Posted by Philip on January 05, 2005 at 07:06:22:
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Decipher This For Me - Posted by Philip
Posted by Philip on January 04, 2005 at 21:15:51:
The park owner I have been talking to about his small, high vacancy park…sent me the email at the bottom of this post today and I don’t really think I understand it completely. I don’t know what he means by “graduate a payment.”
I also only mentioned L/O to him, not purchase.
I would want to L/O so I could find out all the strengths and weaknesses of this park, and its surrounding area before I bought.
See if you can tell me what exactly he means by the following statement in his email.
He is a commercial RE broker.
His park is overpriced by 50%-100% in my estimation.
Below is his statement when I inquired about lease option.
“My real goal is to sell the park. However with vacancies we have right now it won’t cash flow.”
“I am is a position to graduate a payment as the park occupancy increases. This would give you a positive cash flow from the beginning. When the occupancy levels are high enough you would obtain financing to cash me out.”
Someone translate the jargon for me.
Thanks Philip
I cant find the post you speak of, but - Posted by Philip
Posted by Philip on January 05, 2005 at 23:15:34:
I did not know that l/o was a bad thing to mention.
I will keep your advice in mind as I do not want to work for this guy…only for me, and my future passive income…which all my investments hopefully will become at some point.
I want all the input I can get.
Philip
Re: Decipher This For Me - Posted by Phil Pelletier
Posted by Phil Pelletier on January 05, 2005 at 18:46:34:
I agree with everyone here regarding their intrepretation of the wording. I will go one step further and give my humble opinion regarding the total picture regarding everyone’s motivation:
Broker: He knows he is screwed. He is holding a total loser of a park, dealing with all the management issues the park has, and probably not making any money doing it. He understands the park is only worth a certain multiple of the cashflow each month, and he is willing to structure a deal where he can get away from the park’s management and responsibility and at the same time covering his payment to the lender he is beholden to. He has probably figured out this gentleman who posted the opiginal post, while an intelligent and educated individual, is probably new to this game, but he is so desperate to dump this park, he is willing to “guide” him through the process of developing the place.
The gentleman who posted originally:
Be carefull. The very fact that you talked about a lease option on a piece of commercial investment property may indicate your inexperience in this area. While technically possible, the lease/option, in my opinion, is just not viable for a mobilehome park. To much legal, management and expense exposure for the whole deal. as the previous person very correctly points out, the Owner Finance is very similar to a lease/option, but with one crutial difference: Title. If you Owner Finance the place, the previous owner goes into the first lien position. He gets paid every month, but as far as management, legal and other exposure, he is saved harmless. The new owner is recorded on the title and he bears all the responsibility of creating the cashflow and paying the bills. Depending on the deal he works out with the previous owner, he could endup doing very well, or he could simply become the note holder’s “cashflow bee-itch”, sending the bulk of the money to him each month, with little to nothing left over for himself. Happens all the time in this business. This man needs to watchout that he doesn;t end up on the short end of the cashflow stick in developing this park.
In my opinion, he probably needs to do a zero down, owner finance, zero interest for 24 months. Really dig into this guy. He is hugely motivated to get away from this place. Motivation means profit!
No offense intended to anyone involved. Just calling it like I see it, and suffering the consequences.
Phil Pelletier
Re: Decipher This For Me - Posted by John (OR)
Posted by John (OR) on January 05, 2005 at 11:16:25:
I have no idea if this is over priced or not.
Consider what we do know.
He will set it up so that it is cash flow positive from day one.
He will wait to be cashed out until you can refinance it. If it is over
priced he will have to keep waiting.
So, take him at his word and construct an offer that makes sense to
you. Something that shifts the cash flow risk to him and at the
same time limits what you end up paying him to a percentage of
what you can refinance it for. If you can not get a lender to lend
then he does not get cashed out.
I structured a deal similar to this for a block of condo’s. The
tenants kept me in the deal while I waited for the market to rise.
The developer waited for their cash until the values were there for
a refinance.
Your profits could also be in the homes that are in the park (or
should be in the park) depending on how you get the place sorted.
If there are a lot of vacancies and you fill them with Lonnie deals
(where you carry a note on a discounted purchase).
The key is the person is will to work with you so design the deal so
that it works for you. Remember that you might not recognize a
good deal as you noted so if he is offering something tell him to
explain why you should care. This is also a way to later explain to
him why he might have his assumptions wrong as everything he
has to offer is not going to be to your benefit.
John
Re: Decipher This For Me - Posted by Mike/nc
Posted by Mike/nc on January 05, 2005 at 06:38:43:
Sounds like to me he’s trying to sell you potential. Its up to you to decide if theres enough potential to take the bait.
