Getting the right price on a mobile home park normally includes some degree of proficiency in the skill called “negotiating”. Webster’s defines “negotiating” as “to obtain or bring about by discussion”. So how do you conduct this “discussion” properly and work with the seller to strike the price that is fair and within your boundaries of making a successful investment? In this Mobile Home Park Mastery podcast, we’re going to examine three important action steps to negotiating like a pro.
Negotiation. It's one of the most misunderstood concepts in American business. And nowhere is it more misunderstood than when negotiating to buy a mobile home park. This is Frank Rolfe, today we're gonna be going over three action steps you need to know to negotiate the acquisition of a mobile home park.
The first one is simple, you can not push people around who don't need you. What do I mean by that? Well, if you read most negotiation books you'll read that what they tell you to do is to put people into a corner to put pressure on them such that they kind of cry uncle and will ultimately give you the price that you seek. But that's not how it works in the mobile home park business. Here is why. Most every person you will be negotiating with owns their mobile home park free and clear and has absolutely no financial pressure at all. So if you think you can push somebody into a corner and say, "Hey, take it or leave it, here's my best deal," and get them to say, "Oh gosh, oh please don't walk out of the room, I'll take your price," you're in the wrong line of work, because mobile home park owners if they're one thing it's they're never under financial pressure.
Now, they can be under other types of pressure. We've bought a lot of mobile home parks from people who have health issues, marriage issues, buy them from estates. But typically, once again, it's not really a money pressure, it's more of a time pressure. And if you try and push them around and bully them on pricing they're just not going to work with you. That's why we've long been advocates of what's called win/win negotiating, which it's easiest to define if you look at its corollary, win/lose negotiation and why that does not work.
In win/lose negotiation once party is always unhappy with the ultimate deal. You always have the happy party and the unhappy party. And that's why it's called win/lose. Typically in those kind of deals what happens is the person is concerned that the buyer or the seller will go with somebody else, so they're concerned about time pressure, coupled with the fact they've got some kind of financial thing going on; they can't make their mortgage payment, they've got a big tax bill that comes due, whatever the case may be. So backed into a corner, the savvy buyer or savvy seller under the win/lose negotiation style pushes the other party to a position they don't wanna be in, resulting in a price that's either too high or too low.
However, when you work with people who don't need you, people who already have the property with no debt on it, no encumbrance, plenty of cash to pay the tax, it's an entirely different playing field. So if you're gonna buy mobile home parks the first thing you need to do is throw away every single book you ever read, every single thought you ever memorized from one of those win/lose negotiation books, because it's simply not going to work. If you read Donald Trump's book, The Art of the Deal, that's a sample of a win/lose negotiation book, and there's many, many, many other books that are similar. They're perfectly factual and great reads and I've read all of them, and in certain applications, like if you're buying a mobile home park from a bank in distress as REO property, then they're very, very great points. But for the average seller of the mobile home park, for the average mom and pop out there, those points will not be applicable. So you need to abandon any dreams you have of win/lose negotiation, because win/win negotiation is really where it's all at in the mobile home park industry.
The next action point is you need to start thinking not as the buyer but as the seller. In fact, you need to give yourself a promotion, you need to start working for the seller, because sellers respond very well to what we call consultative negotiating. Now, what is consultative negotiating? What a strange name. What could that possibly mean? What it means is if you have a seller who's trying to sell a property and they're trying to get the best price they can, although hopefully trying to be fair about it, it throws them completely off guard when you see things through their viewpoint and not yours.
Most sellers are used to the buyer being completely one sided. All they wanna do is buy the property for as little as they can, and to get there they'll manipulate every fact possible. They'll make bolt statements of things that are broken, which really aren't. They'll come up with all kinds of excuses why the property is worth less than it really is. But when you take a consultative approach, when you put on that, "Hey, I'm an employee of the seller," hat. What it means is you don't lie to them, you don't tell them, "You're sewer lines are shot," when, in fact, the tests show that the sewer lines are fine.
