Frank provided some thoughts in regard to my deal and I was hoping to get input from some others.
I’m doing due diligence on a park that is selling at a 10 cap for $1million. The selling price includes 6 park owned homes in livable condition and 8 that need to be rehabbed. All poh’s are 70’s, 80’s and 90’s Seller wants to break up the sale as follows:
$600k for the park
$300k for personal property (the park owned homes)
$100k for goodwill
The seller may not be doing a 1031 exchange and wants to minimize the potential tax hit so his accountant wants him to place a lot of value on the park owned homes - comps show that the homes needing rehab are probably only worth $2k to $6k each (wholesale) and the ones that are livable are worth about $4k to $8k each (wholesale).
My concern is that I’ll be stuck with over valued homes. Any input is appreciated.
What if you just bought the park (@ $600,000) and let the seller keep the personal property / notes?
That would reduce their Real Estate tax bill and you would not be paying too much for the POH’s.
In what way will this “stick” you?
I’d like to have the homes to rehab and sell/RTO rather than allow the seller to keep them. Also, I don’t want him to own such a large percentage of homes in my park.
I’d be ‘stuck’ with homes that are worth a tenth of the selling price. Is there a way to work around this?
Perhaps I wasn’t clear before – what does the sales contract number have to do with any intrinsic value? The homes are worth what they are worth so what does the number on the contract matter? Are you comfortable with the deal reallocating the cost of the homes to the park?
Real property taxes will be based on the park sales price (mortgage, recorded deeds, etc). The property taxes on the homes can be challenged based on comps, so you might benefit from lowering your taxes by having a significant “value” placed on homes that are not that valuable.
The homes may be worth 1/10 of your “purchase” price, but you can sell them for what you can sell them for…