I am currently in the exam period for my first park purchase and have uncovered some due diligence items which could affect the value (and purchase price) of the park.
First, the rent roll provided and attached to our purchase agreement shows 3 of 21 vacant mobiles, but as of 2 days ago there are 5 vacant homes. In addition, 1 of the homes was completed trashed by the vacating tenant, electrical boxes destroyed, siding and insulation ripped out, etc so that home is a total repo job.
Also, there appears to be a large amount of deferred maintenance including major tree trimming issues (large oaks, multiple dead trees within 10 feet of homes), and septic systems not updated or maintained, causing backups in tenant-owned homes.
Also, the property comes with a SFR (3 bed) which has mold (previously undisclosed by seller or broker) and the rent for the SFR (over 500.00 per month) is multiple months delinquent. This makes me question if I was provided a false rent roll.
Should I recreate the value of the park based on current occupancy numbers, while subtracting the major maintenance costs (tree trim, septic maintenance) and ask the broker to modify the purchase agreement?
I am still in the exam/due diligence period so we can walk away, but I am unsure how to approach a renegotiation of the purchase price at this stage.
Thanks all, love the knowledge and info in this forum.
Yes, definitely revise your price based on your findings and provide a detailed explanation. Do this right away so that you don’t waste your time doing more diligence if the seller isn’t flexible. I’d also state that your offer was in part based on the rent roll and that the rent roll must be accurate. You’ll likely find more issues with the park upon visiting it.
Thanks tmpperrault:
I did indeed uncover the destroyed and vacant homes upon a physical visit, as well as a brief walk around the park with the Park Manager uncovering other existing items.
Would it be easiest to simply communicate with the broker/seller the items I have identified in DD to date and ask for the purchase agreement to be modified?
Yes, I think it would be easiest to let them know what you found, the costs involved and ask for a price revision. Review Frank and Dave’s approach to this and present your findings accordingly.
I hope I’m not too late here for a quick reply. Gurus, correct me if I’m wrong, but if you go through your broker and issue a revised offer, the seller can decline the offer and your agreement will be canceled. That happened to me once on a single family investment home. Never again.
My recommendation would be to talk to the seller and discuss things verbally. Frank recommends you go through each item one at a time and get the seller to agree about what each item is going to cost. Also get them to agree that these items weren’t taken into account in the original agreed upon price. At the end, tally up all the items the seller has previously agreed to and reach the new offer price. Then be silent. Don’t say a word. Let them convince themselves after that.
If the seller rejects your renegotiation, you still have your original contract in place should you decide to stick with it. Call or email anytime if you’d like to discuss. Will.
In many states you sign a cancellation agreement which stipulates where the earnest money goes, release of liability, etc. in order for the contract to be voided
After you talk through everything verbally and have agreement there you issue an addendum to the contract where you can stipulate the change of terms, price, dates, and any other special provisions.
Not at all, I was considering this as I recall Frank mentioning this at Boot Camp, the only obstacle being that the seller lives on the opposite coast
I may try to sit down with the broker though and perform said exercise, and ask for an addendum or price revision that way. Thanks for the reply!
The broker will screw you, I guarantee it. There will be one tone with you, and another with the seller. If you can’t do it as stated above, I would not depend on the broker doing it for you.
Also, these are the things that you found so far, keep in mind that there WILL BE many things you were unable to find during your walk through.
If the seller is on the other coast, chances are 1. it’s been poorly managed. 2. He’s unaware of the issues, the manager has been fudging the truth.
Hi Coach,
I am certainly not naïve to think that the broker would simply accept my new numbers without any objections haha. Again, the seller is on the west coast and I am on the east, so maybe I should plan to do a conference call instead?
And yes, I understand that due diligence cannot uncover 100% of all issues, but brief conversations with the PM has uncovered items related to vacancies and title issues on homes that were not disclosed by seller/broker. So the price will of course be adjusted down to account for reserves and allow a cash buffer for future issues…or we walk from the deal.
There are 0 park owned homes, but it appears the owner has been “contracting” the PM to do minor repairs and turn over homes, so the PM holds title to 3 homes in the park ready to be sold.
Well Coach62 you were right, the broker is screwing us haha. Broker delayed multiple times the delivery of an updated rent roll (as of course when we visited on site, there were more vacancies than originally disclosed) and the exam period has since expired, the seller will not accept a downward price revision and wishes to terminate the purchase agreement.
Could be a blessing in disguise as there appears to be a TON of deferred maintenance items and the original rent roll contains numerous inconsistencies with the most recent rent roll - so whether nefarious or not, it appears the seller does indeed not have control of the park and PM and the park is in a declining state.