Re: Decipher This For Me - Posted by Joe C. (AR)
Posted by Joe C. (AR) on January 04, 2005 at 22:57:17:
- He says his goal is to sell (interpret “not lease”)
- When he says he is “in a position to graduate a
payment…” he is offering you seller financing
with a payment low enough in the beginning to give
you a positive cashflow until you fill up the park
enough that other financing is available.
(translate “motivated seller”).
Philip,
I get that you would rather lease for a while, that you are unsure about the commitment, and that you are averse to the risk involved. In spite of that, you should look seriously at some sort of purchase here. Remember there are no cashflow garranties with a lease. What happens if he finances it and it doesn’t work out…he gets it back. What happens if you can’t get financing down the road…he continues to take your payments or he gets it back. What happens if you lease for a while and it doesn’t work out…he gets it back. Owner financing really isn’t much different from a lease as long as the agreement only uses the subject property as collateral.
Potentially you have all the ingredients to put together a killer deal. There are still a lot of details to be worked out to know for sure.
There are comments all over this board about “owning the dirt”. Purchased and run right these can be cash
cows forever. The question you have to ask is, do you believe in yourself enough to take a leap of faith. There is no doubt in my mind that someone with a little knowledge could make money with this situation. There is also no doubt that someone could lose their a** with it. You have to decide which you are.
Just my .02
Joe C. (AR)
Re: Decipher This For Me - Posted by KarenB(FL)
Posted by KarenB(FL) on January 04, 2005 at 21:26:32:
Graduated payments are similar to a 'sliding scale". Presumably the payments would be lower in the beginning while vacancies are high (he said allowing you to cash flow from the beginning) and will go up as you fill the park, until it is full enough that you can finance the park and cash him out.
Remember the rule you will hear over and over on this board: Buy at wholesale. Make your profit when you buy. If he is WAY over priced, it doesn’t matter how he is structuring the payments.
Although I recall a post by Doc(?) stating if you can get 7 years NO interest finaincing your tenants buy it for you! From a newbie who is trying to learn the ropes from this site. Best of luck to you! Karen
Re: Decipher This For Me - Posted by Tony Colella
Posted by Tony Colella on January 04, 2005 at 21:19:25:
Sounds to me like he is willing to make the park cash flow by supressing the payment at first and as the lots are filled the seller will increase the payment until the actual payment is reached.
Tony
Posted in wrong place - Posted by Philip
Posted by Philip on January 06, 2005 at 09:59:42:
I did not know that l/o was a bad thing to mention in this situation.
I will keep your advice in mind as I do not want to work for this guy…only for me, and my future passive income…which all my investments hopefully will become at some point.
I want all the input I can get.
Philip
Operating Statement - Posted by Philip
Posted by Philip on January 05, 2005 at 14:51:06:
I am supposed to get an operating statement in the next 4 or 5 days.
I also want to get back over to the park and talk to tenants.
I really don’t know how to do what you mentioned.
I will just tell him what will work for me and see if he can adjust enough to work with me.
I can adjust some, but not near as much as he will have to!
He has deep pockets and I don’t.
When I get details I will post them.
Thanks very much,
Philip
Can’t eat Potential, but - Posted by Philip
Posted by Philip on January 05, 2005 at 07:10:08:
he may negotiate on price…he will have to if I buy it!
Thanks,
Philip
I want to keep my behind attached,… - Posted by Philip
Posted by Philip on January 05, 2005 at 07:28:07:
I had not thought about a purchase from the point of view that you mention.
If he will seller finance for the right amount of time and lower his sales price…I might be able to do him the favor of removing his headache.
If he expects to get cashed out in a short period of time…OR lock in high interest for TOO long of a time…I am not interested.
He would have to move enough to where he took care of the year end RE tax hit…which I wouldnt have to pay in a lease.
I will bring more details as I have time to due the diligence, get into the park and talk to tenants, talk to septic folks (it has all services except sewer), etc and so forth.
I am least going to investigate and research this one.
Which will may make it the 3rd one.
At some point I will know a bargain.
Joe, you have given advice on this forum ranging from toilets to large transactions and I appreciate that point of view. Now you have even given some psycological advice (risk, fear, which am I?, etc.) and I really appreciate it.
Incidentally I was 2 miles from the AR line yesterday helping wally world with in their new Jane, MO location. They are going to basically install a large liqour store just north of Benton (dry) county…and it will just so happen to have a WM supercenter hooked onto it.
You have a good day down there in the Natural State and I hope you are warmer and dryer than up here.
Philip
Really! - Posted by Philip
Posted by Philip on January 05, 2005 at 07:08:24:
Your right on about the purchase price…regardless of the payment structure.
He would have to have some amazing terms to make up for his retail price.
Thanks,
Philip