Hello,
I’m looking at a park with some park owned homes. How difficult is it to convert these park owned homes to
tenant owned homes? Do we just sell the park owned homes for a cheap price on a seller carried contract?
What are the challenges in doing the conversion?
Also, once you sell the home to the tenants, are they more motivated about keeping their home in good shape and
paying rent on time?
Thanks!
Under the SAFE Act, you can no longer sell homes to tenants and carry the paper, unless you become SAFE Act licensed, which is complicated and costly. However, you can still sell the homes for cash, give them away, or rent them out. That’s going to be the most important decision of your conversion, so I would start off with talking with your state mobile home association about what the options are in your state. Getting tenants to convert from renters to owners is easy – it ultimately makes them more in command of their destiny, and saves them money. It’s the structure that is the difficult part. If the homes are old and in poor condition, it might be smart just to sell them for small amounts of cash and be done with it. However, it you sell more than one home in a year – in most states – you will also need a dealer’s license, so it’s back to talking to your state MHA again.
Frank,
So if the State law prohibits you from selling more than one park owned home to a tenant in a single given year,
what would be the best way to get rid of 8 park owned homes? Just give it away for free?
Also, it seems like most sellers out there take the rental income from renting out their park owned home into the equation
for arriving at the asking price. However, as a turnaround strategy, I believe you strongly recommend selling off the park owned homes
as fast as possible. So if we end up with receiving just the lot rent after selling off all the park owned homes, then that means
we’d be at a great loss if we were to take rental income from the homes into the offer price equation when we purchase the park.
What is the best way to deal with sellers that that want to take park home rental income into the cap rate equation?
How do we tell them that their park owned home is worth only $1.00?
THanks.
You cannot count the park-owned home income, but instead value the homes collectively at what you can sell them for. For example, a home that rents for $500 per month (net of $200 lot rent) is not worth $36,000 at a 10% cap rate, but instead maybe $10,000 (depends on the age of the home). If the seller thinks that homes is worth $36,000 (in this example) then let him keep it and pay you lot rent, on a long-term lot lease.
There is no way around the state laws for being a dealer. I’m not sure that even giving the homes away works (but you should ask your state MHA).
Seung,
You won’t need a dealer’s license if you don’t sell homes.
If I am understanding you correctly - you just want to get out of that business altogether.
here’s a strategy that you may try:
Ask the residents if they’d be interested in lowering their payment? You can make their payments go down. Not that lot rent is going up (example from 200 to 250/mo), Their 500/mo payment will actually go DOWN to 275.
Because you care for your people and always want to help, you will sell them the home for a deal they can’t refuse. If they are interested, you will sell them their current home for $500. flat out - and then they will own the home. And their payment will go from 500/mo to 275. Just come up with $500 once. You’ll be surprised how many will do that.
I thought the SAFE act was still vague on mobile home transactions and specifically on mobile homes ‘sold’ on a RTO agreement. If title has not transferred, and no lien has been filed (as is the case with RTO-ing) then I thought that pretty much meant the SAFE act was not applicable.
Frank - has there been some clarification/revision to the SAFE act? Or am I otherwise missing something about RTO-ing?
Thanks,
-jl-
Is Spencer on here? He has some pretty extensive info on this - he went and got all the licenses for this — then realized with what he was doing, it was irrelevant. and he had a solution for that as well.
I will see Spencer tomorrow - I’ll ask him to post something here.
Frank?
So Frank, I guess we’re looking at 2 options here:
a) Park owned homes already existent in park - It is possible to sell these homes because you can sell for a small lump sum that the tenant may
be able to come up with, such as $1,000 lump sum. However, if the homes are worth lets say $5,000 and the tenants are not able to come up
with the cash upfront, you still cannot sell them for $1,000 lump sum + a monthly payment towards the $4,000 balance. Am I correct here?
b) For bringing new homes into the park - So lets the lot is vacant, and you want to fill it as the owner of the park. As the owner of the park, are you
not able to go buy a mobile home from a local dealer and sell it to a potential tenant in your park? Is this going against the SAFE Act?You have to keep in mind the SAFE act may be handled slightly differently in each state so it is important to know your specific state laws.
Bret