Looking at park, Need advice - Posted by roundhouse

Posted by Doris - Va. on July 17, 2001 at 19:46:24:

Roundhouse - Hi -

I just went through the exact same thing with a woman owner and her realtor.

The asking price on this small 21 space park and tiny SFH plus 6 acres of undeveloped land was originally 425,000. Been on the market for three years and realtor told us we could probably get it for 375,000.

After initial due diligence - using a capitization rate of 15% as major conversion of old septic system is needed plus upgrade of homes etc. - we came up with a value of about 260,000 and would offer 240,000.

The park by itself only valued out at 160,000. The other hundred thousand was the 6 ac. tract. That is being generous as well since mound and peat systems will be needed by developer on all but two lots of the eight zoned SFH lots on the tract.

Where these people got 3 to 4 hundred thousand is beyond me and my partner to comprehend.

I like the plan Ray Alcorn laid out for dealing with this type of situation.

In our particular case, we plan to look elsewhere.


Looking at park, Need advice - Posted by roundhouse

Posted by roundhouse on July 16, 2001 at 18:53:07:

Looking at a park, heres the info I got from the agent.

45 spaces, 22 occupied @ $125 mo

They arrived at their asking price by taking the “Potential” gross @ $150 mo(even though the rent is $125) for ALL the avail spaces, (not just the ones that are rented).Then added the $$ for the park financed trailers $1173 a mo. and multiplied this by 60 months, deducted $40K for septic repairs, currently using a Lagoon/cesspool pond.I didnt know that was still legal.

Income from 9-1-99to12-31-00 Quote" Cannot give accurate figure, guess its about $75K"
Documented expenses 1999 $452
Documented expenses 2000 $15,022

This is the goofiest thing I have ever seen.
They weren’t even sure how many trailers the park owned and how many the tennants owned.

How do I come up with a figure to offer them, and justify it?

I am not about to buy “potential income”.

They are offering 85% owner financing and are in a hurry to settle an estate, all the relatives live far, far away.

Estimating the current gross income, 22 spaces @ $125 mo X 12mo =$33K yr.
Estimating the expenses ??? They couldnt be 50%, could they?
what figure should I use to be safe? 20%?

What do MHP’s generally sell for relative to the gross income? 6X ?

I am thinking the place is worth $170-180K tops.

I am not new to creative deals, but all my creative deals have been for my primary residences.

Thanks for the help.

Re: Looking at park, Need advice - Posted by Chuck (AZ)

Posted by Chuck (AZ) on July 16, 2001 at 19:59:30:

Your right, this is goofy.

Are they saying they paid $40k to fix the septic, or that they’re allowing $40k for you to fix it?

Why the 60 month thing? Did something major (expendure? lawsuit?) happen within that period? Why did they use that figure in calculating it’s “potential value”?

If the park actually has this “potential”, why are 23 spaces currently empty? That’s a 51% vacancy. It’s not an “upside” until someone makes a effort to fill it. Since it’s going to be you (if you buy it) you should be compensated (via a lower purchase price - like at least 50%) for it.

My point being that if it appraised at $1 million when full, and it has a 50% occupancy, then it’s only worth $500k - all things being equal.

Something tells me the heirs didn’t get anything but this park, and are hoping to cash out big on it. Either that, or the previous owners’ debts were larger than his assets, and it payback time. In any event, the Estate taxes are gonna be murder… which might be an indicator of where their thinking is at, in relation to the price. An outstanding hard-money loan is also a possibility.

Here’s what you do…

Tell the agent you want copies of the Operating Statements for the last 3 years, last 5 if possible.

You’d also want a detailed breakdown and cost of all Maintenance done for that same period, a accurate count of how many mobiles are owned by the park, copies of the contracts on each, and a history of each accounts activity.

You’ll also need a historical breakdown of the lot rents for the last 3 years (who paid on time, who was late, who didn’t).

If the park is not owned free and clear (unlikely), you’ll want copies of the contracts on the 1st, 2nd, and 3rd mortgages… as well as details of any outstanding hard money loans.

A recent appraisal of the park would also be nice.

If they can’t or won’t provide these things… walk away.

more info - Posted by Roundhouse

Posted by Roundhouse on July 16, 2001 at 22:49:03:

The 40K is being knocked off their estimated valus of the park.

Heres ver batum off the info they sent me.
" following information pulled from tennants A/R cards and cancelled checks we could find."

“A few tennants were contract purchasers of the MH’s they occupied. These paid a note payment in addition to a lot p[ayment. As far as I know all of these have since defaulted and been repossed.”

,Shady Rest MHP
Monthly paymnts on rent or purchase $1173
potential monthly lot rent 22 lots x$150 =$3300
total potential monthly income $4323
total yearly potential income $%1,876
x 5 years

Gross value $262,000

Spring villa MHP
Monthly payments for rent or purchase $425?
Number of MH’s owned by the park is unclear maybe 3-5

potential monthly lot rent $2780

total potential monthly lot rent $3295
x 12 months
x 5 years
= $197,700
minus possible septic install $40K
grand total $157,700

Shady rest $262,000
Spring villa$157,700
total $421,700

I think its gonna be tough to sell this place.
But thought since it is so goofy and they apparently have no records(wonder what they were telling the IRS?) after a few more weeks/months a good deal might be at hand.

The actual gross is prolly about $30K maybe less.