Instead, what you do is you constantly give them the facts, you give them three bids, or cost, to fix things that need to be fixed, and you act as though you're really more than just a buyer, you're an agent for them. In many ways, what you're doing is you're taking that important step that the broker was supposed to be doing. And instead of the broker doing the homework and figuring out, "Oh, we got these potholes, we have these dead trees, and here's what we're looking like as far as cost to fix them." You do that work for them. So you're really doing what a broker really should be doing. And your reward for doing that is that mom and pop are going to really like you and appreciate you and think you're totally telling them the truth, and they'll definitely see things your way, because they're gonna realize that not only are you a great person, but the next buyer who's intelligent will also come up with the same issues. So it's very, very important to always pretend you have nothing else to be working for the seller, to be seeing things their way.
We had a situation a while back of a park that had a lot of water line issues. Now, we could have told the seller, "Hey, we've gotta go out there and replace all of your water lines." And thrown out just some kind of made-up number, like it's gonna cost $300,000 to replace them, so we need a discount of $300,000 off the price. That would have been the easy approach, but would that have been a successful approach. Instead, what we did is we actually had a company come out called American Leak Detection, check the water lines, identify where each of the leaks were and how large the leaks were. Then we got three bids from plumbers showing what it would cost to fix those water lines. And we presented the seller with the situation. Number one, the study from American Leak Detection and where the leaks were. Number two, three bids and going with the low bid, what exactly it would cost to fix those leaks.
Given that evidence, the seller was willing to drop the price, because obviously not only had we, A, done a lot of work. B, the next intelligent buyer would do the same. And number C, they wanted to get those water leaks fixed because if the deal didn't close they still wanted to get them fixed. And taking that little extra effort is so very important in getting the seller to trust what you're telling them.
Remember that when people want to negotiate or renegotiate a price, what they're really asking you to do is to lower your standards. You're gonna have to accept things you didn't think in the first place. You thought the property was worth X, now the buyer's coming back to you wanting you to readjust that down to why. And that's tough for many people to accept. But it's extremely tough when you don't show them any scientific proof or reason why you're asking for the discount. The better method is to show them exactly why you are asking for the discount, because then if they believe you and your statement then they're more apt to not only, A, lower the price, but, B, be able to rationalize that to other people.
Most people that sell mobile home parks still answer to others. They've got the spouse, they've got kids, they've got friends, they've got their tax advisor, their attorney. They've got to rationalize to them why they make certain moves. And when they can go to them, when the attorney says, "Gosh, I can't believe, Bob, you lowered the price by 100 grand. Are you crazy?" And Bob answers, "No, actually 100 thousand's completely reasonable. They did three bids to those probably with the sewer line, and 100 thousand was the lowest, which was still a really good deal because the highest bid was 200 thousand." That's the kind of information the people need.
There was a study done on people and the way they look at products a while back. And they found that most people make very irrational purchases, they do it basically based just on feelings. But then they try and rationalize why they did it. So rather than take the rational avenue, they instead do an irrational avenue, and then take a lot of work into rationalizing why they bought that car, why they bought that bed, why they chose that vacation spot. They chose it because they saw the photos of how great it looked. But then they had to rationalize why. So they read up and said, "Well, it's because it's economically priced and the weather's great." And those kind of arguments. It's the same with mom and pop when they go to sell their mobile home park. If you want them to lower the price, if you want them to carry paper, all these items must be attached to a very rational argument that they can then tell the other people who were in the decision-making process or at least in the general loop of getting the deal done.
Finally, the third action step is just to always remember that you can not go backwards when negotiating to buy a mobile home park. Now what the heck am I talking about going backwards? Why would you want to throw your negotiation car in reverse? Well, here's what happens to a lot of people; let's assume you've run the numbers and that mobile home park is worth 500 thousand dollars, that's the price you need to make that a good buy. So what do they do? Well, if they go to mom and pop and they say, "Hey, I'll buy your mobile home park for 500 thousand dollars," mom and pop are always gonna counter back with a higher number. They're gonna come back and say, "Well, I won't do 500, but I'll do 575." And now you're trapped. You're in a bad position. You can say, "Well, no, I'm firm at 500," which really upsets people. Or you can agree to 575, but now you've overpaid for the property.
