I have a park that I am putting under contract tomorrow for 550k. 21 lots occupied, park advertised as 25 lots total, average lot rent is 350. 10 homes are POH paying 600/month. I decided to call the city and found out that is non-conforming park and I cannot place new homes on the four vacant lots. I can place homes on the 21 currently occupied, I just can’t do anything with the empty ones. NOI is around 50k if you don’t count the rental income. The seller never disclosed to me that the four empty lots can never be used. Can I use this a as a way to renegotiate the price? If so, how would you go about doing so and how much of a reduction would you seek?
This is common. Cities think they can restrict the land usage of a non-conforming MHP by not allowing those that leave to be replaced. The nature of a MHP is that homes come and go, so by virtue the city has overstepped its authority. You need to get a muni attorney to speak with the city attorney how they handle this situation and get it documented on paper as part of that process that the city will not restrict the existing land usage.
If you have a city that wants to fight it on principle even though wrong, it could cost tens of thousands for you to prevail (and recoup most of it likely years later). And you need to come to agreement in the contract who pays for attorneys fees to resolve it during the feasibility period.
Don’t close unless this gets resolved. Why shouldn’t you close? What happens if a tornado hits (or insert any other natural disaster) and destroys half the homes. Now you have a 10 pad MHP that the city won’t let you infill the vacant lots. What’s the park worth now?
If the park was originally built as a 21 lot park and that is on record with the City, then you might not have any luck getting approved to use those lots. If the seller thinks there is value in those empty lots, then you may be able to negotiate that value out of the purchase price. Just make sure you are making your offer based on NOI and not the future value of those pads.
Thank you for the replies. The park was originally zoned for 25 pads. I spoke to the senior city building person and they said on the 21 lots that are currently occupied that I COULD rebuild on any of those 21 lots. So if a hurricane came through and wiped them out, I could bring in 21 homes. I just left a message with her so that I could get something in writing for that too.
And @jhutson I definitely understand your point, but I’m not willing to get into an expensive legal battle right now. Are you saying I should get something on paper with current seller for if that eventuality occurs?
How much value are you placing on the empty lots? I would push the issue with the city but id assume you arent paying full occupied for an empty pad ( maybe some value especially in the better markets) . Zoning is one of the issues you have to navigate through but cities can often be wrong. Its something that you can work on with them while you own it but my assumption is that it works at 21 spaces …
@Dominic730 You need to get something on paper from the City that the Park can freely move homes in and out as part of its non-conforming status. If you can get this on paper you don’t really have a zoning issue. It sounds like this is a difference of opinion between Park and City the number of pads.
What does the Seller have to prove it had 25 pads originally? If you have historical imagery you can present to the City showing them that homes were there in the past and the number of pads is 25 then this seems like a non-issue and you can get that documented with them. Google Earth has this imagery going back up to 50 years in the big cities.
MHP’s are usually governed by the State. The Health dept oversees parks where I own my park. If the state has on record that the park is a 25 lot park, then you’d have good argument that you can bring in more homes.
@Deleted_User_ME Honestly I haven’t placed any value in relation to the purchase price of the empty lots. And yes this park does still work with 21 spaces at the 350 lot rent, but it would have really been nice to add another 16,800 gross per year.
@jhutson I have spoken to the city a couple times now and am waiting on the documentation. The city told me that it was 25 pads originally, but that the seller had the 4 lots vacant for a number of years and they aren’t allowed to be built on now. I will definitely get this in writing somehow.
I looked into it and I think you’re right. I did see the documentation stating that the park is non-conforming. But it does not specify at all the number of pads that can’t be replaced. I’m pretty sure that I can just fill them up and if the city has a problem then they can do something about it.
What state is this? There are a couple states in which park owners have already taken this to the state supreme courts and won their cases. Mississippi is one of them and maybe Minnesota and another one or two? Also Texas just passed legislation through at least the House of Representatives that clarifies park owners’ rights to infill their pads.
Sounds like a decent deal either way, but yeah the extra $17k a year would definitely be nice.
Be creative, Check with the city if you can do something else with those empty pads. Depending what’s around the area and the demand, there are many ways you can collect rents from those empty pads. Can you turn them into RV spaces, tiny homes, or boat rental spaces? Can you use that empty spcae to put a pool, sports court or a library or dog park? Use it for something else that can help you improve the value of the park and raise the rent?
@NateW
The state is Florida. It could definitely be a decent deal but I may try to assign it since there is no seller financing and I don’t want to go through the hassle of traditional financing right now.
@Maynhia
I like the way you think. I already asked if I could use the spaces for self-storage units and the city replied that I could not use them for any purpose. That being said, I checked the city ordinance and didn’t find anything that specifically said that the space could not be used for any purpose. But I’m not an attorney so take that with a grain of salt.