I have a small park (19 spaces) under contract but I just found out that 15 lots are leased to a single investor or Lonnie Deals. This turns me off and I don’t know if I can get a loan with this fact. I am thinking about pulling the plug on this one. Any comments would be appreciated.
Timothy…
I am no expert… but my understanding of lonnie deals is an outside investor purchased the homes, fixed them up (hopefully) and sold them under contract to the residents. I don’t know if this is a bad thing or not… if those residents abandon their homes you still have a lender obligated to pay the pad rental; and it is doubtful that the lender would allow the homes to be removed off the lot. An attorney could help you ensure the investor understands you will not tolerate non payment of pad rent and homes will be removed. He has a stake in ensuring they stay in the park and not hauled out. Am I thinking about this correctly??
That is a high level of risk for you as a buyer. You will want clarity if he is renting them to tenants or owner financing and what the seasoning looks like for the bulk of them. Loan will be dependent on what the lender thinks or if you can get seller carry. Aside from that though, the guy holds leverage on you and can move all the homes out so it gives you quite a bit of exposure which you would not have with all tenant owned homes. You can try to mitigate it by getting some type of first right of refusal on the homes but thats no guarantee either. If everything else checks out, you might consider seeing if you can acquire the interest of the homes as one more tool in your toolbox. Good luck .
Playing devil’s advocate - 15 homes is a lot to move out. Giving the Lonnie Dealer notice on all of them at the same time would put him / her in a pickle. Not only do they have to move the home, they have to find a new place to put it and then rehab it, re-deck, re-skirt it for a new tenant. If they don’t move them you can take them through the process to take possession. Also have to consider where your lot rents stand. If you’re the cheapest in the city then they can complain all they want but you’re still the best deal around.
Need more information to figure out what your likely outcomes are on this one. As other people said definitely carries added risk however you look at it, and should price that in based on your findings.
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I think Frank has a story about he unlikely scenario playing out one time. The Lonnie dealer bought their own land and pulled whatever homes they had in the park. I agree it is unlikely and improbable , but should it play out , it’s catastrophic.
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On 1 hand, I totally understand your concern, and would be hesitant about buying this property too. On the other hand, I have been in this “lonnie dealers” position before, and shared a great relationship with the park owner. I sure as HECK wouldn’t have moved my homes.
This deal fell through since I was unable to get non recourse financing using IRA for down payment because of the Lonnie deals. Also, I felt uneasy about it too.
Thanks for all of the comments!