Positioning MHP to Sell -- ideas?

Looking for some advice / opinions on selling our park. Here are two options:

Option One
80 lots total.
60 Tenant Owned Home’s (TOH’s) paying $300 per month lot rent.
20 vacant lots.
City utilities.
Value = 60 x 300 x 12 x 0.7 x 10 = $1,512,000

Option Two
Same park with 80 lots, all 80 occupied.
60 TOH’s paying $300 per month lot rent.
20 NEW-TOH’s (with park guarantee) paying $300 per month lot rent.
City utilities.
Value = 80 x 300 x 12 x 0.7 x 10 = $2,016,000

The difference of the two options is that in “Option Two” the park has acquired 20 new homes via 21st Mortgage’s Cash Program. For each of these new homes (i.e. the "NEW-TOH’s), the park has guaranteed the notes for the resident. The average note is $50,000 each thus a total guarantee of $1,000,000.

Of course, although the 20 residents with NEW-TOHs each own their homes (i.e., have the title with a lien), some will probably default.

Would appreciate hearing people’s opinions / advice as to if going through the effort to covert from Option One to Option Two makes sense. How accurate are the two “values” shown above?

How will / would an investor or potential buyer view the two options?

I would as a buyer be afraid of a park guarantee group of 20 homes. They would be inherited tenants and my screening process would not necessarily be your process. but I am in a conservative mood at the moment so let’s see what others say.

@MHP_John , as per your question:

  • “The difference of the two options is that in ‘Option Two’ the park has acquired 20 new homes via 21st Mortgage’s Cash Program. For each of these new homes (i.e. the NEW-TOH’s), the park has guaranteed the notes for the resident.”

I agree with @MichaelG

  • “I would as a buyer be afraid of a park guarantee group of 20 homes.”

However, personally I am very conservative.

Also, as @MichaelG stated:

  • “They would be inherited tenants and my screening process would not necessarily be your process.”

I just asked my Husband (who is way more willing to take a risk) and even he said that buying a MHP with a $1,000,000 sounds pretty risky.

We wish you the very best!

I don’t want to railroad your thread or know enough about your Park, but have an alternative suggestion.

Assuming zoning isn’t an issue and you’re in a good market / location - I have seen some non-conforming parks find yearly leases with RV’ers as a means to pump up their numbers prior to sale, and they will season those leases for at least 6 months to 13 months to show reasonable stability with that group. Since you already have 60 TOH’s it could be a good augmentation strategy to reduce the burden of new homes.

Some investors may discount the value of RV income because of their ease of movement, but from an appraisal perspective I don’t believe it has a negative impact if you can show the lot rent track record.

The CASH program option you mention is just fine if they will back you, but my understanding is Clayton will have to qualify the new owner if the Park will retain those notes as part of the sale, which could limit your buyer pool. I can’t remember if the new owner would have to become a dealer too, even if the homes are already in place.

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That million-dollar guarantee is going to hold up the sales pool. The second alternative is “valued” (at a ROUGH CUT) at 1/2 million more, but it comes with a $1mm guarantee. That $1mm worth of notes is not something I would pay $1mm for, perhaps 50% of face value if it’s great. Sure, more than that will pay off but there’s more hassle and risk and variance and general aggravation collecting that month. Once you factor that in, the two options seem about equally valuable but the second one is a lot higher variance. Which would you want as a purchaser?

Put another way, if you fill the park yourself you are capturing $500k of value by putting $500k of “value” at risk underwriting $1mm of loans that are not seasoned in any way. If you hold the seasoned notes for a while, the discount goes down and the “fill strategy” pays off. But if you fill and flip you are going to be penalized for the unknown future value of the 20 homes / notes / lot-paying residents with no stable history.

Does that make sense?

Brandon@Sandell

If I were you, I would choose Option One. “75% OCC rate, more upside” is very attractive to all the experienced buyers, plus, it’s bankable too. Less work for you, more potential buyers, wouldn’t you agree?

Option 1 and then push your cap down to 8.5 asking price. Many parks are selling at around 9 caps right now.