Hi Everyone,
I am negotiating on a park and would welcome your thoughts!
It is 10 spaces and a brick home. The home needs major work, including a roof leak, cracked slab (maybe), trash everywhere… you get the picture. Most likely $10k or more to fix it to be livable. Once that is done, could easily rent for $700-$900 a month.
The 10 spaces will get about $200-$225 a month lot rent. There is one tenant now. 4 homes need to be removed, they are too old, too small or in awful condition. They could be replaced with any size single wide homes. Double wide would not fit in these areas. You could most likely fit 2-4 double wides on the property, not of the longest size. The owner tells me there is one well and one septic tank. I tend to believe that is not the case. Yet, the owner does not really know the park well. City water and city sewer are to the street of the park and might be able to be hooked up to. I have to check into this in more detail. The main road is paved and needs work. The landscaping is some grass. No curb appeal.
The area is old, established, working people. The street is mostly clean in decent condition. This property is the worse one on the street.
The owner was asking $175k. Has agreed to carry $70k and take $20k down. There is also $10k in back taxes. She wants to give me 6 months before the 1st payment of $1000 is due. I had asked for 18 months. These will be no interest.
If the bad units were removed and newer units replaced them, they would rent for $625 or more a month.
The house fixed up would easily sell for $80k - $110k. It is a large home with a basement and a huge carport/patio.
Please let me know what you might do with this deal and if you think it should be “sweeter”?
Thanks in advance for your thoughts.
First let me start this off by saying I have not completed a deal such as this but I have analyzed many and see a few things in your description so thought I would chime in. I am sure others will jump in so anyone please feel free to correct me…
The first thing that jumps at me is do you have the capital to handle a project like this (either on your own or with backers). It is clear from what you mention that you are looking at a potential major rehab on the stick built while also having the demo and replacement of almost half of the mobiles… all while only have “POSSIBLY” one paying tenant. This tells me that you are looking at a lot of up front money and a potential long wait on return.
Not trying to discourage because the whole “possible” cracked foundation could be a major silver lining as I have been in that industry and unless there is actually a level change between the different sections of the crack then you are looking at what appears as a big fix that is actually not nearly as big (hint: run off competitors and give you a potential negotiating tactic). Now if there is shifting and a section has actually lowered then you might be better just tearing the house down.
Of course this is but one part of this deal and each piece needs to be viewed on its on merit. I will not go into what is needed getting both tenants and homes into this park as that is something that you should know going in (or you should stay away from this anyway, no offense intended).
It appears that the owner is willing and if not desperate, close. But the back taxes concern me, if those have been neglected then what else has also been neglected? I would dig hard to make sure you find any other issues.
That is just my two cents worth so take it for whats its worth…
Jad
aka
OSUPSYCHO
Thank you for taking time to give me your thoughts. All thoughts are appreciated. Let me address some of your comments.
Yes, I believe the seller is desperate and there is much deferred maintenance. The Seller obtained this park due to the death of a family member. The prior owner was ill and did not maintain the park for the last few years. The new owner is not skilled at this type of ownership.
As for the abundance of cash, yes you are on the mark. This will require much cash. I think I could get the cash to turn the park around. Yet, I was also thinking of seeing what I could sell this park for and if so, what it might be worth.
I think the house will also require much work…roof, etc. I am not as concerned about the crack as I do not feel the settlement at this time. The home will require paint, ceiling work, possible water damage that yet is unseen, carpeting, removal of trash… a project for sure.
Any ideas what this deal might be valued at and who might want to purchase it? Once this park is corrected, It will be a good value in a decent neighborhood.
Sandi
FL, I agree with everything Jad has stated. I would add this. Your thoughts of selling the park seem pretty unrealistic unless and until you make it a producer. Financing is tough to come by for moneymaking properties now. Make the financing assumable with seller. Also, a Lease with option may make some sense pre-pay lease payments to give seller $$ for back taxes and assurance that you are for real.
It doesn’t sound to me that you view this property as a keeper - maybe you should work on finding a buyer who is looking for such a project and negotiate a finders fee.
Is the house severable from the property and based on the terms of the loan(s)? I would be looking to fix it, sever it and sell ASAP, leaving a respectably low balance owed on the park.
John Hyre
Hi Shawn and John,
Good ideas. I was not thinking of keeping this park, you are right. I was thinking of getting a finders fee, but if I use John’s idea, it might be a keeper - as then the holding costs would be low enough to slowly add new units as money becomes available.
Thanks for the good ideas. If there are any others out there, I look forward to learning of them.
Have a great day.
Sandi
Sandy,
Is there some way you can find out about the well/septic system issue before you make any decisions? Can the owner find any drawings of the park? Does the city have it on file? I would most likely start with that issue; it can either make or break a deal.
HI Ellen,
Thanks for your thoughts. I will check with the town tomorrow. The owner claims to know nothing about the park. If I have to hook up to city water and sewer would that kill the deal in your eyes?
I think she will take $10-$12k a lot plus the house for the deal. And I know I can get her to finance it with good terms.
Sandi
Anytime an owner tells you “they know nothing about the park” they are telling you that all maintenance and problems have been deferred to you. This is the “bigger fool” theory of selling.
You can’t run a park without running into problems. Ignoring them until it sells may be this owner’s idea of an exit strategy but it is one you cannot accept. You may find that you can do the due diligence on these issues but you better be paid for it because you will miss some issues (we all do) and they will cost you money down the road. By then the ignorant park seller will be long gone and living happily on your money.
Any time you hear a park owner say “you can”… do this or that you are in trouble. You can assume they are setting you up to overpay. If “you can” then they should have.
Tony