Uninhabitable POHs found during DD

I am currently under contract on a small 10-pad park just outside of Madison, Wisconsin. Park has 10 POHs that are being operated as rentals and they are in very rough shape. They’ve been neglected for years and I would argue some are not even safe for habitation due to severe holes in the ceilings, floors, etc.

I initially planned to just gift these homes to the tenants if they are in good standing, but I’ve had some second thoughts about the morality of gifting a home that is “uninhabitable” in my opinion. Other alternative in my eyes is to kick all the tenants out and start fresh by renovating all the homes and bringing in other homes if needed, but not sure I have the time, energy, or capital to tackle that approach currently.

How would you handle this situation?

I would junk the homes. They are probably junk already from what you’re saying. Start fresh.

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I’d get out of the contract if it didn’t make financial sense to bring new homes in. Renovating old junky homes is rarely worth the effort

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Whether to junk or keep used homes comes down to several factors.
What years and sizes are they?
Is it easy to bring in other new/used homes? Some jurisdictions are easier that others regarding filling lots.
Do you have talented workers to do the work?
I bought a park with 20 parks owned homes all in rough shape about 3 years ago.
We kept most of them because they are 90’s 16 wides and double wides. However if they would have been older/smaller homes we would have likely junked more of them.

Your best option would be to get out of the contract. There isn’t really much profit in this park and way too much work.
Plenty of options if you buy but none are cheap, easy or profitable. The one thing to keep in mind is that you have a income as long as you have tenants in the homes. My approach would be dependent on the resale value of the homes once they are repaired. Run the numbers and figure if you could reno one at a time and sell it to cover your costs. Under no circumstances sell them to the present occupants. They will never be responsible home owners. Option two would be to replace them one at a time again assuming there is a market to sell them to break even or make a profit. Do not finance the home sales, buyers need cash or financing of their own.
Your goal is to get rid of all POHs unless your dream is to be a brick and mortar landlord. Do not give away the existing homes as they are. That would be a major financial mistake since the existing residents do not have the social standards necessary to maintain the homes. You need to upgrade your tenant base with all new tenants that will ultimately have pride in ownership and the money to maintain their own homes.

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Buy the park for a low enough price to justify junking the homes. If you end up buying the homes, you are liable for what happens inside them. If somebody falls through the floor, it’s on your dime (or your insurance company). If you can buy the park without ever taking title to the homes, you can continue to charge lot rent for the existing tenants as you replace homes one-by-one as the tenants leave through attrition. I would not take title to the homes then re-title them to the tenants because you could potentially be at fault for selling a junk, unsafe home to somebody.

Depending on how bad the curb appeal is, it would be difficult to sell a brand new home to a high quality tenant if you have junkers next door with people living in squalor inside. Somebody who can afford a nice home wants their neighbors to have nice homes.

What happened with this?

Thanks for all the replies, folks. I went back to the seller to see if he would consider retaining ownership of some of the homes, and just pay me lot rent while he continues to rent them. He wasn’t too excited about this and honestly I don’t love this option either because it doesn’t do much to improve the tenant base and now I’d carry some additional financial risk if the owner decides to stop paying me lot rent all at once. Pretty sure I’ll be dropping this deal. Thanks again.

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Before dropping the deal, lower your price to account for the junkers. After all, many of us are trying to be in the business of only renting lots anyway. If the price reflects lot rent only and you get free homes with it, you can gift the homes or demolish them.