Deal Killers


#1

I’m trying to compile a list of attributes or circumstances that make a park that “pencils out” numbers-wise and passes the physical inspections into a deal that you’d still walk away from. I’m talking about crime or drug problems, being too rural, a bad reputation, etc. I’ve heard some of you say you’d never do a turnaround project again, and I’d like to know which elements of the deal make say “Never again.”

I’m looking at two parks owned by an elderly man who will owner finance. They have 58 rental homes between them, and some are weekly rentals. I’m really only interested in a L/O at this point in time. There’s a lot of deferred maintenance on some of the homes and 18 are vacant, but only a couple empty lots. It’s owned free and clear, so the reality is that a deal that “works” can be structured if he’s willing to be reasonable about his monthly payment.

With a lease/option my intention is to create good cash flow immediately. Any future increase in value would be great, but it’s not why I’d undertake this project. Like Greg Meade, I may not ever care to exercise the option, but I will maintain the place and do improvements while it’s under my control.

The person who found this park can oversee the repairs and maintenance and has very good contacts in the community, so that hurdle isn’t there. My contribution is analyzing the deal and managing the rentals/notes, filling vacancies …administrative stuff. And I’ve already got the processes and personnel in place to handle the additional rental management workload without too much effort.

My suspicion is that this is only the beginning of the flood of deals we’re going to see, and I’d hate to jump too early and commit my time and effort here and miss out on much easier money.


#2

Lin

Crime or drug problems, being too rural, a bad reputation. Those words make me see nothing but potential opportunity. Lin the first question I would ask myself is can I amplify the value of this community enough to justify my time and hard work? Next I would ask myself is there easier projects with more upside potential?Based on how you discribed the community it would have to be very well priced for me to take it on.

Your last statement about the beginning of the flood of deals is where I would focus my attention. I have been watching many MHPs prices on Loop Net fall drastically over the last year. There are many REO MHPs on the market now and we all know how bad banks are at managing REO properties especiallly MHPs. I have written 2 offers on properties in CA this week something I never thought I would do because of prices. One of my offers is on a water front property that was in escrow for $2.2 mil with a time share developer. The sellers have a $1.2 mil loan on the property. I wrote my offer at $750K all cash and guess what? all they countered me on was due diligence time frames. There is going to be lots of deals in the very near future. In fact they are out there right now but some sellers just havent come to grips with reality yet. I have seen cross collateralized properties where the MHP makes money but another speculative project is taking everything down. I could go on and on here Lin, because I look at properties everyday ( I tell my wife it is my job). My advice to someone like you who knows how to do deals is keep looking. If you could research MHP values from 9 or 10 years ago that is where I would place value especially on MHPs that are not managed correctly.

Post Edited (05-08-09 16:18)


#3

Lin,

Much as Rick wrote, I love to see crime, drugs, disaccord, and general mayhem in a property when I’m looking to buy… One of my best deals came from a property owner that was scared to go in to his own property. Here in NC it takes me 23 days to eliminate people problems. I have evicted basically whole parks at one time. One of our parks still has bullet holes in the outsides of 2 homes.

FULL DISCLOSURE: Turn around parks are NOT for everyone, they are NOT easy, nor are they a good first time investment! Please don’t go out there and buy the nastiest most bullet-ridden property you can find folks!

My take on the economy is that right now most property owners don’t have a leg to stand on in negotiations if the property has problems, if the property has problems you should be getting outstanding terms with little of nothing down or amazing choke on your tongue purchase prices. If the property is suffering it’s only going to get worse unless someone steps in to make it better. Every week I watch the number of “For Rent” ads grow in my area while I turn people away on a daily basis… I’m down to one unit that I can’t seem to rent for whatever reason that is driving me nuts, I’m missing something but can’t figure out what!

My general rule on a turn around property is that it MUST carry itself in no more than 3 months while fully expecting to evict a minimum of 25% of the current tenants in the first month. If I can’t be positive in 3 months and then use the income from the next 9 months to do the repairs on the property it’s not a deal in my book. I normally don’t see a profit from a turn around park for 12+ months, IT’S NOT QUICK CASH but more so the formation of a solid base that supports nice returns quicker than any other form of retirement fund I


#4

Post Edited (04-14-11 21:40)


#5

Lin

It would take an act of Congress to get me to do another turn around project and the reason has nothing to do with the physical nature of the property. These things are brutal and not the reason I went into the business. If something is keeping you from achieving your real goals, it’s simply not worth it no matter how much money it makes.

The single biggest reason I would not do another turn around park is because of the people who live in such places. Many of them are scum and have no redeeming social value whatsoever. That is my opinion after dealing with these types for the last 2 years and I don’t care if that bothers you PC types. In all my years of renovating and renting SFRs, I never encountered anything like what I have been dealing with. You are going into what sounds like a very rundown rental park so I think you will have your hands full of this class of folk. Is that what you want? It’s not what I want.

Need a quick example? For the last 2 months I have had to carry a .32 in my back pocket plus pepper spray at all times. I circle my home every night and shine a spotlight into the bushes before getting out of my truck. Long story and I won’t go into details. Now the problem is solved and the resident in questions now works, quite happily, for me. Yes, I developed skills I didn’t know I had and everything worked out OK in the end but why? I don’t need this and the end result was not worth the hassle.

I would go into this business again but I won’t do another park such as what I now own. There are many, many types of “turn around” situations that don’t involve dealing with people who never should have been born. Keep searching, find those types of deals, educate yourself and then have the guts to act when the right park comes along.

Rolf

Wheat Hill


#6

Dale

I know I talked to you on the phone about your deal that you cant get financed. I have a couple of questions

  1. Is there any special reason why you have to purchase the property.

  2. Are you in a 1031 where you need to find a property?

  3. Why wont the seller finance? You told me how much you were putting down and the number was massive$$.

With the amount you are willing to put down the seller is crazy not to finance.

  1. Is there a line of people wanting to buy this particular community? If not I would put it on the back burner.

You are not the only person who cant get financing. It is tuff for many of us. Banks ask a lot more questions now days. My bank makes a joke about the community they financed for me in NC. They say they probably wouldnt finance a community like that again. It was ruff and ugly.

Dale I know you are experienced in this business. You know there will be another deal. You also know patience is a real virtue in any type of investing. Sit back and watch that property you want so bad and maybe the seller will finance in the future if other potential buyers cant get financing either.

2 years ago I couldnt find a seller financed deal. Now I find them everywhere. Unfortunately seller financing equates to over priced a lot of the time.

I have also looked at deals lately where the seller is so desperate that he just wants me to take over his payments and give him a little walking money. Again all these deals are over encumbered and I wouldnt want the payments. I dont want to be the greater fool

On the horizon there is going to be some fantastic opportunity. (Patience)

I target properties and then just wait for the seller to get real. If they dont get real I move on. I always remind myself that there is no deal I have to have period. I may want it but I dont have to have it.

Post Edited (05-09-09 06:56)


#7

I can feel your pain. If I had the money I would lend it to you Dale.

When I say seller financing I mean a seller financed 1st trust deed not a second TD. Again I know you are very experienced in the busuness but have you thought about the lease option route until a better time for financing comes around? You know the details of the seller I dont. Sounds like you might be on to something with UB of CA. Best of luck

I only know 1 source of bank financing and if that drys up I will be getting very creative, trying every option available.

WOW with your experience and track record it is hard to believe the difficulty you are having. I really feel sorry for the newbies like Shawn mentioned.