Found a park not far from my house. Inside the city limits of my small town. 60 lots, there is a home on every lot but only 2 homes are occupied. Every home will need to be redone. All older homes, some 12x? but mostly 14x?'s. Park is on city water/sewer and submetered. The owner owns the park free and clear, and has owned it since 1980. Has not raised lot rent in 15 years, but not like it makes a difference with only 2 occupied homes. Anyway, I called him today to ask if he would be interested in selling. He would like to sell because he is getting old, but doesn’t want to sell yet becuse he wants to do some work on the park so it will “bring more money.” A test add got me 7 responses in about 30 minutes time.
BOND WITH HIM. Call him back and set up a lunch or dinner meeting immediately. Let him talk for hours about the story of the park. Convince him that you would really like to take over the trouble of turning the park around – that you’d be really excited over that opportunity. Show him that there’s no benefit in him filling a few lots first, to give you the keys now and let you take the burden off of him. Propose a deal with zero down and you provide the capital to fix up the homes, and then he has no note payment for the first 6 months, then it gradually goes up every 6 months (hopefully to track your fill rate). This sounds like the makings of a classically good deal, so don’t let it get away.
I know you usually advocate pricing the offer based on “what is,” rather than “what could be” so how would you determine the overall offer structure with a nearly empty park? There obviously has to be a point in which you stop increasing the note payment, otherwise you’d eventually be paying for a “full” park only to do all the work to actually fill it yourself. And then there’s also the cost of actually rehabbing all the homes, too.
Thank you for the reply Frank, and triumph beat me to the next question. How would you come to a win win offer that he couldn’t refuse? The owner is only charging $110 lot rent, in an area that averages $250, and less than 15 miles up the road $350-$380. The property assessed at $215,000 last year. I decided to give him the weekend to think about the phone conversation we had, and I plan on calling him back Monday to try and set up a meeting with him.
Find out what the target amount is that he want’s to bring the park up to. You may be surprised to find it is affordable. If not show him what it will cost to get to his desired amount and how long it will take him to get there. The reality is that if he is old he will be completely out of touch with costs associated with rehabbing so don’t be afraid to inflate the numbers to suite your needs.
Then show him how the amount you are willing to pay now is worth more to him than wasting his time trying to increase the value. Show him how much money he is presently losing every year by holding on to it (taxes, maintenance, repairs) and that time is destroying the vacant homes to the point that they will soon be unrepairable.
Convince him that he will likely never do what he wants, it’s simply a pipe dream, and he will likely die before ever selling.
Your other option would be to convince him to lease you the park. Pay him a minimum down payment and monthly amount, with a term and final purchase price he will accept. Convince him you intend to bring the park back to it’s former glory and he may be happy to strike the deal. He probably already knows he is too old to ever accomplish it himself.
I talked to the owner this afternoon and tried to set up a meeting with him. He said it wouldn’t be worth our time, because he wants to much for the park, $2M. He griped for about 15 minutes, explaining how much money it’s costing him, and how much money it will take to turn the park around. I insisted we meet up, and see what we can come up with, and he just isn’t willing to do that right now. Give him a few more weeks, then call back? I’m not ready to give up on this one yet.
My bet is that he’s having seller’s remorse. It’s very common with mom & pop sellers. He is thinking about all the good times he had at the park (I know it sounds corny, but it’s true), of how he planted the oak tree at the entrance with his daughter, how we gets giddy with excitement every month when the rent comes in, etc. He also thinks about how he’ll have nothing to do after the sale, and how he might put it all in a bank and the bank might fail and he’d be bankrupt. He ultimately talks himself into not wanting to sell the park, even after he’s listed it for sale. That’s why he told you the price is rediculous and the park needs a ton of work – he wants you to go away but does not know how to do that and save face. All sellers have some form of remorse, and the best thing you can do is to keep calling him and moving it along. All it takes to shatter the remorse is a broken water pipe or an angry tenant, and he will snap out of it and think “screw this park, I want to sell ASAP”.