This issue of the MobileHomeParkStore.com and MHBay.com
Newsletter includes:
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Important updates, news, and new features
of MobileHomeParkStore.com and MHBay.com
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Questions and Answers with Dave
-
Ebook: Mobile Home Park Investing
-
Will Your Next Purchase Contract Be Set
Up to Succeed?, by Dean Thompson, KC Capital
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Tell us what you think and send us your
articles!
In the past 30 days, there
have been over:
78 new mobile home parks listed for sale
on MobileHomeParkStore.com and at least
24 confirmed sales.
I even sold one of my own parks from a
lead from the site within 40 days.
Heres what George had to say:
Hi
Dave,
Could you please take the listing off the site? We have had quite a few
interests in the park and it will be sold to one of those.
Thank you,
George R.
(February 10, 2007- 18 days after
posting on the site)
Selling your Mobile Home Park:
How would you like to try selling your mobile
home park on our site for FREE for 15 days? No further obligation or
strings attached!
Find out more here about this special offer!
Are you seeking employment or
are you searching for employees for your community?
We have an employment section for this
purpose and all listings are FREE!
Find out more about the
Mobile Home Park Employment Section Here!
Are you a manufactured home owner or community owner with homes or
lots for sale or rent?
If so, then you can list your new and
used mobile homes for sale or rent and lots for sale or rent for
FREE at
MHBay.com
Our traffic continues to increase so if you are looking to connect
to potential residents and sell or rent more homes, then place your FREE
listings on
MHBay.com.
Q&A with Dave
Question: Dave, just read
your ebook and found it to be very well done. My question is
in regards to depreciating parks on a 15 year schedule
instead of the 27.5 I'm using. Can I really do it? Can you
point me to other sources of material that support your
statement? Can I begin using a 15 schedule on property that
been on the 27.5 schedule? Thanks, Gary
Answer: Gary,
Thanks for the comments on the book and I am glad you found it useful.
Here is a link to publication 946 from the IRS - go to page 31 to the section on
15 year property or page 95 to the section on Land Improvements. This is
where I get my basis for depreciating water, sewer, electric and gas lines over
15 years. Also, roads, sidewalks, fences & shrubs.
http://www.irs.gov/pub/irs-pdf/p946.pdf
As far as your other question, go to page 13 of this same publication and you
will find the answers.
Dave
Question: Hi Dave, This is S. Gill. Thanks a
lot for answering my questions to buy a mobile home park. I am looking each and
every day for a good park. Please answer my following questions:
--All parks I like have septic and well. Very few parks have city water and
sewerage - How risky is to buy a park with septic and well.
--One park I liked has 2 large septic tanks and the park has 53 spaces. The
park is built in 1960 and the septic is never upgraded. Please tell me if it is
worth to buy this park.
--What to look in a park with septic and well and how long they last.
--How expensive is to fix a septic and well if it fails.
--Do you think it is good to just ignore the park if it is old and has septic
and well that have never been updated as it could be impending big expense
for a person like me who has no experience.
Thanks, S. Gill
Answer: In most cases it is more risky to buy a
mobile home park or any real estate investment where the only means of water
and city is in the form of well, septic, or private sewer system.
However, this risk can be mitigated if there are city utilities nearby and
it is cost effective to hook up to them.
If there are not city services available then you
MUST hire experts to thoroughly check out the existing systems as well as
review reports and violations with these systems. It may be that
everything is operating as expected currently and may continue to operate
well for several years. I have owned many parks that had private
utilities without too many problems. The park that I did get burned on
with a private sewer system was one in which I did not do my homework/due
diligence like I should have.
So, if the inspections reveal that everything is
working as it should you still need to consider that the time may come in
the future that you will have to drill new wells, replace septics and
drainfields, or replace park owned sewer plants. Before purchasing the
property it would be advisable to look at these potential future costs and
whether or not they will be feasible. For example, if the park is on
septics and drainfields and the drainfields go bad, is there adequate room
on the property to add new drainfields and how far will the sewer lines have
to be extended to reach these new drainfields.
It is still common for many parks to have one or
two lots per septic tank and drainfield and assuming you can get permits and
there is is room to replace these drainfields, this can just be considered a
normal cost($3 - 7K per system). However, as in your question where
there are 2 septics and drainfields to service 53 spaces, the cost to
replace/repair this problem may in the several tens of thousands of dollars,
once again, assuming there is adequate room to do so.
It is usually better to purchase a mobile home park
that has public utilities but I would not ignore parks that do not have
them. You will just have to perform the proper due diligence and
include any potential risks in your negotiations.
Thanks,
Dave
Mobile Home Park Investing E-book!
Written by Dave Reynolds,
MobileHomeParkStore.com, LLC
December 21, 2006
Available
for Instant Download!
-
How I Started in the
Mobile Home Park Business with Credit Cards
-
Why you should invest
in Mobile Home Parks
-
Over 15 strategies to
find Mobile Home Parks to Purchase
-
Valuation of Mobile
Home Parks (with or without park owned homes)
-
A list of over 50 Due
Diligence items
-
Powerful ways to
Increase the Value of your Mobile Home Park
-
Financing, Insurance,
Management, and much more!
Find out more about the
Mobile Home Park Investing E-book!
Hi Terri,
Thanks again for your time.
