Experiences with Birch Realty - Posted by Eric

import · April 15, 2003, 2:49pm

Posted by Tony-VA/NC on April 17, 2003 at 18:10:14:

Hey Lyal,

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?).

Tony

import · April 15, 2003, 2:49pm

Experiences with Birch Realty - Posted by Eric

Posted by Eric on April 15, 2003 at 14:49:14:

I am curious if anyone here has had experience buying a MHP through Birch Realty.
In the past several months, I have contacted them twice about listings on their site. I had already been to see the parks and was looking for a little more information and some specific numbers prior to making an initial offer. I was not asking for anything close to what I will ask for in Due Diligence later…just some basics. Both times I was met with the same response, we won’t give more information than is on the website but we’d be happy to take your offer right now.
I have bought and sold quite a few commercial and residential properties through many brokers (no MHP’s yet) and have never come across this type of “sales” approach. Usually brokers are all too happy to give whatever information you need…they don’t stonewall you. Why would you make an interested buyer guess at the details and make him either put in a low ball initial offer or none at all? I just don’t get it.
Normally my gut would tell me they are trying to hide the real numbers and I would move on to another deal, but I am trying to keep an open mind with them.
Is this just the way Birch works or is this the norm in this MHP niche?

Thanks
Eric

import · April 16, 2003, 9:07am

Re: Experiences with Birch Realty - Posted by Tony-VA/NC

Posted by Tony-VA/NC on April 16, 2003 at 09:07:08:

I have never done business with this company but do not necessarily find your experience to be unique. I actually believe that this may be a plus for you as an investor.

Think about it. If you can’t get the info easy, neither can anyone else.

I have worked with Lenders when buying their repos and they have operated much like you have depicted in your post.

That is fine. You are not dealing with someone who is emotionally attached to the home (like the seller). All these people want is numbers. With Lender/repo deals, I would drive by the house, walk through it (most had the doors already open or the PM had a key) and then go home and make a low bid that I felt was reasonable and that I could make money with. You won’t get them all but you will get the motivated ones.

It would seem to me that you could do the same with this company.

To be honest, many times you will find that the info realtors and even lenders have about the properties is highly inaccurate (especially in Tennessee Bob’s case involving income property such as parks).

You need to create your own value of the home. Decide what works needs to be done, what holding time/costs will be involved, what you can sell it for, and the profit you need. Do some homework to determine how much is owed in back taxes, liens, and back lot rent. Then work backwards from there. Subtract all that from your sell price (add some room for error) and then send them a nice, low bid. Leave some negotiating room.

Best Wishes,

Tony

import · April 16, 2003, 7:18am

Re: Experiences with Birch Realty - Posted by Tennessee Bob

Posted by Tennessee Bob on April 16, 2003 at 07:18:38:

Eric,
I have had a similar experience with them. I requested some info on a park in West Tennessee. The park was full of rental homes and I wanted ages, sizes and vacancy rates. The spreadsheet did not revel any repair/upkeep costs, so I asked about that also. It took well over a month to get any response, and then, instead of ages and sizes of the homes, they gave me number of bedrooms and bathrooms. The vacancy rates on the spreadsheet they provided was nowhere near the true number. If I went by the spreadsheet the numbers looked great. It seems to me the spreadsheet numbers were adjusted (falsified) to help promote the sale. If they can’t provide me basic info, when it comes down to specific questions it may take up to a year to get the questions answered.

Tennessee Bob

import · April 16, 2003, 11:08am

Lyal, Tony, others, taught me…that - Posted by Philip

Posted by Philip on April 16, 2003 at 11:08:17:

If a realtor or any other seller doesn’t want to dig in and do a lot of documentable “selling” of a property…that means work, time, EXPENSE, for the buyer.
It seems as if the realtors, banks, local governments, individual sellers, …can all be this way about not providing prompt documented facts.
This adds up to time and expense and work for me or whomever.
This attitude is so ingrained in some places that they don’t change until it costs them somehow. I don’t think some can be made to see, and some can.

In a similar vein; I got tired of being put off by the local banks officer. So I started preparing what I wanted HIM to look at, and just dropped it off with word from his secretary that I needed copies of my work in case “Bill” turned me down for the loan, or didnt’ have time to go over it in the near future.

She got on her phone and “Bill” came right out with a big smile! I handed him the folder and told him I have to get home for a work related phone call(true) and left him standing there smiling. Instead of me sitting in a “waiting” area(read stalling and feeling superior area).
His attitude towards me has changed for the better, but I still don’t know ENOUGH DETAILS FROM THE SELLER TO FINISH THE DECESION ON THE DEAL. So from the banker to the seller(realtor or not) many people apparently just dont care much.

