Best way to structure the deal for park with 40% park owned homes?


#1

Need guidance from you experts out there to structure the sale of this park for considerations in tax, insurance, financing, etc (basically everything). Here are the details on this park.

  1. park is under contract.

  2. located in LA

  3. about 100 spaces and 40 park owned homes mostly mid 80’s and 90’s.

  4. high occupancy rate >90%

  5. all city utilities

  6. I’m working with the owners directly and have a good relationship so far.

  7. my plan is to convert all the park owned homes to l/o contracts as soon as possible

  8. owners have been running other business under this mobile home park so the books prior to 2006 have other income & expenses mixed in.

  9. No owner financing

  10. about 5 MHs were acquired from an auction and do not have title. (not sure what this means as far as tax & insurance go at this time)

  11. will be performing on site DD in a week or two.

The owners have been great to work with so far, so I think they will be willing to work with me to structure the sale the way I want it. Given this flexibility, I want to take advantage of doing things the “ideal” way if possible.

I read in several postings that we need to break out the homes & dirt for financing and insurance purposes. There are also postings around pricing more value on the dirt vs homes, treating homes as real estate instead of personal property, etc. I can really use some help to piece this puzzle together and have a more holistic view of the entire project.

Any gotchas that I should watch out for during my on site DD? I recently taken the boot camp, so I have basic ideas on what to look for during DD. I anticipate that financing will be challenging due the way the books were kept.

Your assistance is much appreciated.

Vickie

Post Edited (12-03-06 12:42)


#2

How will you fund the purchase? Do you have cash for down? Rent from the homes are not to be used in the valuation, lot rent only. Homes are valued based on the wholesale cash price you would pay as an investor.

These points were all covered in the bootcamp and you should have course material that details this. Were going to need more info like purchase price, income/expenses, lot rent…

Yours for successful financing,

Don Wilson (OK)


#3

This is a very good way to establish value and sales price. This might actually be a real good “master lease” situation.

Before i did a thing , I would pay someone very knowledgeable to do my DD (and I have owned 2 Parks). This is expensive, anywhere from 15-30K, but for a 2M (you did not mention price, but I would assume it to be in this range with the Park owned units and all) deal it only takes one small overlooked item to cost a TON of out of pocket. Not to infer you are not up to DD on your own but this is a huge investment of time and resources and good DD will pay for itself every time plus another set of eyes on any project is a GREAT thing.

Sounds like an exciting deal, call me if you need some names of people I would use to do my DD…I’ll give you a clue, they both own planes!

Good Luck,

Greg


#4

Vickie,

Just make sure you do a good 60/30 and run it through the MHP Evaluator to verify that the price is in the ball park before spending a whole lot of time on this deal. Do it just like we did the case studies and the real deals at the bootcamp.

Don is right on with the financing. You definitely want to have funding lined up before you get real serious. I would suggest running the deal through Steve Waite at Clayton Bank. His contact information is on our resources page. They will do a split funding on the dirt and the homes if it fits their profile. Their loan program is still in the developmental stages, but despite some growing pains it has worked for me on two occasions.

Let us know if we can help.

Steve

P.S. It makes my day to see people from the Bootcamp go out and make things happen. That’s what it’s all about :slight_smile:


#5

I have gotten so much support from the forum here since I posted the questions just yesterday. This is truly an awesome group of people. THANK YOU!

I have not given up on some level of owner financing yet even though the owner tells me no now. Once we get to meet with him face to face, we will be able to tell if we can further create a win win situation for both parties. Wish us luck!

We have applied the 60/30 rule then added on the homes based on whole sale value. It’s a pretty straight forward calculation. We are in the ball park :slight_smile: I’m sure if Steve wants to fly down there to help us negotiate, we will get a killer deal :slight_smile:

Here are some more specific questions.

  1. Some folks have suggested to place more value on the homes when we finalize the escrow paperwork (I know, I’m getting ahead of myself…) because the homes can be depreciated and tax on personal property is typically cheaper than the real property tax. It sounds good to me except would this cause problems in getting financing for the homes or insurance? Would the personal property tax be based on the value of this transaction or same as before? Is there a good guideline to use without getting myself in trouble in other areas?

  2. Is there a way to avoid paying for sales tax on the mobile homes? a dealer license? I plan on converting the existing ~40 rental homes to l/o contracts. Do I need a dealer license to do that?

  3. I am thinking about creating a LLC to hold the dirt, a LLC/S-corp to operate the park, and another LLC to own the homes as well as buying and selling(l/o contracts) of the homes. Since the Operating LLC and the Home LLC directly do business with people, I would incorporate them locally. As for the Dirt LLC, I’m leaning toward incorporating it in Wyoming. If I do a master lease between the dirt LLC and the operating LLC to avoid the potential agency issue, would I need to register the dirt LLC (incorporated in Wyoming) in Louisiana? Am I making this way more complicated than it’s worth?

Thanks in advance.

Vickie


#6

Vicki,

I’m setting myself up to make my first MHP purchase and the first thing I did was structure my entities. They will create your Wyoming LLC for you and act as in state gaurdian for you and file your papers anually. I am by no means experienced at this, but I have read alot on this sort of thing and I’ll give you a name of an attorney whom I trust who can set this up for you the best way. They are VERY experienced and knowledgeable regarding sturcturing businesses and real estate to provide maximum protection from lawsuits, and tax sheltering.

The firm is Sutton Law. If you’ll e-mail me, I’ll give you all the info including contact info.

Best Regards,

Matt