Posted by ray@lcorn on December 06, 1999 at 12:36:51:
There are always possibilities, but not always probablities. From the info you have shared, I’m not sure how motivated the seller is, or what your experience level is. Both are factors that must be considered before drawing any conclusions about the deal.
If she is trying to get her affairs in order, which at 95 years old is very likely reason for selling, then you have to figure out a way for her to accomplish her goals that also lets you accomplish yours. In the same vein, if this is your first real estate deal, then you are going to have to jump through some hoops that a more experienced investor has already cleared. I’ve seen many deals put together on less than 10% down, but it is good that you have some substantial funds available to pursue the deal. That alone won’t get you the deal, or cross you out, but be aware that a creative deal is not always a no money proposition.
On it’s face, the deal sounds within the range of reason. By my figures, the gross is around $36,720 before vacancy and collection loss, and with a normal expense factor that would leave plenty on the table to structure a deal around. But that is a “pro forma” analysis, and if you have read any of my responses to other questions, you already know how I feel about valuations based on pro forma numbers… in a word, don’t.
In order to find out if there is a way to structure a deal for both your and the seller’s benefit, you have to know the basic income and expense data, as well as some basic knowledge of the market. The past three years income/expense data would be great, and that is what I always ask for, but you may have to settle for less. My guess is that she won’t have much besides her tax return, and may be skittish about giving you that. If so, ask her to either just give you the schedule that pertains to this property only, or have her tax preparer or bookeeper summarize the information for you. You can explain that the only way you can understand what is being sold is to know how it has operated in the past. You also need to know why there are three vacancies, and how long they have existed. Also, find out what the occupancy of other parks in the area is. If it is a tight market, then there is some upside available that could help you put together a deal. You also need to know if the utilities are being supplied by the park. There is upside there in separately metered utilities if not already done.
Once you have that data in hand, then you can make some determinations about how the property would operate under your ownership. That is where “pro forma” analysis is appropriate to use. Then you can begin to formulate different deal structures that may work for both you and the seller. Keep your eyes and ears open for any other seemingly unimportant details about the seller that may appear while you are talking with her. It is very important that you find her needs.
Give us an update with some more info, and we’ll help you structure the deal.