I am under contract for a park and have just discovered that one person owns exactly half the homes in the park (he rents them out). This is obviously not good and I believe I understand the risks (bargaining power, move the homes out, etc.), but is there anything else I’m missing? One positive I can see is collections for those homes would be really easy.
A couple other things of note - this set-up has been in place for a long time (probably 10+ years as far as I can tell). The majority of the homes he owns are older (70s and 80s) and probably wouldn’t even be able to be moved. I do not know when the last time he has bought a home or if he is trying to buy more. As far as I can tell, he is a good landlord and takes care of his properties. I also know he has in past sold homes to his renters.
I like everything else about the park - city water/sewer, great metro area, close to me, good management already in place, excellent price, etc. So I really do not want to back out of the deal. I’m looking for guidance on how to make it work and some safeguards I can put into place. I want to look at this as a partnership - he probably needs me as much as I need him, right?. But what can I do to protect myself?
You have acknowledged the risks. Few comments. If individual did move out the homes, what would it take, or require for you to get those spaces back occupied? How strong is the market, do people bring in homes? Is there vacancy in the market, where he can go elsewhere, or start his own park. Regardless I would still be cautious as you don’t know how it will play out if he decides to part ways. It has happened.
I wouldn’t look at like he will be needing you. If the deal still works with him yanking the homes absolutely. If it doesn’t work but there is a reasonable path to getting it infilled without this person, that is good. Additionally, I would probably look to have his ownership stake reduced over time? Or asking how much he wants to cash him out. Ie , does he want 5k a house or 20 K a house.
I have heard of utilizing an option to buy on the homes , but don’t know anything from direct experience.
Thx Marvel - appreciate the insight. I don’t think he can move all the homes out - most are too old to move. The market is strong but people wouldn’t bring in their home. We would have to bring new/used homes in. I haven’t spoke to the city yet on starting a new park - I doubt it, but that’s something to definitely look into. I’ll check on that this week.
Does the deal work with half the homes? No. But could they be infilled? Yes, but it would take a lot of time. I’m not sure how to get his ownership stake reduced - buying him out would be probably be too expensive at this point.
Doesn’t have to be that city. Could be surrounding cities. Could be an hour a way. In theory no, but that’s a big bluff to call , I would not. But I think its great that its close by as well . Are there any other upsides on the deal? What is he paying on rent, is that the same as all your TOH? Do you have plans to raise rent? What is the
rent?
From the rent roll, it looks like he’s paying the same lot rent as everyone else. Rent is at $315 and we would increase it some over time, but nothing crazy (no more than $20/year). It is already close to market. There is upside in the water collection - it is individually metered but only being collected at about 70%. It is a collection issue that should be fixable. My biggest concern is not him moving the homes (the homes are old and he lives in the town; it would be an inconvenience to him) but taking a stand against a lot rent increase. I need to meet with him during the due diligence process and get a better feel for the situation.
In the end does it matter if he takes a stand against the Rent increases? If the homes aren’t realistically moved (most likely no other park would take them), then he doesn’t have any more choice about the rent increases than the rest of the tenants. He most likely wouldn’t give up over a 20 increase.
I passed on a deal in Utah because of this. Last week I talked to the guy who bought it and they made buying the homes from the other person a contingency for them. They ended up buying all the investors owned homes and closed.