Posted by Dr. Craig Whisler on April 04, 2002 at 22:17:07:
Posted by Dr. Craig Whisler on April 04, 2002 at 22:17:07:
MHP owner needs advice - Posted by Bryan
Posted by Bryan on March 31, 2002 at 22:03:13:
About sixteen months ago, I bought a MHP, OK it’s a trailer park. I rent out 21 trailers - all park owned. I started investing in houses about 7 years ago and now realize that rental mobile homes are a different animal.
I did not do my due diligence as I should have. After 16 months of working in this park (full-time!), I’m just plain tired and ready to wave the white flag.
The two bright spots of this whole deal is that I have replaced 5 MHs with cheap repos and put section 8 renters in them.
There are many other problems including; drunks, druggies, slackers, dogs, evictions etc. etc. It seems that after I evict one slacker - another one moves in. The condition of the MHs is the largest contributing factor. It seems that if you have dog houses, you’ll attract dogs.
The previous owner provided most of the financing, $200,000 @10% 10 year balloon.
Here is what I’m thinking about doing - going back to the previous owner (we’re on good terms) and renegotiating the deal. Has anyone had any experience in doing this when they become a don’t wanter? - I would like to hear from them.
I’m the type of person who has always believed that a deal is a deal so I really hate to swallow my pride and say to this guy that I think I got a bad deal and am in trouble with this business. Don’t get me wrong, the park looks ALOT better than when he had it.
I’m afraid that if he doesn’t want to renegotiate - the property may go into foreclosure. If I tried to sell it, the price would be too high because I would want to get my money back out of it - which is ALOT about $80,000.
If I let it foreclose - I would drag it out so I can get most of my money back out (I would hate to go this route). I am protected somewhat because I formed a Limited Liability Company when I bought the park.
Any advice from anyone is especially appreciated. But, please don’t advise that I owner finance the trailers because : 1. Previous owner has titles 2. Except for the MHs I replaced - the other ones are junk.
Re: MHP owner needs advice - Posted by DougO(NM)
Posted by DougO(NM) on April 01, 2002 at 08:18:14:
I agree with going back to the original owner and renegotiating the deal…he most likely doesn’t want the place back. Next, you should have the title to those junker MH’s, and that should be part of your negotiation. Whatever funds you’ve given this guy has probably more than paid for them. You need the title to be legally get rid of the things, one way or another. I feel you are in a tough situation, and running the equivalent of the SRO Hotels (Single Room Occupancy found in most major cities. You know, the seedy ones they always show on TV when they want the viewer to know its skid row they are seeing) The 3 major things that need changing, as you already know, are the residents, the homes and the physical plant, in that order. You can’t so that as long as you are renting trailers. You need to either sell them to someone that will fix them up and be proud of them, or get rid of them. Once you start doing this the tennant profile will improve, IF you also start managing who YOU let in the place. No offense, but it disturbs me that you say one slacker is replaced by another after an eviction. You’re in complete control of who gets in. So I don’t understand why another slacker would get to first base! Unfortunatley the folks you’d like to let in won’t want to live there until it starts to get better, and the folks that do live there have no stake in the place getting better, so bottom line, they need to leave, one by one.
I know this can be done, and I also know there is no panacea, it is tough and very frustrating work. I urge you to stick it out and make it work. You’ll be happy you did. It’ll just take a while.
Pride goes before a fall…yak…yak…yak. - Posted by Dr. Craig Whisler CA
Posted by Dr. Craig Whisler CA on April 01, 2002 at 01:20:05:
It is not dishonorable to renegotiate if you find your self in an unsustainable situation. I would ask the former owner to reduce debt to $150k and the interest rate to 5% or 6%. Tell him you are near failing and may have to give it back to him, if he can’t offer you some relief. Be straight with him and hope he respects your honesty.
You probably have an assignment of rents clause in your mortgage or trust deed so you may not be able to just take much of your money back by just collecting the rents and not making payments until it is foreclosed.
Feel the seller out to see how flexible he is willing to be. If he owned and managed it before he will probably understand your position as well as HIS position if you fail. You may be quite ssurprised. He may not want the park back and may offer you some much needed relief just for the asking. How much, except pride, will it cost you to go talk to him?