I will ask about mortgages on the property, didnt think to ask when i was on the phone.

The agent was nice, but if I were an agent I wouldn’t even try to sell a place with so little info.
How can he talk it up to a potential buyer.

Its advertised as a 13% cap, 24% cash on cash return, blah blah blah, all of which is untrue. at their asking price the rents wont even come close to the mortg payment,

Re: more info - Posted by ray@lcorn

Posted by ray@lcorn on July 17, 2001 at 11:30:26:


This is one of those situations where the rules change. While I am normally the one person that will not accept anything less than full operating histories and all the other documentation mentioned above, cases like this call for a different skill set. I would attempt to make the heirs my partners in doing the due diligence.

I would approach the deal this way:

First, I would have the agent set up a meeting, on the property if possible, with either the trustee or executor of the estate, and perhaps a member of the family if one is close by.

At that meeting I would lay out some facts:

  1. The potential numbers do not mean anything. the value of the property is derived from its present income stream. They obviously need help in determining these things, and you can do that for them.

  2. If they will cooperate, I would offer to help construct the actual operating numbers for the property. This can be done through various means, none of which is too difficult (but they don’t know that). Included in the analysis of the property would also be any deferred maintenance items, the status and viability of the existing infrastructure, and the determination of what is actually owned and owed. In short, you’re going to do them a service, because any other buyer is going to have to know these things if they want to get top dollar for the property.

  3. When the work in #2 above is completed, I would commit to make them a fair offer based on the information compiled. Explain that they are under no obligation to accept the offer, but in return for performing such a valuable service you would like to have the opportunity to match any other offers they may receive for a certain time period. (I’d go for a year, and settle for whatever is agreeable, but not less than ninety days.) This works to their benefit as well in that they have a built in competitor to any other buyer.

  4. Since you are doing the work that will ultimately determine the value of the park, then you have grounds to ask the realtor to accept a finder’s fee. If he is as incompetent as it sounds, he’ll agree, because it is obvious that on the work he has done so far no deal will result. Something is always better than nothing.

  5. At this point ask for their agreement to this course of action. If they agree to proceed, then you should prepare a contract (your contract or attorney, not theirs) that reflects those terms together with a clause that states if they don’t accept your offer, then you have right of first refusal to match any other offers within the agreed time period.

This course of action does several things:

First, it puts you and the heirs on the same side in discovering the true operating status of the property.

Second, it takes the realtor out of the picture by insuring him that if a deal results he will get paid.

Third, it establishes control… you will be able to time and temper your offer with knowledge of the situation you will only learn in the process of doing the due diligence, with the assurance that you have the property tied up and it can’t be sold out from under you.

Fourth, the right of first refusal is worth something even if you can’t get the deal bought. The next buyer that comes along will have to deal with you in order to get the property bought. You could wind up being paid to go away.

If they will not agree to that course of action, then another alternative may be a master lease with an option. This would allow you to get control of the property and see what is what and allow them to maximize the value. My preference would be the first course though, because groups of heirs scare me… I like to get them out of the picture as soon as possible because they are so likely to come to a point of stalemate in decision making. The courts are full of partition suits, and I don’t want to be in one.

Above all, think like a dealmaker. Deals are made between people, not attorneys or agents or heirs. No one, absolutely no one, sits down at a closing table without thinking they will be better off when they get up. Get to know the people and the deal, if there is to be one, will form itself.


Re: more info - Posted by Chuck (AZ)

Posted by Chuck (AZ) on July 17, 2001 at 10:55:23:

There’s too many NON-specifics in this deal, and the realtor is making a few assumptions to boot.

Sounds like alot of back-pocket accounting went on to me… the lack of paperwork is very disconcerning.

I’d tell the Realtor that you need the list of things I mentioned in my last post, in order to make a informed decision regarding the property… and if they can’t provide it, then your not interested.

This deal is full of snakes, and presently someone else’s problem… don’t make it yours.

I’m walking - Posted by roundhouse

Posted by roundhouse on July 17, 2001 at 17:15:00:

I talked to the agent again today and he couldnt talk about anything but the “potential” revenue.
I must have told him 10 times that current PROVEABLE income was all that mattered to me. That i was not buying a trailer park, i was buying the profit it was making.

I asked him if he was aware that the place was prolly worth less than half the asking price, and he said the heirs had already rejected an offer of $220K, then acted shocked when I mentioned a brand new, empty, 35 space park about 3 hours away asking $185K,35 space seller wants all cash so thats out. so I will keep looking.

Why? - Posted by ray@lcorn

Posted by ray@lcorn on July 17, 2001 at 22:18:47:


Why are you walking? Because of a dumb realtor?

I must have missed something… Let me see if I’ve got this right… you’re going to pass on a park that can be bought for maybe less than $6000 per space… with a motivated seller with several problems you can solve (the realtor is just the first one)… with 85% owner financing… just because the realtor is too dumb to know how to present the property? Do you wait for all the stoplights to turn green before you leave the house?

You didn’t get the message of my earlier post… if you want to make deals then you have to place yourself in a position to be dealt with. The agent is an impediment, so take him out of the loop. Do the footwork… survey the market… establish the upside… learning to combine market knowledge and deal structure is how fortunes are made.


P.S. If you still want to pass, email the agents name and telephone number to me at ray@lcorn.com. I’ll pay you a 5% finder’s fee if I or one of my contacts puts a deal together.