Buying: Negotiate, Structure, & Close
In this module we are going to show you how to negotiate the deal, structure the deal, and buy the deal
- We will be going over all the necessary paperwork
- How to run your own title search and check taxes etc…
- And walk you through the very specific step by step process to use in order to protect yourself and maximize profits
***There are a lot of crucial details here that you need to follow in order to be successful***
This is where most people who don’t know what to do make the most mistakes, which costs them time and money. If you aren’t careful, you can lose your shirt. As with most things, the devil’s in the details!
Now you’ll really see how different mobile home investing is compared to real property.
Okay, let’s dig in…
So at this point, you have marketed to pull in motivated sellers, you have done your research on evaluating the value, baseline, and reversed engineered the numbers, and everything looks good.
So it’s finally time to make an offer and buy this bad boy!
The thing about mobile homes is that you don’t have to be a negotiating expert when making offers. It’s pretty straight forward. I mean, this is a cash business after all. These people are desperate to sell, you have the money that can be handed to them in a matter of hours- all they have to do is sign on the dotted line.
As usual you want to have a maximum allowable offer in mind. You've already established based on your evaluation of the home and reverse engineering the numbers. This will prevent emotions/the heat of the moment from influencing your buying decision.
Of course you don’t want to start out with your max offer. Feel them out first. Start hundreds or even thousands of dollars below what you're willing to pay. Many times these people really need to sell, and the hope of cash in days is enough for them to accept really low offers.
But of course, if they don't, you negotiate the price up to your max offer and make it happen.
There is a very exact science of how this process works that you MUST do in this very specific order so you don't get screwed. There are many moving parts and since you don't close with an attorney or title company, it is vitally important that you follow these steps closely.
Skip just one step, and you could be out hundreds or thousands of dollars, or worst case scenario, the entire deal.
Okay so let’s say you negotiate a deal and both parties agree on the sale. What next?
With mobile homes, we use a bill of sale to put the property under contract (also referred to as "tying up a property").
Remember, this is personal property. So just like with a car, we use a bill of sale. A bill of sale is not mandatory in some states, but trust me, you want this document to CYA (cover your a$$). We are also going to put some very important clauses in this document that will further protect yourself.
Each state has a state issued Bill of Sale, which you can find at your local DMV (Department of Motor Vehicles). It’s always good to review this as a reference point. Your area may require certain info, and you can add that info to your custom bill of sale.
So we want to execute a bill of sale, on the spot, with the seller. Simple contractual law applies.
Here Are The Contracts I Use:
These contracts are written in OUR favor. We use different contracts when we buy and when we sell. That's because we want some contingencies and escape clauses if we're putting a property under contract....but we're under no obligation to give those same contingencies to other buyers who want our properties.
Bill of Sale:
- Both parties' names
- Purchase Price
- Contract date
- Amount of money you put down, if any
- When the full amount of the purchase price is due
We will also include:
- Escape Clauses: Liquidated damages
- Any additional stipulations (taxes up-to-date, condition, no back lot rent, clear title)
The goal here is to tie the property up, for several days, so you can run your own due diligence. There is a lot you need to check on before closing this thing.
Once you have a signed contract, it’s time to get to work.
During this phase, you can start putting the word out to some of your buyers to spark some early interest. You can also continue to verify your market research to ensure that you bought right, remember you still have several days to back out if necessary, with hardly any skin in the game at all.
Check with your local attorney to see if you’re required to put down earnest money. I rarely do. But if the buyer insists, I make the earnest money amount extremely small, because I’m not really sure I can trust them.
If they really insist on a sizable down payment and its a screaming deal, head to your attorneys office. They can open escrow for you for about $200. This will ensure they don’t “take the money and run”.
Okay so you have the signed contract- it's now time to do your due diligence.
The Exact Step By Step Due Diligence Process
- Step 1: Call the park manager!
This is a big one. The park manager always wants to know what is going on in the park. If they get wind that you have “bought” the home and haven’t talked to them, they will immediately get pissed, put up a wall, and think you are trying to do something sneaky behind their back. Not the way to start out your relationship with them!
The park manager has to approve the buyer (which in this case is you). When you’re selling, your buyer has to be approved.
Policies and procedures vary between parks, in terms of the approval process.
Typically they run a credit check and background check, so you will have to fill out paperwork.
Tell them that you are an investor, and that you aren’t looking to live in the home. Some parks do not want rental properties- they want residents to have an “ownership mentality”. So make it clear that you are not renting the home, but instead selling it via payments.
This is a great way to get in very good with the park.
Let them know that you don't want to move the home (if that’s the case). Obviously, they never want investors moving their home out of the park because that messes with their occupancy rate and cash flow.
Then tell them you are planning on fixing up the home to make it look nice which will help maintain the park standards. Once you do that, you’re going to sell the home to a suitable buyer that the park manager first approves (we will be going over this in the module on re-selling your mobile home)
You get the deal, you get to make money, the park gets a nicer home that will increase the value of the park, and you will keep lot rent going!
