I’m looking at a park that has implemented an 11% lot rent increase just within the last 2 months (possibly less time than that). In making an offer, would you go with the new lot rent rate or base your offer off of the old rate?Thanks in advance for your input on this question.
Offer on old, see if they fight you on it, maybe compromise 1/2 way at end?
Good idea. Thanks for the response.
I’d pretty much guarantee they’d fight you on an offer based on the old rate (though, perhaps you might get super lucky…).I’d also suggest putting some weight on the other variables too - market, upside left in rent, upside left in cutting expenses, etc. A ridiculously strong market like DFW or somewhere around MN/WI would make a big difference compared to some mediocre market with generally poor tenants. Generally, though, a rent increase that recent suggests you’re probably going to struggle to make this into a really attractive deal for you.
KG2 - thanks for the information. You’re right. My offer based on the old rate got nowhere. Why does the recent rent increase suggest to you that this deal won’t be that attractive?
Good question, I should have clarified. So you may know this but just in case - F&D, along with most members here, aim for deals that are mostly-stabilized with upside meaning parks without prohibitive vacancy (so no 1/4 full parks) that have upside opportunity. The upside part of it is captured through raising rents, cutting expenses, and/or filling lots. Raising the rent is the most common - and easiest - option.Under-market rents are most often found in parks with unsophisticated owners that haven’t raised the rent in a long time, thus creating the opportunity. If the owner just recently raised the rent, he’s more likely to be at least reasonably competent which makes it harder to get a super attractive deal. Either that, or he just wants to try to suck every single dollar possible out of potential buyers and might find a naive one.That being said, I should emphasize my comment was a generalization and isn’t necessarily true 100% of the time. A recent rent increase doesn’t mean any deal will be inherently bad, just that it’s probably going to be more of a struggle to find a price worthwhile to you.To re-frame the scenario: why is he selling SO soon after a decent sized rent increase? Because he’s trying to suck every ounce of value out of the park ( = not so good deal for you), or because he’s facing a recent tragedy and/or is sick and tired of running the park ( = better deal for you)?
Some owners are able to raise their rent every year–we do. In a past discussion a potential buyer was being encouraged by the bloggers to have the seller raise the rents so the new buyer did not look greedy. Some owners are satisfied with leaving rents the same year after year since they have little debt (calling them unsophisticated ???) The big news is that this site is educating a broad base of base of people with no experience and long term owner. The bad news is that within 7 years??? the bargains will be extinct–since the owner-operators will cash out and let the big boys mess with each other nicely.
Thanks to all for the information and insightful comments.