there a year and this just come up. I think that plays into the spirit of what you might be in for if you retain them

Given all these factors here is how I would summarize this. Its a big bluff to call to tell them to pound sand , that may or may not have them move out ( aside from that, are there areas that will permit them to move? - regardless still a dangerous bear trap to walk over) . Keep it amicable, you can tell them you appreciate them having the homes in the community ( maybe not the homes but the lot rent you get… lol ). You can tell them you were gong to start working to improve the community and cleaning up some of your TOH or POH and would like to reinvest so revenue would be needed now more than ever. You can also suggest you were considering brining in a new home as well to improve the community appearance ( then they know you also have options)

Then bust out option 2 if they have any interest to selling to tenants or current renters they have if the lot rent wont work,

Or 3 , if they weren’t interested in paying the 20 per month would they consider selling their houses to you.

You aren’t being demanding, it gives the a chance to think, but keep it amicable because you can do your rent drop if you see it fit but you aren’t showing that you are going to get crapped on just yet.

Regardless , if you get through it with them now, long term you need to resolve that so keep it in mind but maybe you can do it in a manner as to not go through a complete loss of revenue on 11 homes.

And always go back to the economics, does someone really want to spent 43k over 220 a month ? Maybe , maybe not. That certainly most likely wouldn’t work in Dallas but at 330 lot rents and 700 rents, you have to really have a pulse on your market and how restrictive it would be to get 11 homes in your park area. It has happened to Frank so this becomes and exercise of managing probabilities for you but see if you can nudge the outcome to what may be most favorable for you. Good luck


#13

Assuming that the park owner who may be getting the 11 homes is not covering the cost to move the homes, it sure sounds like a lot of work and expense to take on in order to save $220 per month. Moving and setting up those homes could cost $4000 to $6000+ each; $60,000 plus or minus. It would take the owners decades to recover that $$, not to mention the loss of rental income for a few months.

I like Carl’s idea. Try countering with that - get their cash. Then when you raise the rent next for all of your tenants, give them a small discount on that.


#14

Did you sign a lease with them when you bought the park? I had a similar situation. I had a smaller park where 1 person owned 3 homes in a 19 space park (15%) . I gave them a discount of 25 per home for the second and third home. I like the idea of offering their requested discount but they have to pay by the year.


#15

If you give in now, you don’t know where it will end. I would give them the discount now in exchange for some type of long term agreement preventing further negotiations.

“I would be happy to reduce your rent, but I would need you to sign a 10 year lease with contractual 3% annual rent increases.”