Re: What’s wrong with this deal? (long) - Posted by Chuck (AZ)
Posted by Chuck (AZ) on June 30, 2001 at 12:25:35:
I finally went and looked at this park yesterday. Up to this point I’ve been thinking and speaking about it based upon the listed details. I’ve spent the last 24 hours trying to make some sence of the reality of this situtation.
It turns out that the park was built on land owned by a copper mining company, to house their employees. At some point in the past, it went to private ownership. One of the partner’s in that deal, milked it to death, and the other partner had to do a financial jig to save his behind… or so the story goes.
This resulted in a hard money loan of $900k at 14%. The loan is 4 years old according to the owner (more like 14 from the looks of the place), and he’s been making interest-only payments of $10k/mo. for the term of it.
I can assure you that the hard money lender (if indeed he does exists) never saw this park. I later joked to the wife that the best possible use for it, was to put more junk on it.
Actually I was being somewhat serious. One home had lawn chairs hanging in a tree. Another tentant was running a auto-repair service is his yard. One home had all the siding ripped of one side off it. Half of the homes had no skirting. Most of them looked like a strong wind would fold them like a pretzel. Each occupied lot had a vacant lot on either side of it… this had the effect of making the whole park look trashy, instead of just half of it. The mental list I was making during this “tour” kept getting longer and longer. There were actually 2 homes, of the 127 occupied lots, that looked what I would term “decent”.
A hard money loan of $900k at 14%? …with 30 junky mobiles as security? …and a point broker doing the deal? No way, no how. I’d have filed bankruptcy first. The truth behind this is still a mystery to me.
It got worse.
While discussing the details of the park, the owner’s story kept changing. First he didn’t own any of the units (so the listing said). Then he stated on the phone that he owned 30 of them. Then later those 30 were lein’d into the hard money loan. Then later some of those 30 wern’t. Then to top it off, he wanted to keep those 30 for 2 years and pay lot rent on them as “his” rental units… some of them were in a state of repair, all were land-fill material.
While we were talking in his office, a couple of people came in to make payments. The owner had to run out to his truck to get a payment book. There was already one on his desk. Both payments were equal to a month’s lot rent each. Yep, two sets of books. He also admitted to using pocket accounting - the cash goes in one pocket and out the other. It’s safe to say neither hand knew what was going on.
The 70-ish owner didn’t come across as some “Goober”, he was clean shaven, decently dressed, soft spoken and somewhat professional in attitude. His mannerism wasn’t consistant with the pitiful condition of the park. On the surface he appeared to be a comfortably retired gentleman… the kind you’d see at the golf course, not at this dump of a MHP tinkering with junky homes.
He didn’t have a operating statement for the park. In fact he didn’t want to make one for me… “just use the numbers I gave you” and “the expenses have always been the same”, and so on. He also refused to release any of his personal financial info
When it came time to talk numbers these were the choices…
Pay-off the hard money loan, let the owner keep the 30 mobiles paying lot rent on them, and work out the differance.
Lease-option it with $100k down.
Be discrete and run like hell.
The point to all this should be painfully clear. Do your due diliance.
I’m still at a loss to explain this situtation, but I think it safe to say that the IRS is somehow involved. The owner’s wife sounded “too desperate” on the phone during our initial inquiries. IF indeed he’s $900k down on this, it’s a debt he’ll never be able to repay… he won’t live long enough, and won’t make it back fast enough to do so. I pity his wife… she’ll inherit this mess by default when he’s gone.
No hope, no chance, no future.