I am assuming you entered into this deal with no park experience. The seller was very experienced. He knew about the problems of managing this park. That is why he wanted to sell you his problems. Sometimes sellers overreach a little and drive too hard of a bargain. Maybe he will realize that and decide that even though he wouldn’t enjoy giving you this relief, he might enjoy it even less if he has to take the park back and manage it himself while he tries to find another inexperienceed buyer with $80k cash to put down.
As a second line of attack on your problem, but only if the first fails, I would offer him a 25% ownership position in the park for the same relief you asked for in the first paragraph above.
This should reduce your payments to about half of what they are now, giving you some breathing room.
Then either continue doing what works for you by putting in better mobiles and section 8ing them, or better yet follow the advice from the post below to get rid of ALL tenants and get owners in their place. This probably would be the best choice.
It sounds like you are very near burnout as far as managing bottom of the barrel tenants is concerned. Put owners in and you will enjoy life more and probably be able to hold out until the park is both paid off and improved with owner occupants.
If I were giving up a 25% interest, I would try to negotiate some kind of option favorable to you, that would let you buy out the seller’s 25% interest after the other 75% is paid off. Your option should specify seller financing for it too, and be at 5%-6% interest or so.
Since I have been there and done that I can really feel what you are going through.
Good Luck, doc
Re: MHP owner needs advice - Posted by Joe C. (AR)
Posted by Joe C. (AR) on April 01, 2002 at 24:05:34:
I am also a MHP owner (43 spaces) in Little Rock, AR. I can’t tell you about re-negotiating with the previous park owner but I have had a similar experience tenant wise.
While I was in the midst of that experience and ready to throw in the towel, I discovered CREOnline and the MH Forum. In less than one year I’ve completely turned my park around and will have it full by mid summer with quality owner/tenants. I’m actively seeking other parks in that type of condition to purchase because through CREOnline I’ve found some solutions.
I highly recommend that you read Doug O’s four part series on “Turning Trailer Parks into MH Communities” which is found in the “Money Making Ideas” section of CREOnline. follow that up with Ray Alcorn’s “The Dealmaker’s Guide to MH Parks” and Ernest Tew’s " Get Rich Helping Others" and Lonnie Scrugg’s books “Deals on Wheels” and “Making Money with Mobile Homes”.
Ray and Lew’s courses deal with buying and running Mobile Home Parks profitably.
Lonnie’s books deal with selling used mobile homes with seller financing.
The combination of strategies has changed everything for me.
I converted all my rentals to owner/occupied by selling them on notes. This got rid of all the transients. The deadbeats didn’t have the credit or down payment to qualify. I now check credit and ask all potential residents for a criminal history report before they move in. The folks who do qualify are happy because they know I screen the deadbeats out, making living conditions much better, not to mention my life easier.
Ray Alcorn says that what makes Mobile Home Parks good investments is that homes are so big now that they are prohibitively expensive to move, so once you have a tenant’s home in a space it will be there for a while. By making rentals available, we invite that transient element back in, taking away one of our key advantages. By making every tenant a home owner and making them adhere to some strict park rules we get control again and they take better care of the homes and the sites.
All I’m trying to say is before you put your $80k in more jeopardy, study some material on how to properly manage your park. I owned my park for seven years and thought I knew all the answers until I hit the wall and opened my mind to other’s perspectives.
Again, it’s made all the difference in the world for me.
Just my .02
Joe C. (AR)
Re: MHP owner needs advice - Posted by Bryan
Posted by Bryan on April 03, 2002 at 07:43:52:
Thanks for your advice. Actually, I’ve already started changing the profile of the tenants - it is slowly changing. My problem was or is that I would let another slacker in or let the MH stay vacant - those were my choices. It’s difficult to sell a MH to someone when the MH has no heat, 25 plus years old etc. I know - please don’t ask “then why did you buy it then” - I ask myself that question everyday. What’s done is done.
Thank you Dr. Whisler. - Posted by bryan
Posted by bryan on April 03, 2002 at 07:35:00:
Your figures on the park were exactly what I was thinking - $150,000 @ 4% interest. If this were to come true - I would be elated. It’s funny - the last time I spoke with the seller, he said “I’ll work with you if things get tight” - that was the first hint to me that he must know what a tough time I’m having although no payments have been late. Also the first hint that he would possibly renegotiate with me. Thanks for your time Dr. whisler and I always appreciate your postings on this website.