Purchasing a park- question about deposits on RTO contracts

9 Replies

Hi guys,

I am looking into my next park deal. The current owner is transitioning the POH's into RTO's and has 4 already in place. My question is- wouldnt the deposit's currently held by the owner on these contracts transfer over to the new owner upon sale of the park ( assuming all homes are being transferred)?

TIA

Yes. In your purchase agreement you need to make sure you have language in there clearly stating that all deposits and RTO will transfer to the new owner of the MHP.

I would say no.....it’s like taking over ownership of a house under Land Contract.  It would partly depend on the “value” you are paying for the trailers, if any.  It’s not the same  as deposits on straight rentals.

I would imagine if the price of the trailers that are park owned in included in the sale price, than so should their deposits as the deposits are not their as income but security in case these tenants decide to leave their contracts.

If they aren't included in the price, than the previous owner intends to have property in my park and rent the lots from me, in which case they would be " tenant owned homes" , just that the tenant would be the previous park owner. In which case the deposits would stay with the previous owner.

Question is- which is better?

@Shweta Patel Well, "RTO's" can vary, but typically the "deposit" is not really deposit held for security....it is no refundable, no matter what, much like a down payment. It doesn't really matter what we think anyway, it's what the seller thinks and what you guys can negotiate..

I don't call it a "deposit " on my ownee financing or lease agreement. Deposit implies that it is refundable and it has to be held in a separate account etc. A down payment,  option money,  or first and last month's rent is not refundable and becomes mine immediately. 

@Shweta Patel  

The homes shouldn't be part of the park purchase for a lot of reasons. Think of it as two separate transactions. First you are buying a MHP and the income stream that the park produces. 

Then you also buy the contacts to sell the MHs. That means you would value the contracts kind of like a note, on the Net Present Value of their future cash flows. If you get $290/month in extra cash flow for the next 36 months from one home and want a 10% return for taking on the risk of that contract, buy the home/contact for $9k. You want a 20% return? Pay $7775. 

I don't know the size of this deal, but with RTOs, I'd for sure run the contract by an attorney at least and probably a CPA to ensure you aren't biting into a rotten apple and you get a good idea of how much cash flow is left in each contact if you can't figure it out yourself.

@Shweta Patel If the homes are being transferred upon the sale and the deposits on the contracts are refundable (check the current contracts), then yes the deposits should transfer over to the new owner. Bring this up with your title company and the seller before you close. Hope that helps!