So you’ve found a great mobile home park that has a desirable location, solid infrastructure, and a lot of upside opportunity in raising rents and filling lots. How do you convince the seller to give you the opportunity to buy it? There are seven key elements to consider in your discussions with the seller.
This is the most powerful force in all of negotiating to buy a mobile home park. It revolves around the simple facts that 1) money is not everything in life and 2) when people like you they will want to help you. If you are an older mom and pop that is winding down their affairs, they are not solely focused on simply getting the highest price for their property. They are equally concerned about who is buying it and if they like that person. This relationship between the buyer and seller is called “bonding”. All the amazing deals that we have seen over the past 20 years – in terms of price and terms – have been the result of “bonding”. The seller is basically saying “even though you are not the highest price, I like you and want you to succeed so I’m O.K. with taking less money in exchange for knowing that I helped you out”. How do you “bond” with the seller? Spend time with them. Whether it’s on the phone or in person, never rush them and always listen to them with sincere interest. Most of our best life lessons came from older sellers who told us what they had learned.
Win/win consultative approach
Always approach any seller in a “win/win consultative” manner. What does that mean? It means that you approach the sale with an attitude of “let’s make this a good deal for both the buyer and seller so everyone is a winner”. It also means that you never enlist “fake” bargaining gimmicks like pretending there are problems with the property that don’t exist, etc. (which is a hallmark of win/lose negotiating). If you devote yourself to fairness, honesty and making sure that the seller gets a good price, the seller will reciprocate.
Obviously, to make any sale compelling, the starting point is the price. So to get the ball rolling, you need to offer a price that is reasonable for the property. That’s not to say that you should ever offer more than it’s worth. And don’t forget that the American concept of negotiating requires you to start low so the seller can counter. But if you’re having trouble getting the seller to commit to selling, sometimes the problem is that you’re being too conservative in your numbers. Remember that the seller is not going “give the property away” no matter how much they like you. Sharpen your pencil and make sure that your pricing deals based on reasonable assumptions. Test your pricing using our Deal Evaluator software and see if you are perhaps being a bit too conservative.
Often the very thing you want is also the very thing the seller needs – and that’s seller financing. In a world of 1% CDs, a 5% interest rate is a huge advantage. If the seller carries the paper, they will receive a first-lien real estate note that pays five times more than they can get from their stock broker, with the added security that they will get the property back if you default (which is a lot better than a ‘junk bond” at some unknown utility company). On top of that, first lien real estate notes have a ready marketplace if they ever want to liquidate. Educate the seller on the options and benefits to seller financing.
Capital gains rates are among the lowest in U.S. history right now, and that alone is a big motivator for many sellers. The future on rates is uncertain (although the terror over Hillary’s potential raising of capital gains tax has been avoided), but it’s still a good time to clamp down on these very low rates. Even if you do not discuss this with the seller, their CPA will. Remember that in 1977, the capital gains tax was nearly 40% (39.875% to be exact), so current rates of around 20% are an incredible bargain.
Sellers are all racing the clock – the biological clock. Time is always your friend in buying properties. Sadly, most deals are fast-tracked when the seller is diagnosed with illness, or the death of a spouse, a divorce or their own death. Even if a seller says “no”, that’s only true of that one moment in time. Two days later, if they are diagnosed with cancer, they may emphatically change to a “yes”. So stay in touch with all sellers on a regular basis, and always be “easy to sell to” which means to always be courteous and respectful of other peoples’ time.
It is very true that a park owner in the south wants to sell in the summer, and the park owner in the north wants to sell in the winter. When it’s 5 degrees out and you are trying to unfreeze the water line on a mobile home, you get an attitude of “screw this, I’m selling”. It’s only human nature, but supported by fact. If the park is in Texas, the best time to get a “I’m selling” response is in the middle of summer when it’s 100 degrees outside.
While getting some owners to sell can be an art form, there is no question that the scales tip in your favor if you utilize these seven axioms.