Trading Current Park


#1

Thinking about making some kind of move in the next six months. Ideally I would like to trade say $1,000,000 free and clear equity mhp for $3,000,000 mhp without the hassle of selling. What do you think the chances are of a mhp owner taking our park as a down payment on their bigger park?

I’m a little nervous about selling first and then finding myself in this crazy frenzy of trying to find a replacement property in 45 days.

Or I could refinance keep the existing park and buy another smaller property as long as the cash flow on the new park would replace the income lost from the refiance.

Anybody else thinking of making some kind of move?


#2

Mike

I believe you can get around the 45 day rule. You should talk to Jack Shea at 727 581-7000


#3

I would kill to be in your position but I would never dream of trying to trade up as you suggest. Not that it is a bad idea in principle, but I think things are just too crazy with financing to risk it now.

Why not seek out a seller with a smaller park who has no mortgage and wants to sell? Let him carry the financing on the park you want to buy and then cross-collateralize the loan against the park you own free and clear. The result is 100% financing for the park you buy. You could probably even move up in price and do the same thing. The seller is doubly secured and you don’t have to deal with coming up with a down payment or securing financing.

Cash flow on the park you buy will suck or be non-existent at first but it will be more than offset by the cash flow you must be getting on your current park. You could even get more creative by having the seller put cash into the transaction so that you have fix-up money. (This assumes he or she has any and sees the benefit.) The interest you pay on the mortgage would be far in excess of what that person could get anywhere else and they are at least 200% secured.

Rolf

Wheat Hill MHC


#4

Mike,

You can look into doing a reverse 1031 exchange. They are more expensive and complicated then a conventional 1031 - but they are made for what you are thinking of doing. Please be warned though - some big guy 1031 QI’s are in big trouble as this financial debauchel unravels.

A couple of quick comments about 1031’s: 1. In my opinion, Jack Shea knows what he is doing and he is my personal choice for a QI. 2. The 45 days is cut in stone, there is no work around. 3. During the 45 days, as long as you will be exchanging 95% or more of your relinquished property, you may identify as many properties that you can find. 4. It is difficult to buy a 3M property without having the liquidity from the first sale - if you can put a deal together like Rolf suggests then great - but some of the best buys will be made for ALL CASH. So, here’s a couple of other ideas for you to ponder.

You can exchange into ALL OR A PORTION of an Illinois style land trust. This solution may allow you to take on a partner in order to buy the expensive new property for cash until you can sell your old property whereby your partner agrees that you may buy out his/her “shares” in order to complete your 1031. Please keep in mind that all the debt and equity ratios need to work out just like any other 1031 and that there is a bunch of other very important details to understand and consider.

Another classic yet controversial solution is to let a third party friend buy the new park and then you 1031 into it by buying out your friend after you sell. This technique under extreme scrutiny could be disqualified if you had control over your friend, hence controversial.

Let me be clear that I feel all of these exchange and/or tax ideas are the “tail of the dog.” I don’t/won’t be a general advocate of any of these techniques in any great detail since they are all quite advanced and if misunderstood or misapplied could hurt the group more then they help ~ but, the idea of trading up in a buyers market is very savvy and a good idea for the group to contemplate (with or without tax implications, especially keeping in mind that paying now may not be all that bad since we are still experiencing historically low capital gains rates).

In order to sell in todays market you may need to discount say 20% or so. But, if you can trade up at another 20% discount - with good decision making and some quality guidance you will likely be in great shape. After all, 20% of 1M becomes a measly 200K loss when compared to the 20% / $600K discount when you buy that 3M property for 2.4M!

Now go find that next dog :slight_smile:

Karl