Evaluating a park with 25% of homes owned by owners son - not poh


#1

So I’m about to make my first offer on a park that seems pretty good. Off market mom and pop. Rents not raised in about 10 years. Water master metered and huge % of expenses. asking price is just below 9 cap. but easy upside. Great metro close by… 78% occupied by TOH, or so I thought. After a lenghty conversation with the seller who is selling after his father passed, turns out that 17 of the homes are owned by him and will continue to be. I asked if he’d move his homes if I raised rents and submetered. He said “NO” too much money (he owns a park nearby). I ran the numbers and with the rent increase and submeter, the number still work even if his homes go away. He proposed selling me the homes with seller carry but, I think I prefer the idea of him having the headache of maintaining the homes and filling them, as well as him shouldering the lot rent went they go vacant. Currently all are rented. Any opinions on this and how do I adjust my offer to accomodate this new info?

Thanks in advance,

Dan


#2

Are there vacant pads at the park he owns nearby? If so it’s a pretty good bet he’ll fill up his park with those homes, especially if you’re raising rents on him. However, if you’ve run the numbers and can still cash flow in the absence of his homes then maybe that’s a risk worth taking. If this is a strong market with good demand then it looks like a green light since you should be able to fill lots that go empty.

I would try to put a clause in your purchase contract that forces him to keep the homes in the park. If he balks at that perhaps you could stipulate he can only remove a max of 2 homes per year. Good luck!


#3

Yeah, he only has 5 lots in his park. I think it’s a green light. Anything else to look out for??


#4

Make sure you reserve the right to screen tenants he’s proposing to put into his units. You don’t want him placing the first warm body who applies. This affects him more than you but you still don’t want a bunch of hooligans bringing the quality of your park down.


#5

Great advice. I hadn’t thought of that.


#6

You might also add in some sort of right of first refusal if he ever decides to sell them. It would possibly give you the chance to gain control over the homes in the future. When he decides to sell you know first and get the choice to say yay or nay. This is just a thought, I’ve never been in this situation. All in all the park sounds like a good investment.


#7

I like to have control, so would want to own them. Anyone who owns that many homes can create some real headaches for you, and the quality of your park could suffer as a result. Consider that as part of your overall strategy for infill if needed as it could shape the process.


#8

Thanks. That was my only worry. what if he stops paying on a few vacant homes. Eviction works the same way right, one home at a time??


#9

Buy the homes from him and turn around and either just give them away to the existing tenant or do a 12 mo RTO where tenant is responsible for all maintenance over a certain dollar value. I would never allow someone to own that many homes in my park. He’s happy now and says he will accept your terms but that’s today. Next week when you actually raise the rents he’ll feel different.


#10

Listen to this advice! You will forever regret it if you don’t buy the homes. One person moving and giving you trouble no big deal 17 homes giving you trouble from one person BIG DEAL! If the deal doesn’t work with you buying the homes than move on. Really the guy should have included the homes in the first place. Never buy a deal with the old owner having any major part/ influence on the park. That’s what I have found best to work for me.


#11

I don’t even allow subletting in my park so having the idea of someone else having such a huge control over the park is not at all appealing to me personally.