Always remember that when you negotiate you always wanna go in, if you're the buyer, with a lower price than you're willing to pay. And obviously, if you're a seller, with a higher price than you're willing to except, because humans, particularly Americans, love to negotiate. Now, in some countries it's even worse then our country. There are some countries where every product out there is negotiable. They go to the grocery store and they negotiate the price of every single item. We can't do that in America very easily the way we're set up. I can't fathom going into the Safeway store and saying, "Hey, this box of Ritz crackers is marked $1.49. I'll give you .89." The clerk just would tell you, "No, I'm sorry sir, go put it back." And even the manager of the store would probably tell you to get out.
So, we don't do a lot of negotiating in the U.S., but real estate is one item that most people are fully prepared to negotiate on. So when you give a price it better leave a lot of room for the other party to raise the price. It's a pretty easy concept. Yes, many, many people make the terrible mistake of throwing out their initial price too high. I think they do that because of fear of rejection. So they're afraid that if they throw out a price that's a little lower than what they wanna pay that probably mom and pop might say, "No, I don't wanna do it at that price. You're crazy. Get out of here." So they'll go in with a price that's too high, then they'll find they can't go backwards.
Now, if you're listening to this podcast recording I assume you like to watch and listen to different things and explore and learn about things. So if you haven't seen it I'd like you to go watch two television shows, both on the History Channel. One is called Pawn Stars, the other is called American Pickers. They're both fairly popular shows. A lot of people are into antiques and odd items and like to hear the history of them.
But the reason you should watch those shows is they are a constant continuum of nothing but negotiation. And on those shows you'll see, proven over and over again, you never go in with the price you're trying to achieve. You always, as a buyer, go in at a lower amount. Because what's one thing you notice in Pawn Stars and American Pickers? They virtually never, ever agree to what the person says. Even if it's a great deal they want to haggle. The person says, "I've got this baseball card, it's all over Ebay for $1,000 and I want $1,000 for it." They know that's not going to work. Number one, they're gonna offer probably half that, so they can make a profit. But number two, even if it's worth $10,000 they're always gonna negotiate back a higher price, trying to get that little thing called negotiation geared up. So you've got to start watching those two shows, American Pickers and Pawn Stars if you could. They're on at night. They're on in reruns, you can look at them on your cable, I'm sure there's some recording device there where you can watch an old episode. And you'll quickly see that you can't go backwards, you've got to play the game. You've got to start off low, let the person counter, and then you come up.
In fact, we've learned over the last two decades if you give a seller the price they're asking, let's just say that mom and pop have priced their mobile home park at 725 thousand dollars. If I call up mom and pop and say, "Hey, I'll take it. I'm sending you a contract for 725 thousand dollars." Those deals always go bad. That's because mom and pop feel that they've under priced it or you would not accept their price. So what they'll typically do is when you send the contract in for 725, realizing they must have under priced it, why would you agree to it, they'll now counter it at a higher price by claiming it did not include things. Normally, it did not include the park owned homes. Or maybe it didn't include the land next door. They'll come up with some reason to come back at you at a higher price because that's how it's played in America. You had this thing called negotiation, you've gotta play the game.
So, what should you do instead, if you think the property is worth 725, never, ever offer 725. You might offer 650, let them counter back to you. They might counter back to you at 750, and in the end you end up maybe settling at 725 or maybe a little less. But it's that very act of going back and forth that's so vital to the seller believing they actually got a good price. Don't deny them their God given right to negotiate. And since you know they're going to negotiate, never set a price that is your maximum on your offer, because, again, you can't go backwards. You can't offer 500 and then they counter with, "How about 550?" And you say, "Well, how about 450?" No. That has to come on the front end. Four fifty on the offer, they counter at 550, and then you settle at 500.
It is literally a game and some people get annoyed, everyone can't just be totally honest and say, "Hey, here's my best price." Obviously, some car manufactures are now trying to do that. Tesla, for example, tries to show you, "Here's our price. We don't negotiate. Take it or leave it." But for the 99.999% of every other product in America that's a big ticket item negotiation is the norm. And as a result, you've got to play by the rules of the game.
So again, this is Frank Rolfe of Mobile Home Mastery. I hope you enjoyed these three action steps to negotiating a mobile home park to purchase. On our next installment we'll be doing the three action steps for due diligence. Hope you enjoyed this podcast and we'll talk to you again soon.