Purchase Price Escrow

A partner and I are about to commence diligence on our first park. So far we have only received a rent roll and basic information. There are 5 POH and associated mortgages. We noticed they are all very new, and have barely paid off any of the balance, so it seems like they all moved in the last month. My worry is that they were brought in to inflate the price of the park temporarily and may move out after a deal closes.

My instinct is to fund a portion (~20%) of the purchase price into escrow, to be released to the seller in 6 to 12 months as long as those tenants are still in good standing in the park. If they move out within that period, I’d get the money back.

Is this something anyone else has experience with or will that idea be a non starter? Thanks.

If I were a seller and you asked me that, I’d tell you to jump in a lake.

As a buyer - I just got my first park under contract yesterday, my biggest fear is everyone leaving, what then? Right? I think your fear is natural. Check the leases, see what they say. Moving homes isnt cheap so I can’t imagine they would just move in to sell the park and then move out.

Also you should expect turnover in rentals. What does your test ad tell you? What’s the demand to fill vacancys in new homes? If all of your due diligence checks out, don’t let the fear of unknown scare you off. (I’m also talking to myself now) :grinning:

Best of luck with your purchase.

Congrats! Yes, that’s a major fear. The thing that irks me is that we had agreed upon a price, were reviewing the contract, when the seller came back and said he had just filled another vacancy and asked for more money, even though they haven’t moved in yet, but he says they will have by the time we close. Thanks for the quick response and good luck with your new park!

When you say associated mortgages, is that to you the buyer (that you will be inheriting as a liability) or mortgages that the current “owners” have in place and there is no seasoning. (this will make a difference say if the home will get yanked if they default depending on the structure)

Either way I think thats a risk and a variable to consider. I don’t think your seller would go for your proposition, you can always ask though but maybe evaluate the whole deal first. I think the deal price overall just needs to reflect this risk and just do a little more digging on the issue and clarity on the situation.

Thanks. What I mean is that the homes were ‘sold’ to the tenants under a RTO program. Most of them just moved in and have made only 1-5 payments on the RTO note (don’t know if any down payment was made, so can’t say how much skin in the game the tenants have). If the test ad performs well and it’s easy to replace tenants that move out, maybe this is less of a risk than I’m making it out to be.

Even under rent to own the owners should have a document signed by both parties outlining the terms and then you can match that up against collections. If they don’t have this then you should treat it as a month to month lease or obtain estoppel letters, and separately make a decision how you want to make these tenants owners if they meet your criteria.

If you own the home and there is strong demand for housing I think the risk is not that great . I saw your comment about move out after the deal closes and thought you were referencing the home. There is always a risk of default and if there is a larger deposit that was paid on the front end that is always better than zip. Like @jhutson see if you can get the agreement to reference or if the owner has any type of screening process and you can see the application results, that could help as well .