Bought my first park


#1

Bought my first park in Dec. 42 spaces, (38 occupied) no park owned homes, in Maine $650,000.

A big thanks to the great people at MH Millions 2006 and the posters on this site.

Boy, have I learned a lot along the way. Some thoughts: Look at a lot of parks to get a feel. I visited a dozen and ran the numbers on many more. Look at their numbers but use your numbers. Property taxes may be 50% higher for you for example.

Double check the professionals. I found a $3000 error in the closing adjustments, errors by the surveyor for example. Send out estoppel letters. Not for the info - many won’t respond - but to see which ones come back undeliverable. About a third of mine came back because people use PO boxes, or the rent bill is sent to someone else. The seller didn’t have mailing addresses for many of the residents. Glad I found this out before sending rent bills.

Get an estimate of the banks attorney fees in advance so there is no surprise since you pay for their attorney. I found out the day before closing, their attorney fees were $5000 - double my own attorney’s fees. Some banks use a 365 day mortgage payment calculation so your payment cost will be a tenth of a point higher than your calculator.

Add a tree service professional to your due diligence. I didn’t because I looked myself and didn’t see any dying trees. Now I do. A tree can cost $2000 to remove.

This deal took 6 months from LOI to close. It was complicated by the need to split off some land, but still allow plenty of time. I live about 4 1/2 hours from the park. It is a workable distance.

I’m having fun with this. Have hired a snowplowing service, trash removal service, park manager, developed park rules, a website, and slick professional billing with payments sent directly to the bank all in place and working within the first 10 days. The best part is, I had a couple free days last week I could use to go to the park. Then I thought about it - I really don’t need to go! I’m already thinking I would like to have another park.


#2

Great Job Andy! Enjoy the ride.

Too bad on the property tax reassessment - when I provide DD services this is one are we focus heavily on (in fact this alone usually pays my fee with a higher NOI to the buyer for years into the future).

Here is a couple ideas for your next park:

  1. The first goal is to show the seller what WILL happen in order to negotiate a discount (i.e. - the reassessment changes your NOI which DECREASES a cap rate derived selling price.)

  2. Once we are successful with the seller, we then have two more choices which MAY never trigger a reassessment.

    a) Keep the purchase legally invisible to the tax assessor. No sale - No reassessment.

    b) Buy contract rights in order to reduce the purchase price on the Deed. This is done by converting the Purchase and Sale Agreement to an Option Contract with Sellers consent to close the purchase (of course there are financial reasons that the seller will want to cooperate with you for their benefit). One of my parks in FL was assessed @ about $3million. I payed $3M to the seller but it was structured as follows - $1million for the right to buy the park for $2M. The seller got $3M but the tax assessor only saw a Deed for $2M. My annual tax savings is now $20,000 per year.

Who wouldn’t like buying a park where the day you close the deal your cash flow goes up $20K per year and your equity goes up $250,000 just because the parks tax burden was reduced!!!

I’d be happy to help you on your next deal for a fee or as a partner. As you know, I’m in the market for a big park in Maine so let’s do a nice big J.V. deal sometime this Summer!

Have a blast,

Karl


#3

Hi Andy,

Congradulations on your purchase. Can you share a little bit about how you set up your rents to go directly to the bank?

thanks in advance


#4

Tj and I will save 8700 next year in property taxes by separating land and mobiles on all of our properties (as per your suggestion).

Thanks from both of us,

Greg


#5

Andy,

Congrats on your purchase and thanks for the idea of using a tree guy for DD. I, like you, found out the hard way what a tree costs to remove.

Rolf


#6

Karl (et al.) -

But isn’t option consideration taxed more heavily than purchase price consideration to the seller? I tried this with my seller and he indicated the tax treatment of ‘option plus lower purchase price’ was disadvantageous to him vs. the ‘regular full-price sale’ method…

Thanks in advance for your thoughts,

-Jefferson-


#7

-JL-

To the contrary! My understanding, as presented to the seller, which was then confirmed by the sellers tax accountant, is that the option consideration is actually differed from ANY tax* until the option to purchase is exercised, canceled, or expires. Once one of these events happens, in the eyes of the IRS, the consideration becomes part of the selling price which is taxed just like a normal sale and depending on the intent and holding period of the seller*.

To increase your chances of success with a seller consider the following:

  1. Know WHEN to time the proposal of these ideas to a Seller. I do not recommend pitching a seller with creative solutions until you have a lot of rapport, have found some common ground on less creative items, and deem that he/she is ready. It is more important to hammer out the nuts and bolts first - like how much, how long for DD, how to handle other contingencies, when will it close, who pays for what, etc.

Doing a deal is like cooking - the ingredient list is almost useless unless the cook knows what do to with the ingredients and in what order they should be prepared. Otherwise your “dish” may not be palatable to the seller! (Even a perfectly prepared “dish” may still not be palatable - that’s why a “bland” purchase and sale agreement is necessary to handle the “nuts and bolts” deal particulars anyway. How many more analogies can I apply to this? Maybe I’ve had too much coffee this morning? :slight_smile:

  1. When presenting the benefits to a seller, always go over ANY potential objections (like your tax question) and then I like to “bookend” the conversation with the benefits for both parties again. When Ernest and I where doing business together we actually printed out a “Ben Franklin” pros and cons sheet when we where negotiating w/ a seller. Then we’d ask the seller to confirm that our ideas where accurate, legal, and ethical with his advisors.

One last thought - let’s not forget and reflect back to the original problem which was PROPERTY TAX. During DD it is important to consider the consequences of each taxing authority while planning the purchase, hold, and eventual divestiture of the property. This technique helps with P. tax while the IRS sees it as the same as a “normal” purchase and sale.

Hope most of this makes sense?

Karl

  • assuming you are doing business with a investor seller and not a dealer.

#8

Btw - Andy,

Just ran your #'s for fun and you got a great price from the seller!

Way to go,

Karl


#9

Hi Karl,

What is your phone number? Thanks, Peter


#10

thanks for the post carl, who did you get your financing through, im buying a park myself and looking for a good lender.

thanks


#11

Jeremiah,

I have not used a “bank” lender in a long time. Most of my dealings are with accredited investors as a syndicator. Maybe Andy can answer you regarding bank financing. Good luck with your purchase.

Karl


#12

Hello

Karl what’ your phone number ?


#13

Mar,

In General from December to May - 386.254.8464 and from June to November - 207.669.4193.

I’m currently working on a park in Maine until next wed. so if you want to contact me immediately call the 207 number.

Good investing,

Karl