Philip

import · April 16, 2003, 9:32am

Re: Experiences with Birch Realty - Posted by EddieMI

Posted by EddieMI on April 16, 2003 at 09:32:00:

I used to work for Birch Realty and I think your way off base here. Whats the difference between a 1973 12x50 or a 1975 10x60? There both old, small homes.

There are a lot of tire-kickers out there who enjoy wasting time. Let me ask you this, did you go drive to the property?

If your a serious buyer, you go drive out there and look at the pride of ownership. Count the number of abandoned looking trailers (some of these rent rolls change dramatically within a month). Count the number of existing trailers in there.

For questions you have, either fax or email a written list of specific questions. Verbal stuff doesn’t cut it in this business. My guess is you tried to do it all verbally. My guess is you were never serious about this park and found an excuse by not getting enuf “information”.

I don’t know why people “wanna figure it out” without a written contract. Get an accepted offer and THEN you have 30 days to kick all the tires you want. ASSUME the broker is telling the truth, then verify. Remember the broker gets all his numbers from the seller. If the numbers are razor thin, you probably wouldnt have done the deal anyhow.

By the way, if this is that park in Humbolt you can buy it for like 28,000 dollars down, but my guess is you never wanted it anyways.

Eddie

import · April 16, 2003, 10:42am

Re: Experiences with Birch Realty - Posted by Tony-VA/NC

Posted by Tony-VA/NC on April 16, 2003 at 10:42:49:

Eddie, I am glad you posted. It is good to see the deal from the realtor’s side of the table. Working effectively with a agent is practically an art form.

But working with Seller’s agents is often difficult and frustrating. As you pointed out, the agent can only provide what they have been given by the Seller. Herein lies the problem. Few of these figures are typically accurate, leading to a much higher price which is compounded by assumed capitalization rates. It can be frustrating for the investor but my feelings (as posted earlier) is that this should be viewed simply as a barrier to entry which limits our competition. We are not the only ones getting this inaccurate info or inflated price.

Where the frustration can begin is we become interested in a property but because agents are involved, our ability to determine seller’s wants vs. needs and motivation is hampered. The techniques we typically use when buying a “Lonnie deal” do not directly apply. They must be adapted to a 3rd party conduit (the agent).

A different path of negotiations must be employed. Eddie is quite right in that we need to determine for ourselves what a property is worth today and what value we think we can take it to. We buy at the today price or lower. Negotiations may take some time.

First we must get into the game. This can be done either through a Letter of Intent (LOI) or a written contract offer.

If we make a written offer, it will be low and in terms that are favorable to us. We will also offer terms that we think the seller is seeking so as to gain his/her interest but at this stage we will likely know very little about their level of motivation.

Once we have the seller’s attention, we have entered the game. We review the seller’s counter of the written offer (or request more details about or LOI). Either way, the game begins.

Investors often feel time is wasted because of pro-forma numbers, low cap rate figures, rental units etc. but that is simply window dressing. I assume the agent and the seller know we are not likely to buy for that (though they sure would appreciate it). If the seller is motivated, they will negotiate. If not, they can sit on the listing until they are.

Get the negotiations rolling and due diligence under way. Utilize what the seller can provide and independently verify as much as possible.

Tax returns for example will be important documents but will not be turned over to the buyer until the negotiations have commenced in good faith.

By determining the “Today price” that allows you to buy this income stream and make some money while attacking the upside potential to make you more money, you can make an offer below this price and negotiate from there (not to exceed that price).

I dislike wasting agents time. I also do not rely upon them for advice or accurate information. They are conduits to the sale. I ask for info, they get it from the seller. It is up to me to ensure that these figures are accurate. It is my money at stake and I must make the decisions based upon verified information.

If the agents promptly provide me the info I request and submit the offers I make, we are working in harmony. Fast closings and faster paychecks result for all involved.

Tony

import · April 16, 2003, 10:41am

Re: Experiences with Birch Realty - Posted by Lyal

Posted by Lyal on April 16, 2003 at 10:41:15:

Eddie,
Typical realtor attitude. I notice you say you “used to” work for them. Sorry but you’re the one who’s off base here. I’m NOT gonna waste my time looking at every listed property. YOU are supposed to do the job of selling, NOT me (or T-Bob). I’m the guy with the wallet here and if you don’t wanna do your job, I’ll go elsewhere. There are plenty of deals out there.
It always amazes me that these guys are too lazy to lick a stamp or drop some pages in a FAX and expect me to do all the work. Kinda like the used car salesman who won’t put his donut down long enough to get me the keys.
One last thing, the reason I don’t ASSUME the realtor is telling the truth is because his mouth is moving… (with apologies to the minority of honest hard-working realtors out there)
Sheesh!!!
Lyal

import · April 16, 2003, 10:07am

Re: Experiences with Birch Realty - Posted by Tennessee Bob

Posted by Tennessee Bob on April 16, 2003 at 10:07:29:

