Many new tenants from 2016 and 2017

7 Replies

I'm under contract with a park that has mostly new tenants renting park-owned homes with the Option to buy in 10 year time span (10 moved in 2016 and 12 in 2017 which are on 1-year leases), 8 are long time tenants, 6 are vacant homes, and no vacant lots (36 total lots).  The test ad results came in good indicating a demand for affordable housing in this area. So filling vacancies will not be too much problem. 

There's a lot going for this park: City water city sewer, Upside in billing back w/s, raising rents, filling vacancies, and lowering expenses. I know there's a lot more that comes into play on deciding to move forward on a park or not. But my question is: would you walk on this deal because a lot of the tenants being from 2016 and 2017?

Thanks!

@Gulliver R. Not necessarily. The homes could have just been refilled due to circumstances with the old tenants (i.e. financial hardship, divorce, medical issues, etc). Check the applications and condition of the homes (if possible). This will tell you a lot about the tenants and their ability to maintain their residences. Hope that help! 

You should ask the current owner to provide you rent rolls going back at least three years in order to see what the average turnover rate for the property is. Also, talk to local property management companies to see what the average turnover rate is for the market. Next, although the seller may not give the full truth, you should ask them why they are selling the property. Always be leery of sellers packing the rent roll with subpar tenants just to get a higher occupancy. If these newer tenants are consistently paying tenants, then it should be fine.

@Rachel H. I will have inspections on all the homes so that will help. 

@Rob Beardsley that last statement is exactly my biggest fear (phantom high occupancy, then after closing tenants start vacating).

The good news: 

-the test ads performed well- suggesting it wouldn’t be much of a problem to fill vacancies

-seller will give me a certified and notarized copy of the updated detailed rent roll

-these tenants are on year leases that Auto-renew

-I plan on offering to sell the POHs to the current residents for cash

@Gulliver R. If you are happy with what you see on ideally 3 years of rent rolls, then you should be fine. But do insist that the seller provide you with at least 2 years back.

Frank Rolfe uses the metric of 50% of homes you get back.  This is just a guide and probably varies based on market , anything they may have thrown in on the front end screening.  Something to consider for what you may ( or may not ) expect.

This is just one piece of the puzzle.  It doesn't make sense to walk a deal because of one component.  The question itself is irrelevant but understanding the variables that come with the scenario - i.e. being able to turn homes - maintenance and manager .


Typically most what i see are tenants on MTM leases, i don't like an auto renew lease. If the tenants are going to skip they are going to skip and likelihood of collecting anything will be zilch. 

Cert/notarized value should not provide you false sense of security . Even if its legit, doesn't matter if you have normal vacancy. 

Have you tried to run an ad to see if you can sell a home for cash in the market ( with the purchaser knowing it will stay in the park) . That may give you some insight into recognizing the viability of the strategy. There is a good chance the tenants you have as renters right now are going to be your cash buyer ( owner) . 


Were there down payments received or anything like that ? Not looking from the legal aspect but to see if any of these people have more skin in the game than just a  renter... 

@Jack Baczek no, I haven't done test ads for selling the POHs, but I think I'll actually do that. That's a good idea. I've done test ads for rental homes/lease-option and those were a hit.

The tenants on year leases are on a lease-option (they have paid a non-refundable option fee to have to ability to execute the Option to buy the POH later on). They also have put a security deposit down. So they have some skin in the game.

I would not personally take the risk of investing in a community with that many POHs and that many new tenants. Management of the community is going to be intense for the next few years. Tenant turn over will likely be high and selling the homes will likely take many years to accomplish unless it is in a very unique area where people have money or financing to purchase the homes outright.

Upkeep on the homes is going to eat time and money since the majority of tenants will not likely purchase their home..

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