Posted by Tony-VA/NC on April 17, 2003 at 18:10:14:
First I have to say that I respect the way you and Eddie handled the difference of opinions.
Before I get to the topic of this post’s title, I want to respond to your belief that banks are not interested in these smaller parks.
When I bought my park, I shopped several lenders (notice the approach). I shopped them and received several approvals instead of begging for money from one bank (a change of tactic from some of my past bank dealings). I approached small local lenders as well as large national lenders. Both types had similar terms,however like most, I found the local banks to be more flexible.
The banks will want your money in the deal. They are looking at 20% down and the terms I was looking at were 20 year ammortization, 5 year balloon and about an 7.5 - 8% APR.
Eddie and I agree that the deal is made in the terms, not the price. We all agree that the end product must be a reasonable postive cash flow. Seller carry back financing can work many ways depending upon the seller’s needs and wants. Some sellers won’t carry a second, others will. Some will carry a large first if you come up with cash down. Others will consider a Triple Net Lease with Option.
This brings us back to the original post of dealing with the agents to get the info to make a decision on how to approach the seller. I am a fan of the Letter of Intent and find that most agents will submit it. The LOI is not intimidating and non-binding. For the most part, it needs to be written with the Seller’s agent in mind. They need to feel confident in what they are communicating to the seller. For example, few agents have ever actually negotiated a Lease/Option and will be somewhat leary of it. But if the letter of intent explains just how such an arrangment benefits the buyer (and the agent) then the agent and Broker feel more confident with the idea.
Keep plugging away and focus upon obtaining the information you need via independent means.
I credit Scott S (NC) with beating this reality into my head (and for the record, it took more than one beating).
We need not, and should not rely upon the Seller’s info. That info, even if accurate now, will be useless the second we take ownership. The Seller’s info will come later in the negotiations and is more a matter of providing the info that the Lender will want.
For the investor, we want to decide what that park is worth to us Today, based upon the market, the park, the tenants, the homes, the time we wish to commit to this deal, the money we wish to commit to this deal and the profit we need to keep it worth our while.
Try this, create your own value of the park and decide that this is the highest you will pay. Make a lower offer and see what the seller returns with. Based upon the counter you can now begin to theorize what approaches to take. Now would be a reasonable time to request the documentation. This works well in my opinion because now you have the seller motivated to provide you with the info you request so that you can act upon his counter. You sit back calmly while he tries to sell you the park (see the roll change?).