Is it a common practice to obtain tenant estoppel certificates when purchasing a mobile home park? I am used to purchasing shopping centers where this is a common practice.
Thanks.
So this is a great topic. If you have really good accounting records, like everything is verifiable, these are less important. If your dealing with a park that is all cash, or the owner is fudging stuff and everyone knows it, getting them is much more important. These will mostly be mom and pop owners, or maybe a out of state owner that has someone to do all the collecting and the bill paying.
I looked at a park in Nebraska a while back, and the lot rent did not add up to the income. After we got the certs, it still did not add up. Turns out the difference was in utility billing. They were charging about $25,000 yearly for gas, and were paying about $5,000 for it.
You should have a simple cert ready to give in your first list of requests during your inspection period, that is non threatening to the tenants and owners. Again though, pick your requests- you want god information, but if you ask for too much too many ways, you will freak out the seller.
Note- I tend to buy smaller parks, like 25 to 100 pads. So my sellers tend to be people, not companies. My prospective is rooted in that type of park. So my finding, buying and operating philosophy is not corporate but from a guy investing his own money, managing his own managers, who manage the parks.
They are extremely rare. I’ve never bought or sold a park that utilized them. Normally, you can pin down 90% of the tenants as being there and paying. On the remaining 10%, you can use them if you like to try and make certain a resident lives there. A better solution is just to use very conservative numbers on real occupancy and collections so you have room to have a few surprises. Even if a guy signs an estoppel certificate, this class of customer can just walk off the next day – a far cry from a retail center client. The biggest problem with estoppels is that the tenants never sign and return them. The same is true with park leases – anything that has to be signed. Mobile home park tenants – in general – have trouble with such assignments. In a good park, you’d be lucky to get 70% of them back in, and that’s if you went door to door. So it’s just not a part of this industry.
The good news, unlike shopping centers, is the demand is enormous as America gets poorer.
That brings me to my next thought - Lot Lease Agreements. I assume that the lease agreements for the lots are worth less than the paper they are written on. I suppose the real hook keeping the tenants there is the cost of moving a home. I looked at a park where most of the tenant owned homes were on month to month leases. At first I was scared of this, but as I got to thinking, I realized that it is not exactly cheap to move a home. Will banks who lend on MHPs consider certified rent rolls instead of looking leases?
What are you smoking, Frank? I have and have always gotten 100% of my leases back, signed, initialed, and dated and it is not difficult at all. It doesn’t matter if it’s an mh or an SFR - I always get my docs back again. It all depends on communicating your expectations and offering the proper incentives for compliance. Keep in mind that I require new agreements every year and I still don’t have a problem. Having a properly completed agreement also makes evictions way easier.
Rolf
Wheat Hill
We also send out new written leases every time we buy a park, and it takes weeks to collect them in by going door to door – and is a huge effort. That is not going to work for estoppels, which would require maybe a couple weeks of daily door knocking to collect and would confuse the tenants beyond belief (they have enough trouble with understanding the lease). Again, we’ve bought about 7,000 lots over the past several years without estoppels, and we’ve sold about 5,000 lots over the past 15 years without estoppels. So I’m pretty confident in saying that they are in no way standard in this industry. But if you think you can get them, then be my guest – there’s certainly no harm in it. But if you expect any seller to agree to it, then you’re probably crazy.
And yes, contrary to what Rolf says, leases are a joke in most cases. Here’s why – and you already nailed it – it costs about $3,000 to $5,000 to move a home from point A to point B. That’s why 99% of all mobile homes never move from the spot that they are delivered from the factory. It has nothing to do with leases, or honoring leases. It’s just a function of economics. Probably 99% of the moms and pops out there are on verbal month-to-month leases, and that relationship works just fine. It’s even superior to longer leases in a couple ways, namely 1) you can raise the rent as much as you want and 2) you can non-renew the lease quickly on the problem tenants. That’s not to say that you should not get written leases and rules when you buy a park, because it gives you all the legal ammunition. But the majority of parks you will buy do not have them or, if they do, about half the tenant leases are missing.
Rolf is obviously better at collecting leases than most people, but it would be wrong to suggest that that is the norm, because it’s not. No leases is 1,000% more common than all leases in hand. But, for the reasons I’ve mentioned, it doesnt’ really matter.
All I said was I get 100% of my documents back and I always have. How you could not do this is beyond me as this is Landlording 101. Try doing an eviction in CA without anything in writing and the judge will kick you out of the courtroom in an instant.
As for non-renewal, no can do in OH and probably in other states as well and it doesn’t matter whether you have anything in writing or not. According to OMHA, evictions from a park require cause and a court action. Simply not renewing a tenancy and expecting to get rid of someone is something that, at least in OH, will make the hearts of every lawyer with Legal Aid beat faster. Wait, do lawyers even have hearts?
If this is not the case in OH, probably best to contact the state association and explain where they have it wrong.
The way I get documents back is to give them out with plenty of lead time and a formal notice. The residents have the choice of complying with the notice and signing, initialing, and dating all the forms or not. If not, they are still governed by the terms of the agreement but their rent and security deposit goe up by double the regular rent increase. It’s a matter of making your expectations known and presenting residents with the right incentives to comply.
I have my docs and procedures vetted once a year by an attorney that does nothing but mh law but we could have missed something.
As for keeping a home in the park, no judge will ever force a resident to abide by the terms of the lease. Even the cost of a move will not keep them in a park - these people find a way to scrape together the money to move if they really wan to. A lot of people have a piece of dirt somewhere and it’s cheaper for them to move a rusty piece of junk onto it than it is to buy/build something else. Funny how I’ve had conversations about this very topic with other owners at our meetings yet, apparently, we are incorrect.
Rolf
Wheat Hill
Rolf,
I’m not saying you’re incorrect, or that that does not work in small town Ohio, but that’s not how it works in any market that we are in. You can non-renew a lease in Ohio – we have a park in Columbus – and we have absolutely no tenants who can scrape together the money or move their trailer to a piece of dirt somewhere at the drop of a hat. Again, I think you are giving your truthful experiences in your market, but I don’t want anyone reading this forum to think that’s the norm, because it certainly is not. But, again, if it’s working for you, then stick with it.
Really?
OH Supreme Court Schwartz vs. McAttee. I’m pretty sure the decision applies to all parts of the state and not just my neck of the woods.
If it’s this tough to evict in a state like OH, I wonder what it’s like in more consumer-friendly states? I wish things were as easy as they are sometimes made out to be.
Rolf
Wheat Hill