Eddie,
Your right, the park is in Humbolt. Yes I have been in the park at least three times. As for a 10 wide verses a 12 wide, yes they are both old, but a 12 wide will rent/sell before a 10 wide, so there is a big difference!
After waiting several weeks for the people at Birch Realty to get back to me, I decided to go another route. I made a few calls and found out the name of the owner. After talking to the owner, I found out the septic and water system is shared with private residence, but the responsibility of the MHP owner. Also the rent rolls were misstated on Birch Realty?s spreadsheet. As for the rent rolls changing dramatically in one month, that tells me there is a MAJOR problem. When talking to the owner, I asked if they would consider carrying a note. The answer at that time was ABSOLUTLY NOT. The owner wanted to cash out all at once.
As for kicking the tires, before getting it in writing, I always kick first. I can look at the surrounding area competition, check rent rates, and consider sale prices of homes. This allows me to make a preliminary decision if I want to continue the investigation or not. At this point I have not wasted too much of the brokers time or had to pay a lawyer to do up a written contract.
After my preliminary due diligence, I came to the conclusion that the park is priced well over its true value.
I?m not trying to put down this realtor, just telling my personal experience.

Tennessee Bob

import · April 16, 2003, 1:45pm

Re: Experiences with Birch Realty - Posted by Lyal

Posted by Lyal on April 16, 2003 at 13:45:21:

Tony,
Thanks much for this…This is “Small Park Purchase 101” and is timed perfectly. I just started investigating a small (10 spaces) park today and this primer will come in handy.
All the best, Lyal

PS: Your (as usual) well reasoned reply causes me no small embarassment for my shrill, knee-jerk post in reply to Eddie.
SORRY EDDIE!! MEA CULPA

import · April 16, 2003, 3:47pm

Son, your attitude is showing - Posted by RW

Posted by RW on April 16, 2003 at 15:47:48:

and it is the same hue as your crimson neck!!!

import · April 17, 2003, 11:54am

Re: Experiences with Birch Realty - Posted by EddieMI

Posted by EddieMI on April 17, 2003 at 11:54:05:

No need to apoligize Lyal. Thats what this board is for. Brokering MHP’s is definately a tough business, thats why I no longer do it(more profitable to buy them anyways). Just wanted to emphasize to not waste your time before you have an accepted offer in writing, there are too many fruity sellers who are not serious (both listed and unlisted). Usually, you find them early on with high prices, but sometimes they take longer to detect. Most park sellers prices aren’t too negotiable I found out, the price they want is usually close to the “real” price.

To be honest though, with these small parks. There out there to be bought for 10,000 to 30,000 downpayment with owner financing. I personally know of about 4 or 5 that can be bought that way.

I bought a nice 32 unit for essentially 16,000 down. After thinking about it recently, I prefer negotiating on terms instead of price. Just some food for thought as your looking for parks.

import · April 16, 2003, 5:22pm

Re: Experiences with Birch Realty - Posted by Tony-VA/NC

Posted by Tony-VA/NC on April 16, 2003 at 17:22:25:

Hey Lyal,

Glad to hear that you are looking at a park. I will give you a call this weekend. Looking forward to hearing the details.

Tony

import · April 17, 2003, 1:00pm

Re: Son, your attitude is showing - Posted by Lyal

Posted by Lyal on April 17, 2003 at 13:00:54:

Wow, what a well reasoned, enlightening reply!!
If you have a rebuttal to my thoughts maybe you should elucidate it, but no, I’d bet you’re the kind of person who would just rather throw eggs at the neighbor’s house instead of “discussing the issue” when you have differences.
Did you notice that Eddie came back with a nice reply and took no offense?
Lyal

import · April 17, 2003, 2:42pm

Re: Experiences with Birch Realty - Posted by Lyal

Posted by Lyal on April 17, 2003 at 14:42:21:

Eddie,
Thanks to you and Tony for reminding me again that I should type those replies in a word processor and save them until later so I can see how silly they look and just delete them instead of posting them.
Totally agree with your “anti time waste” statement and am a big proponent of "sign-it-up-before-they-change-their-mind approach with due diligence (and much of the negotiation) to come after that. I don’t mind paying a “real” price if the definition is “omething that can give me a positive cash flow from early on with possibility for upside”.
I have not been looking hard for parks but the smaller ones (mom and pop types) seem to be the better targets and I can understand the rationalle for looking for owner financing…banks don’t want to touch them. Larger parks are being gobbled up at low cap rates by the big Corps.
I’m presently looking at a 10 space with a 3BR house place now. I’ll probe the owner financing angle.
All the best, Lyal