By the way, I really liked Dave's ebook, wish I would have had it before
purchasing one of my parks.
Sincerely,
Michael R (January
24, 2007)
Will Your Next Purchase
Contract Be Set Up to Succeed?
By Dean Thompson, Sr. Commercial Loan
Specialist, KC Capital
Timelines Involving Financing —
Pitfalls to avoid and steps to a smoother transaction.
Why are so many purchase contracts
for income-producing properties set up to create timing
anxiety, which ultimately risks a failed transaction?
I have seen both seasoned professionals and first-time
investors unknowingly create conflicting deadlines in
regards to key contract dates involving a Financing
Contingency. When deadlines conflict, the entire
process of purchasing a property can become overly
stressful and costly for all parties involved, including
negotiating for an extension or possibly losing earnest
money, third party costs, or even legal ramification for
breach of contract. This often leads to a “blame
game” of sorts as to who is responsible for delays or
failures.
With that in mind, have you ever had
a contract that required an extension? Could it
have been prevented? To find the answer, it helps
for the buyer, seller, agents, and lender to consider
all of the steps being exercised in a contract, before
outlining the deadlines. Here are some common
ones that most transactions have:
• seller provides full property
operating data
• buyer site inspection
• title research and commitment
• loan application submission
• lender initial review
• issuance of a ‘conditional pre
approval’
• buyer submits funds for third party
costs
• ordering third party reports
• completing third party reports
• securing insurance coverage
• submit loan application support
documentation
After these steps comes:
• final underwriting
• issuance of final approval
• meeting final conditions for
closing
• drafting closing documents
• actually setting appointments to
sign and return documents for funding
Knowing that all of these steps are
taking place and that they each have timelines attached
to them, buyers, sellers, and agents should ask
themselves: do the contract timelines properly reflect
procedures that all parties can realistically complete
in the time allotted?
Case Study: John’s Story
John’s purchase contract is
written for 60 days. Within the contract, he is
given 15 days for due diligence (his site inspection,
gathering operating data, etc.). He then plans to
apply for a loan in the week following receipt of his
due diligence items, as he does not want to go through
loan expenses if his due diligence reveals unwanted
property issues. As a part of the contract, he
has negotiated with the seller to have the Financing
Contingency expire 45 days after the contract’s start
date.
This deal is almost sure to need
an extension, or at the very least, present a very
stressful 60 days for John. Why?
First, as his timetable suggests,
John will actually submit full application for his
financing as far as 20-25 days into the contract.
However, if he does apply this far in, only 35 days
remain in the contract for closing and funding.
In a commercial transaction
involving financing, does 35 days realistically allow
enough time for the steps listed above to be completed?
Do a quick exercise and review the items remaining on
the lists above by adding timetables for each to be
completed, and calculate how many days you think John
may actually need to complete this transaction.
Most commercial loan transactions
typically take 45-55 days from start to finish.
With this in mind, John’s contract expires 10 - 20 days
prior to completion of his financing, and his Financing
Contingency expires 20 to 25 days after he first submits
his loan application. In addition, these timing
issues will surely be compounded with unforeseen delays
common to commercial transactions, for such things as
insurance underwriting, completing title work, etc....
This scenario is easy to avoid,
but takes place all the time.
First Steps to Cohesive, Smooth
Transactions
1. Talk to a mortgage banker/lender
to determine some typical loan application timelines for
the property type, size, location, and loan terms you
are seeking.
2. Before signing the contract,
create a side-by-side timeline showing both contract and
financing deadlines clearly labeled, and see how they
match up. (Start the financing timeline on the
date that the full initial application is delivered to
the lender with the expense deposit and/or application
fees.) Also, did you remember to allow for an
unforeseen events, holidays, etc...
3. Deadlines for financing and
closing should always take into account the buyer’s
actual receipt of property information for either due
diligence or the loan application. In an example
where the typical loan application timeline is 45-55
days, set the contracts expiration date for 60 days
following receipt of full and proper operating data from
the seller. Truly, there is no reason to begin a
financing contingency without the property data, because
it is required for both the loan underwriting and the
appraiser. So, if the contract is signed on the
1st, and the seller takes 11 days to provide the
requested property data (i.e. rent roll, operating
statement, copies of leases), the contract timing, in
essence, begins on the 12th day.
4. Sometimes, updated property data
is needed throughout the loan process; for example, a
rent roll that may have become outdated. Sellers can
prevent delays in financing by being aware of this
upfront and preparing to update and turn over any
information immediately upon request.
Remember, a commercial mortgage for
investment property will many times place larger
emphasis on the property for financing approval than the
buyer(s). When the dead lines within a contract do not
allow enough time for this data to be collected,
delivered, and reviewed, the door is open to a failed or
delayed purchase, along with possible costly monetary
losses or legal issues.
Avoid these pitfalls by understanding
how the loan process contract deadlines can work
together, and you will set the stage for a smoother
transaction.
Contact Dean at (512) 901-9110 or
dthompson@kccapital.com
Tell us what you think!
We'd love to hear what you think of this issue!
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Your feedback matters to us!
Until Next Time!
Dave Reynolds
MobileHomeParkStore.com
18923 Highway 65
Cedaredge, CO 81413
PH: 800-950-1364
FX: 970-856-4883
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