Also, some parks will be more lenient because you are an investor, and once you do one deal in a park, you never have to re-fill out the paper work (most of the time, at least).
You will have to give them a deposit and first months rent once you close on the home. Its a good idea then to close the deal at the park managers office and sign the new park’s lot lease simultaneously.
Before you close, you’ll want to talk to the park manager to get the “inside scoop” on the home and the sellers. Many times they will give you info about the history of the home which really helps you.
***But the overall biggest reason to go to the park manager first is to make sure the sellers don’t owe any back lot rent!***
More often than not, they will be behind on lot rent. This could be a couple hundred bucks, or it could be thousands. If you had already closed the deal, you would be responsible for these “hidden” fees. DO NOT TAKE THE SELLER’S WORD FOR IT!!!!
The second major reason is to make sure the home can stay on the lot!
Sometimes the park will be evicting the home (whether that's based on the previous tenants or they are simply upgrading the park and taking the older mobile homes out of the park).
As a general rule, you DON’T want to move this home! That will cost you an additional $3,000 – $5,000! Moving homes can be a nightmare, and it’s not something you want to focus on at the beginning.
If you find out that back lot rent is due, you go back to the seller to re-negotiate. It’s as simple as subtracting the amount due from the original price you agreed on, and getting everyone to sign a new agreement. DO NOT GIVE THE FULL PRICE TO THE SELLER, EVEN IF THEY TELL YOU THEY’LL PAY THE BACK LOT RENT. Sellers are NEVER to be trusted. Sad, but true.
- Step 2: Tax & Title Search
So now we have a contract, and we’ve spoken with the park manager to make sure everything is kosher. Time to check the taxes and perform your own mini title search.
***Something I didn't mention previously:
When you are at the negotiating table signing the contract, pull out your smart phone (or camera) and take a picture from the front and the back of the title. Also, take a picture of the previous years’ tax bill so you can pull the correct info for the taxes and get all the title info. I recommend taking a picture of their driver’s license as well.
If they don't have a previous years tax bill, there should be a tax sticker in one of the windows. Ask the seller where it is so you can take a picture, you will need that number to verify the taxes are paid.
Taxes on used mobile homes are really freaking cheap, but sometimes people don’t pay their taxes for YEARS! Eventually, those bills start adding up.
Depending on your area, taxes can be as little as $100 for the year!
You need to call the tax assessor in whatever county the home is located. Ask to speak to the mobile home or personal property department, and tell them you want to pull up the tax records on a mobile home you are about to buy to make sure they are current.
This is where you give them that number on that decal on the window of the mobile home, good thing you took a picture!
If the taxes aren’t up to date, you can re-negotiate the purchase price, or pay it after you close.
Now, let’s perform your title search:
Use the info from the picture you took of the title and call your state’s DMV. Ask for the mobile home or personal property department.
Let them know you are about to buy a mobile home and you want to make sure the title is clear of liens and encumbrances.
***Even though you saw the title and it seemed clear, there are still some really sneaky and tricky ways sellers can attempt to deceive you, so it is always crucial to check this way.***
The DMV will be able to immediately verify that the names on the title match the names on their drivers license(s) and that the title is clean.
99% of the time, the title you saw in person will match up with what the DMV has on file. But it is always crucial to double check.
**Tip on re-negotiating after finding back lot rent or back taxes: RE-NEGOTIATE AT THE CLOSING TABLE! They will have already planned all the ways they’re going to spend the money from the sale. They’re excited. That’s when you have the most negotiating power!**
When you’re getting started, I recommend staying away from homes that still have money owed on them. It adds a whole extra layer of complexity that you don’t need. There are plenty of “free-and-clear” deals out there, so focus on those!
At this point everything has checked out and you are ready to go to closing!
I recommend closing either at your bank or at the park office. If makes it feel more official and legit for the sellers, but it’s up to you.
It’s more important to close at your bank when you are selling the home, but we’ll talk about that in Module 5.
I highly recommend certified check because it leaves a paper trail. Always good to protect yourself.
When you go to close have the parties sign the back of the title over to you, and THEN give them the money. And boom! You just held your own closing!
But wait! We’re still not finished!
Now you’ve got to put the title in your name, or your businesses name.
First you need to go to the tax assessor and get the taxes in your name, this normally costs you a whopping $5!! Whoo hoo! Then you need to take the new tax sticker over to the DMV and register the title
Most places, you will only need the title, bill of sale, and tax sticker. Save yourself some time, though, and verify what you need before you go and wait at the DMV.
Registering your title at the DMV will cost you somewhere between $15-$30 bucks total! Hows that for closing costs!?!
I normally get the title expedited for an additional $20. They will print the title right there and give it to you. Otherwise, you will receive it in the mail a few weeks later.
At this point you are officially and completely closed!!! Congrats!
Time to move on to the next module. Let’s fix this thing up as soon as possible to get ready for re-sale!