POH Notes Carrying Zero Interest Rate

Looking at a park right now where the owner has sold a number of the POH to tenants on his version of a rent credit program and the MH rental payments are so low that they are actually carrying either no interest or a very low interest rate. Essentially, these notes aren’t paying a return and the notes are fairly new with hardly anything paid down substantially. The seller also shared with me that they recently just evicted 3 people which either means their tenant screening isn’t good or the market tenants may be problematic. To me this completely eliminates any value that might have existed in the park owned homes, so I’m willing to offer nothing for them and base my valuation strictly off of lot rent. Is my assessment reasonable?

To me they would still have some value, you’re just not collecting interest on that value. If the home is worth 5k and would take 5k to fix it then I wouldn’t give any value even though it’s still a bonus because you wouldn’t have to pay for setup and delivery of said home.

If you can get the park with no value on the homes then that’s great.

You are still collecting money back in excess of the lot rent for a certain period of time which basically brings down what you pay for the park or replenishes your down payment.

Good luck

What is the actual screening process the owner uses? Also, what do these rent credit arrangements look like?

I would also look at when this park was transacted last. I’ve seen parks where someone came in with the mentality of flipping as fast as they could. So, they took over a park with a ton of vacant homes and just filled them with anyone they could find so they could advertise the park for sale at a healthy occupancy. This is why it is important to get a trailing 24-36 months of rent rolls. Especially on parks that are actively listed for sale.

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If I remember what Frank said, “the value (of the MHP) is in the lot rent, not the house payment.”

And to answer your question, Is my assessment reasonable? Yes.

If the seller has zero interest, you can counter with zero value.
Seems fair to me.

Actually, it would be better for the occupant to pay off his home ASAP. That would be safer for both the occupant and the MHP owner. Less debt = more good.

Mike Weiss

I would make two offers. A slightly higher offer where the seller holds the notes on the homes and a lower offer where you take over the notes. Seems backwards but the point you are making is you are not interested in the notes.
The higher offer would be based only on lot rent and ultimately I would negotiate to that price with you taking over the home notes.
How many homes are involved.
If the number of homes is not too high you may be able to find a way to get them back and resell at a better return.

Thanks for the feedback guys. I actually offered on this a week ago and the seller wouldn’t even counter back. I actually am glad I didn’t proceed with it. From looking at the rent roll, he had just started loading up the park with tenants, two had missed last month’s payment, and the broker told me recently he had to evict 3 of them. The vast majority of the tenants did not have any substantial basis paid down on their notes and the mobile home rent (older homes) was generally only $100-$125 per month on an average 5 year term. From my calculations, it actually would have cost me more money to keep on them the notes when factoring in R&M, insurance, and property expenses than they were paying. This was a pass for me.

Just a question–will a park owner void all the Frank-Dodd mess when you actually sell a home to a new homeowner with no interest fees?? So if that was possible you could slightly raise the selling price and still accomplish the same effect. Charging no interest might even be a good sales incentive. Just noticed a large new home builder that covers a lot of states (name is at our office) that is charging no down payment on their new stick built homes and guaranteeing materials used for 10 years. That could be very problematic for park owners bringing in new homes since they need to be charging high interest rates and needing a down payment for a sale. Just thinking!!!

I believe if the dwelling is the collateral for the loan then it still applies - the interest rate is just one of like 8 main criterion that must be met as part of origination. If their car or other asset is the collateral I believe you can get out of it.