We are looking at a park that came into our pipeline that is far from what we are looking for and I wanted to get some opinions from the forum. This is a Mom & Pop deal where Pop died a few years ago and Mom & Daughter have no clue on how to be landlords. They are basically desperate to put it behind them. It consists of 2 small parks that are within about a mile of one another. The metro area is very good and both parks seem to have fairly good locations.
Occ: 23 (all tenant owned)
Lot Rent: $75
Vacant small 2 unit commercial bldg
Lot Rent: $75
2 Rented SFHs at $450/mo
Both parks have access to city water/sewer at the street. Another slightly redeeming thing is that Pop was a professional septic installer. Market rents in this area run between $200-$250. One of the largely damaging things about this park is that since Mom & Daughter took over, mostly everyone has decided to stop paying.
My initial offer was accepted over the phone (to my surprise) at $225k, 5-10% down, interest only for some period of years (yet to be determined), fully ammotized over 25-30, 5% interest. The seller and I have set a day to meet next week and she will be signing the contract then. My question is this. On the front end, would this deal excite anyone enough to tie it up and start the diligence process on it?
Based solely on the number crunching, it comes out currently at around $270k value, but what bothers me is “mostly everyone has decided to stop paying”.
Perhaps someone far more experienced than I can chime in, but if I went for it, I would lock it down with an option that includes me running the park for 6 to 12 months to get things back on track with payments, instituting new rules, and such.
My share for my services including collecting back rents would be applied to the down payment.This would serve several functions; it would allow the tenants to get to know me, raise the rents, institute the new rules, if only partially, get to know the tenants, make some minor cosmetic improvements and retain some cash cushion for any unforeseen expenses.
CharlesD, my Husband and I purchased a Mom & Pop MHP where both the Father & Mother had passed away (Father first, then Mother several years later and then Heirs ran it for another couple of years) and the Heirs (Family Members) were running it (attempting to).
After we purchased the MHP I remember one of the Tenants telling us that when the Dad became sick the majority of the people stopped paying rent.
Like jd585 I would also be concerned about the following:
"…since Mom & Daughter took over, mostly everyone has decided to stop paying"
My concerns are:
1.) Can the Current Tenant Base even afford the Lot Rent of $75?
2.) Can the Current Tenant Base afford a bump up on the Lot Rent to be between $200-$250?
3.) If the Current Tenant Base cannot afford the current nor future Lot Rent, are you prepared to either buy (and remodel…if need be) the existing Mobile Homes or take the existing Mobile Homes through an Abandoned Mobile Home Procedure?
4.) If you do take over the existing Mobile Homes, will you have the capital to renovate them (if need be) and to pay your Mortgage (if you have one) with little/no cash coming in?
5.) Are both MHPs legally zoned Mobile Home Parks?
6.) How much acreage does each MHP have?
7.) If the density of the MHP is high, I would be concerned with having both Well Water and Septic.
8.) How much would it cost to tie into the City Water & Sewer at the street?
Based on that data, I would personally tie it up under contract. It’s either going to be obviously a huge hit or a total disaster with just some basic due diligence. But I would tie it up before someone else does, as you’ll kick yourself if it turns out to be a huge opportunity and you were too late in tying it up.
I second what Frank said. My only comment would be that I feel you gave too high of price on the front end but I think your terms should help ease that over time and if everything else checks out, there could be a lot of upside.