MHP Offers Over Asking - How Far Do You Go?

Question

Hi all! I'm looking to put an offer in on a park today, but the broker already has several offers over the list price of $275k. He said our offer would need to be significantly over asking to be considered. The numbers on the deal work out up to a sale price of $300k, which is about 10% over asking. Does 10% over seem like too much? I've never offered over list price and would appreciate any feedback, thank you!

Jack Martin · Answer

@Jen Bastian one of the underlying truths in real estate is that you make your money when you buy. As a general rule, you should always base the price you are willing to offer on your underwriting of the park and how you expect it to perform, against the yield you expect to make. If you are comfortable with a lower yield, then you can offer more. If not, stick to your guns. A good idea is never to pay more for a property than you could sell it for. In other words, buy "at or below" market. That way, if you decide you don't want to own it anymore for any reason, you will be able to sell it.

Daniel Ryu · Answer

@Jen Bastian

Sometimes the best deals are the ones you don’t do!

As with everything the more reps you go through the better you will get at underwriting and at deciding what you’re willing to pay.

Thanks for sharing your experience

Daniel Ryu · Answer

@Jen Bastian

1. List price is not as important as the underwriting. Parks are 'mispriced' all the time, though typically they're priced more than their current value.

2. What assumptions need to happen in order for the mobile home park to achieve the returns that you're looking for? How aggressive or conservative are those assumptions?

3. Buyers set pricing, not sellers. So if other willing buyers will pay more, then that's what the price is.

4. If it's an experienced buyer that appears to be "overpaying", likely that buyer is comfortable paying more than it's currently worth because that buyer has a strategy to add value to the park through infill, rent increase, rebilling W/S, etc.

5. Or the buyer(s) may have an alternative reason that makes them comfortable paying more. For example, if the buyer is local and owns other parks nearby, that buyer may be willing to pay more because then they can hire a manager to operate both parks, etc.

6. Ask the broker - will there be rounds of bidding where the seller takes the best offers and asks everyone to resubmit?

7. In this end, if you feel comfortable submitting at list but not above, I'd still submit an offer. Maybe there are other terms you can offer that might make your deal the most attractive. And maybe the other offers are not as solids as the broker thinks.

Charles Kao · Answer

@Jack Martin While I agree with your comments in theory, in reality everybody buying on market deals is generally overpaying to get the property with each property typically setting a new all time high, unless its a property that was priced to high and interest has dropped off. If this were an offmarket deal thats one thing but seller is going for top dollar in most situations.  While I would not advise this in all markets I do let my clients know that certain markets I am comfortable with this because the demand and potential are high.  I have clients that “overpay” based on market comps only to see 1-2 years later that the market has gone way over what they purchased for.  I 100 percent agree however on the principle that if your desired return is met to buy but buying on market is rarely going to result in you not being underwater for the short term.  We bought a property offmarket with still

multiple buyers we projected a conservative 6 percent first year return and due to market dynamics and running the property even more efficient that we expected we closed on the resale of property just under 14 months later with an over 200 percent return to our investors.

The fundamentals of the area were so strong that we reset market rents and our competitors soon followed.

Bill B. · Answer

100% of my bad deals are the deals I walked away from over a few thousand or a few percent. In 10 years that extra few thousand I saved cost me more than $100k each time, closer to $200k.

As far as over or under skiing, it doesn’t matter.  What if they had listed it for $330k and you thought “I’m going to offer 10% under ask @ $300k.” Or they started at $200k and you went crazy and offered 50% over ask.

I’ve bought houses for less than 50% of their initial asking price.  And I’ve offered 50% over ask and not gotten the deal because someone offered more.

Steve Morris · Answer

"Does 10% over seem like too much? I've never offered over list price and would appreciate any feedback, thank you!"

No clue, you have any sales comps?  Do the REAL operating numbers justify the return at that price?

In PDX area, good MHPs at a reasonable price are hard to find.  As long as there are not too many park-owned units, they are very good earners with little turn and low maint, so pretty desirable.

Jen Bastian · Answer

@Daniel Ryu excellent points, thank you. I ended up putting in an offer but the seller went with a cash deal instead. It was a bit of a relief to be honest because my assumptions were pretty aggressive and I’m not sure I would have gotten the return I was targeting at the price the park ended up selling for. It definitely seems to be a strong sellers market still so I’m just going to be patient and wait for for the right one to come along!

Jen Bastian · Answer

@Jack Martin @Kayla Truong thank you both for your thoughts, much appreciated. @Kayla Truong congrats on your winning bid!

Tony Ngo · Answer

I just did the same thing for a small MHP in Altamont,  IL.  It was asking $275k.  6 offers total and we had to go in at $300k to win it.   I'm in my due diligence period now.

MHP Offers Over Asking - How Far Do You Go?

Most Popular Reply