I am looking at basic smaller park that is almost all POHs. Most of the homes are really quite old, with several from the 1960s, several from the 1970s, and a few from the 2000s. But, the location is not bad, being in the middle of a town of 22,000, close to amenities. Occupancy seems to be 87%.
The lot rent in the area averages $250, and this park is charging total rent averaging $450 on its POHs. But, looking at the prospectus, the repair costs are enormous, like $124 per month per POH, which may be an underestimate. I do not know yet why the repairs are so high. I understand $124 is less than the $200 difference in POH rent and lot rent, but I am not sure $76/month is worth the hassle of handling repairs constantly.
Given the situation, I think the asking price is too high at this time, but is there any way to make a situation like this work? What would you do with all of the old homes?
Let’s assume you could negotiate the purchase price down to the formula you have said. Given that I would not want to manage these as POHs, would you try and sell them all to the tenants? If so, what would the suggestion be? Sell to the tenant for $1000 and hike the lot rent a little? That gets rid of the repair costs on the owner’s end and makes up for the loss of rental profit. Would tenants even be interested in buying such an old home at that price, needing to do maintenance on their own?
Absolutely I would rent credit these (see other topics) to the tenants based on the value of the home.
You should understand each tenants needs as some may not want to own their home, in which case you non renew their lease and find someone who has higher aspirations and responsibilities. For these you would probably have to fix up the home to sell it or sell it as a handyman special.
There are lots of threads on these strategies - find one that fits your goals and your market based on the test ads you were supposed to do.
And yes upon new ownership it’s expected that lot rent gets raised, or utilities are passed on that previously were not.
On homes that are so old and worth very little, isn’t there the risk that reducing the overall payment obligation from the tenant to exchange maintenance obligations from the owner to the tenant gives the tenant the incentive to take the lower payment and simply not do maintenance? Then, the park owner is left with a mobile home that is in worse shape and lower payments to show for it. Also, the park owner is not able to inspect the home once it is owned by the tenant to make sure this is not happening, are they? How does one get comfortable with this issue?
You should get agreement that any repairs you make over a certain amount or related to compliance with Park Rules are added to the balance of the home as part of the rent credit.
The title isn’t transferred until the tenant accumulates enough credits to purchase the home and you maintain control.
The homes have absolute 0 value. Sure you can sell them for 6-8,000 after rehab, but you’ll have 4,000 or so in rehab costs and you have to carry the paper. Remember you’re in the hole with every sale, sure on paper you made a few grand, but you’ll be in the hole from the start on every home as you’ll only be getting $1,500 or so down on every home. Try and handyman special as many as you can.
Yeah, this makes me think there is no real long-term solution for them. The park should be valued solely on lot rent, which has nowhere to go up. The homes should probably be replaced, but it is not possible to get owners to move their own homes in these days. The financials on this park seem more like the price is based on income that should be considered salary for managing all of the maintenance and repairs ongoing in the park every day, rather than an investment.
If you can convince the sellers of this then you can revalue the park properly. It doesn’t hurt to make an offer just below the actual value so you can come up some. What I’ve done is point out that if you cap that income you’re paying big bucks for a home worth zero.
value is 0 on each home
say they are paying 450 in rent currently
and like you said current lot rent is 250 on non park owned
the day you take over your drop a letter on each door stating
Hello, Im the new owner and Guess What! CONGRATULATIONS.
Your monthly Rent CAN GO DOWN. But only if you ACT FAST.
when they call say.
If you are interested in becoming a home owner in our park, I will give you that wonderfull mobile home your living in for Almost FREE!
Heres how it works.
For just $50 per month for 24 months, on top of your $300 per month lot rent you can OWN that home.
Isnt that great! Not only will you save $100 per month ,but you will own your own home. Congratulations.
When would you like to stop by the office and sign the paperwork?
see what I did? ITS WIN WIN, not only did you raise your lot rent but you get rid of the headache.
I bought one park and I had 20 POH that were rented out. I did the above and NOT 1 person said NO Im sorry, I don’t want to not only save money, and I don’t want to own my own place.
I sold everyone one of them in 1 day, and got a LOT RENT RAISE. Plus I know those residents can afford another lot rent raise in the future because they have a track record of paying A LOT MORE ( Get it.)
Troutt, I thought about that but do you not worry that the tenants will take your “deal” and simply not do any maintenance? They will pay less per month and when they want to leave, they will leave you a trailer in very crap condition.
sorry I couldn’t answer question #1 as you don’t have all the info to do so
only #2 is able to be given an answer.
Reason I say that is
the park might be $200k and have 100 lots or something silly.
what is overpriced to your pocket book might be a GRANDSLAM for someone else.
but to semi answer your question as many have also stated. IF the seller has already dissected the park by breaking up the park cost plus the poh’s cost, then you have to ask him how he arrived at that and OR if he is 100% basing his numbers on the rents and treating it like It were an apartment building you have to do the same thing.
or just send him an offer your comfortable with and let him counter. He might just be fishing.
IF you are able to, give him 2 offers.
1 for cash and
1 for him carrying paper. -
don’t be shy , you gotta get the ball rolling and tie it up
ITs free to write an offer to see where he might truly be at.
The worse thing he can say is NO.
I should have started with, your non problem tenants you will do that with.
If you have terrible paying tenants or tenants who already show no appreciation of your property
you do not sell the trailer to.
You evict those and move on
That is exactly what happens when home owners have no skin in the game. At some point in time the homes will all be uninhabitable and you will own an abandoned community. If these homes have not been properly upgraded and maintained over the years they are at the end of their life expectancy already. It’s just a matter of time.
This is why screening tenants is very important. Most people will not even start a rent credit or any type of arrangement with their tenants until they have vetted them for 12 months and can see they reasonably take care of the place.
Insurance companies discriminate against (charge more/ offer less) to park owners with lots of park owned homes AND particularly with lots of Old park owned homes. Pre HUD (June 1976) homes bring the most risk and scrutiny. You can still get insured, but you’ll pay more for less as a general rule.