If someone were to ask you, what’s better on a deal — Terms or Price?
One of my biggest lessons learned when getting into MHPs is how to structure deals.
I know they don’t teach this in High School, or Real Estate Clubs for that matter. I nearly lost our first park by not knowing how to structure the deal so that it cash flows from day one. Something to keep in mind is that the projected numbers really are what sellers say. If you expect to have $5,000 a month in rents, you can plan on $4,000.
Remember, the park has to pay its own way or in the long run your likely to default on the park. When the seller is carrying back the note, they expect to be paid. If you fall a few months behind on your mortgage the seller is likely to try get their park back and you lost your down payment and the asset.
One of you key focuses need to be on how much the monthly payment will be. As crazy as this sounds you can see in the 3 examples that it’s possible to pay an extra $150,000 for a park and have a $1,000 lower mortgage payment.
Depending on what you investment goals are (i.e. buy the property, pay it off in time and have all of the cash flow or even refinance down the road it’s crucial to remember how to structure deals.)
I have found that most individuals are attached to how much they can buy a park for as opposed to terms. On the flip side, most owners think the same about the purchase price. This can be of a huge benefit to you. I would personally be happy to pay an extra $50,000 on the purchase price if it gave me a better cushion for long term asset control.