I have a 57 space park under contract in the due diligence phase. It has 32 spaces occupied with 12 POH’s. Average lot rent is $225 while the market is $285-$325. Seller bills back 50% of water and sewer. So very quickly there is some great upside and then filling the vacant lots over time.
I am working through a broker and the seller has not been been willing to provide financing.
It has been a very slow process in obtaining documentation from the seller and most importantly the seller has not been able to provide bank statements (because he comingles with many other properties) or tax returns more recent than 2013 (2014 is on extension and won’t be available until late September or early October). So income can’t be verified more recently than 18 months ago.
I’m feeling inclined to walk unless maybe doing a lease option for 6 months (min) to establish an income trail.
Does anyone have any suggestions…other than following my gut and looking for the next deal?
I greatly appreciate any input!
H2oliving, I am a South Carolina Broker-In-Charge and Realtor.
My Husband and I also own 2 Mobile Home Parks.
Over the years we have looked at many Mobile Home Parks that were for sale.
Perhaps it is our area or the particular MHPs that we have looked at, but we have not seen one Income Tax Statement nor a Bank Statement.
Have we asked for both Income Tax Statements and Bank Statements…most certainly yes…we have asked for it all in the Contract To Buy.
However, as the saying goes “You cannot get blood from a turnip.”
It is impossible to produce a desired item or outcome from an object or situation that could not, in any case, provide it.
Basically, as a Buyer you have to do your own Due Diligence and decide in your own mind if you are willing to walk away from a great deal because the Seller either cannot cooperate or will not cooperate.
Thanks for your response…I agree with you whole heartedly…I’m comfortable relying on my own due diligence for the expenses…I’m hesitant to make assumptions with respect to income…an occupant does not necesarily equate to recieved rent…and I’m certain any traditional lender will require such verification.
Review the rent roll & see if there are any leases. If tenants pay cash, owner should be giving receipts. We’ve been lucky to have individual LLCs with their own tax returns & bank statements. Should be an opportunity to go in with a lower purchase price. You make money when you BUY!
This park is already behind the 8-ball with around 50% occupancy. That alone will scare off a ton of banks. Add on top the lack of financials, and how exactly does the seller expect you to get a loan? The only way I can see a bank making this loan is if the price is ridiculously low. If this seller is looking for anything nearing retail, then he’s out of luck.
Why can’t the paper on this deal? I know he doesn’t want to, but I don’t want to go outside when it’s snowing but I do anyway because I have to.
I spoke with the broker today who is confident he can get a CPA certified draft of 2014 returns and offered that the local bank who currently holds the financing is very comfortable with this property and should be willing to continue financing it (he is going to forward contact info so I can have some dialogue with them). I have planted the seed that this may require seller financing…the broker indicated that it is a good possibility if traditional lending isn’t possible.
and I’m just trying to make the determination now …just before I start spending time and money on inspections and travel to visit the site…of course.
I would do as suggested and discount the asking price accordingly and make sure the seller is aware the reason is due to lack of financial proof of income/expenses.
Through the process of due diligence you will find what you need but the seller needs to know there will be a penalty for his lack of co-operation.
The seller by his actions is indicating he has poor business practices which will be reflected in the business bottom line and possibly do the same to yours upon purchase.
As buyers - we don’t focus too much about getting tax returns or bank statements. Focus your energy on the rent roll and the leases. We assign a probability to each tenant - likely to pay - low medium or high and then come up with your own most likely rent roll going forward.
You need to have a conversation with your bank. I nearly closed on a park where the bank was doing all of their underwriting on the strength of the borrowers. Had the park not turned out to be such a stinker in diligence, we would have basically been required to provide virtually no financial records on the park’s operations. This is extremely rare, but it can happen. If this can’t happen, then give them some hypotheticals on how short you should make your “short-term” seller finance or lease option. Most will say 2-3 years at the shortest.
As for your own comfort level is concerned, you absolutely need to ensure that the revenue you are paying for is actually there. So, sift through the nightmare of bank statements that will likely get dumped on you, talk to the manager about the collections, and make sure the owner is sharing his data on collections during the two months you have for diligence. Do whatever it takes to get comfortable on the revenue you are paying for.
Since they want at least two years of finances typically I’d say 3 years at the shortest. I just negotiated 5 years with an option to extend 2 more years at one point higher interest.
She was at first opposed but the turner was when I explained the tax benefits and that her total return would be much higher since the first 5 years are mostly interest anyway.