Looking for a Solution to Seller Having Trouble proving “Stated” Rents Collected


#1

I am trying to buy a small park from and mom & pop seller that are having difficulty demonstrating to me that they are in fact collecting rents from the tenants. Bank deposits and tax returns do not show it and I suspect much of the rent is collected in cash. They are willing to carry back a note on the purchase. Getting estoppel letters is not a very viable option. Has anyone ever used some sort document that would give me legal grounds to delay payments on the note etc until I can retrain the tenants and actually be collecting the represented rents?

Any other suggestions welcome!

Thanks – Tim


#2

You could get them to agree to an earnout. That being said, its unlikely you’ll be able to convince the owner to agree to wait until tenants are retrained, let alone an earnout at all. A more reasonable ask would be to hold back the capped value of one or a few tenants’ rents until you go through one collection cycle (one month) and confirm who actually pays.


#3

If you are in the due diligence stage whether esstopal letters is a “viable option” or not it needs to be a mandatory part of your process. Without it I personally would not consider moving forward with the purchase. You need confirmation on the income, this is the confirmation that is required.
I can not see you as being serious about protecting your business interests with options after the fact when now is the time to be collecting all the pieces of the puzzle.


#4

Walk around with them during rent collection. That’s what I had to do for my first park purchase. Worked out really well.


#5

I agree that its good to validate with estoppels if you can. What greg talks about is good in theory but you will without doubt run into sellers who will take offense to you prodding too much and you will have to weigh if its worth losing a deal over. Make sure all the lots /homes appear to be occupied and if they appear cared for, even better. Maybe talking with the tenants as a prospect if possible to validate the rent as well. Good luck .


#6

Have such a difficult time being sympathetic to sellers who have bad records. They have to prove the income and from there we can talk price. If they are taking in unrecorded cash for rent defrauding the IRS… they would have no problem trying to defraud you. I appreciate the ‘Mom and Pop’ aspect of the deal and the park might be a gem of a deal. Maybe consider a semi- worse case scenario and evaluate that and what you would do from there. Dig hard for income verification but you may be left with your gut feeling and there is nothing wrong with giving your own instincts it’s due weight.


#7

If you do not know the rents you have no option but to give a low ball offer based on the worst case scenario. If you know the average lot rents for surrounding communities you may get a idea but must assume based on how this community is operated that rents will be below market.
Which is worse pressing them for esstopal letters or insulting them with a low ball.
Personally I have zero sympathy for any seller that has not done their homework in prepping to sell. I generally offer very low with a full explanation and tell them if they don’t like it that can come back to me when they get their s**t together. I do not worry about losing a deal that I have no ability to adequately assess.