Wholesale Preferences - PSA, Earnest Money and DD Period


#1

Looking for some feedback straight from the source in regard to wholesaling mobile home park contracts. For those of you who have bought or pursued deals before from a wholesaler / assignor, what is your preference as far as the Purchase & Sale Agreement the assignor is using the put the park under contract with the owner. Are you looking for something akin to the standard contract MHU uses? Or are you planning to replace with your own contract vetted by your attorney before closing, so the Assignor using a 15+ page PSA is somewhat unneeded?

Regarding Earnest Money, do you come in expecting contribute these funds upfront upon executing an Assignment Contract? Do you prefer to use your own Escrow company to manage this?

Finally on the Due Diligence side, how much time are you looking to have remaining in the DD period to considering getting in to a deal? I realize much of this depends on what the assignor has already investigated, but looking for a ballpark figure to see what most investors are comfortable with.

Thanks for the input.


#2

I think these are awesome questions and ones that I’ve been asking a lot of lately. I would love to hear some answers from some knowledgeable folks on this forum.


#3

MHU just released a podcast of Frank interviewing Jimmy Johnson who has a very active business assigning contracts on MHPs. Most of your questions were answered during the podcast. The link is below.

https://is-tracking-link-api-prod.appspot.com/api/v1/click/4873279903367168/6027770832355328


#4

Just listened to this Wholesaling podcast. Good info, but I didn’t hear much in the way of specifics of how earnest money is handled, how the PSA is/is not adjusted, timing of the payment of assignment fee versus closing timeline, etc.

Would love to hear some feedback from those who have already gone down this path, and what their current preferences are.


#5

The Frank and Dave contract is a very solid one , many people use it. It is very buyer favored. Most buyers i would think would find it acceptable. Getting a seller to sign off on it sometimes they don’t like it so you might have to use a different contract.

I would never plan to replace the contract , probably won’t work , and just not a good plan. I would try and use a large national corp for closings if you can. Preferably one that has done parks. I think there was a Stewart office in NC that at least a few were using. The seller may “need” to use someone they pick so if that is the case sometimes for you to get the deal you have to work with them basic deal making little give little take.

On DD, i dont remember what they are , but again, F and D contract is favorable . it’s an event driven contract, ie ,you’re timeline starts when i get these items… and that can sometimes take an eternity. If your end goal is to assign, i personally would not start doing my DD in depth , just get the surface info, because your end buyer may require different things, have different questions, etc. Trying to do this stuff yourself initially (depending on your own goal ) is akin to shooting your self in the foot and just having your limited time clock start to run out and risking pissing off a seller because now you did inspections with in adequate vendors etc. and have to re do things or re visit what was already done.

What chicken scratch ledgers might work for me and my lender might need to be estoppels for you and your lender etc

Earnest money do 1k . Much of the time that works. Sometimes you will need to do 10 k , or 2 -3 %. Or the seller wants 50 k. Less is more favorable but are you going to pass on a contract because you want to put up 5k and he wants 15k? … maybe i suppose

Here is what people think assigning can be:

Go and tie up a deal, try to shop it and then fail. Why? They missed the valuation, And these things are not liquid like SFH, lot of variation in asset value , upside, market, deferred maintenance, risk etc. so what you think might be 500, someone things is 575 and someone thinks is 450. At least this is my take on it, YMMV My experience was in sub 100 space parks, sub 2.5 M asset values several different markets. Valuation is challenging of a topic enough for seasoned pros in the MHP space and throw in someone without lots of experience, it is not a good formula. Especially in the sub 50 space with so much variance,

And when you do this, in the above mentioned scenario ,you are misrepresenting that you are intending to purchase when you have full intentions NOT do this to people and have no prospects or capacity on getting it closed.

I will just segway on how i did my first assignment . It was a deal i was initially considering as a purchase. Around this time , we made a decision to move out of state and then i realized with the in fill, remote operation of a larger project like this, it would not be in my capacity at my novice level . I reached out to Frank and Dave and this was my first assignment.

But what I found was this , if i was not going to try and buy it myself and i thought it fit F and Ds parameters, i would give them a heads up BEFORE i put a contract on it. Because you need to hit the number right, go in with a plan to purchase it. Not tie it up and then shop it.

I would also go into deals i wanted to buy ( with a number i picked) but then found something in DD that wouldn’t work for me and then reach out to someone whose parameter it might fit once something fell through for me but still could be a viable deal. Then there is also the situation that the deal falls through with your partner who you want to assign it to , then you end up buying it , that can happen.

Also you can see if whoever you work with will let you take equity (ownership stake) in lieu of assignment fee. Or find the deal , get some equity, contribute some capital into the deal . Take a passive role, or take a bit of an active role on some partner stuff. Use this all as a building block, get into ownership , that should be the end goal if you are assigning.

Be transparent with sellers, let them know you are working with a partner but there are a lot of good mom and pops and when people start planning a life around the sale of the park that you dont have the ability to close on , its just crappy.

Now , dont get me wrong because deals fall apart all the time for a million things , it is what it is once you start digging and find this or that. So please consider the human component of this, what might be numbers for your is more meaningful for them say their family member in charge has dementia, death in the family, all of this needs to be handled with a level of compassion and some level of certainty the deal can get to a close ( should it check out as it appeared to be on the front end). Not acting this way is a disservice to your fellow man.

Im not saying this is what anyones intentions are who plans to assign a contract. Just some comments from things i have seen.

Theres a lot of people who cant close, who are tire kickers, so be cautious when your plan revolves around people like that to close or when you haven’t walked the circle from start to finish.

There are so many great operators in this space, see if you can find ones that are actively looking maybe in specific markets or not the same profile deal that the rest of the world is chasing , if you differentiate yourself where others aren’t, it can yield opportunity and maybe leverage your portfolio/ experience / etc. Focus on locating the deal but keep these variables in mind .

I tried to stick to frank and dave assignments because their word was good. they were more than fair, and true pros. The first deal or two i think we discussed what an amount might be After that I think that it was not even discussed until a closing. Aside from what i was able to generate with them, the education was invaluable. I got to be involved in their DD and learned just as much as what failed as what closed. And when it was possible, i would do site visits with their DD person, coordinate DD with one of their managers, or do the work myself on their behalf. I am indebted to Frank and Dave for all they have helped me with directly ,or indirectly.

Your reputation is everything , especially in this space. Keep this in mind , act with integrity , help people just because, do the right thing, you will be rewarded. I always say the mhp space is a very small world. Many have the same intentions of making communities better, bettering the lives of their tenants, and dealing with the same crap that comes up from time to time. Make sure to help others within the space once you have had a small taste of success yourself as its a trait of so many that I have come across of whom have shared sage advice with myself.