In keeping with my series on “Why Resident Groups Should Continue To Try To Buy Their Park, Despite the Stuff They See In the News”, I recently got an End of Year email from a Real Estate Broker who deals in mobilehome parks that highlights the opportunity.
The Broker was really trying to tell his park owner clients what a great job he did (and he did), highlight two recent year end park sales, and speculate on the future.
But some of his comments are relevant to Resident Groups, because you CAN STILL PURCHASE YOUR PARK. You can offer attractive prices, tax benefits and solutions to the owner’s park problems better than a lot of investors in today’s market.
The Broker wrote (and I quote – emphasis is mine):
“Both of these sales [the two parks sales he was announcing] are signs of the times:
1) Diminishing gross and net revenues over the last several years from the recession and very weak housing market, [meaning vacancies in the park and difficulty in getting home financing for new residents, who also have low cost stick built housing options.]
2) No commercially reasonable bank financing available for these two properties requiring long term seller financing, [resident groups CAN GET financing for their purchase, and can also use seller financing.] and,
3) Motivated sellers wanting to capture 2012 tax rates. [Although resident group purchases can’t turn back the clock to lower 2012 rates, they can offer various tax deferrals that other buyers can’t.]
“This transactional real estate broker [meaning the writer of the email] feels that 2013 will be a very slow year for sales. In 2013 federal capital gains taxes are up 5%, Jerry Brown CA taxes have gone up from 9.3% to 13.3% (and effective in 2012), and the top regular income tax rate increases from 35% to 39.6%.
“Straight line depreciation recapture is 25%, but most owners use accelerated depreciation, and accelerated depreciation recapture is at ordinary income tax rates making the 39.6% rate applicable for many sellers. For example I am selling a $3.75M park in Hemet and the Seller has $1.0M in accelerated depreciation.
“My associate . . . sold the Tahoe Verde Estates in South Lake Tahoe for $17.0M on December 19, 2012. The sellers were adamant that the property was off the market if it did not sell in 2012.
‘While there are still ways to defer the taxes in a sale, 1031 exchange (rarely done by park owners usually selling for estate planning and/or to get out of management responsibilities), installment sales deferring most of the tax, and death allowing a step up in basis (not usually voluntary and subject to higher 2013 estate taxes), I believe many potential sellers will wait the four years until the next election to make a decision to sell.
“Slow, cold winter forecast by this real estate broker for the entire year and longer.
“Happy New Year, [I think this is meant as sarcasm.]
So what’s the message for resident groups?
Keep trying, get in front of your park owner, highlight the benefits to him of selling his park NOW to your group.
Call me if you want to talk.
Deane
Deane Sargent and PMC Financial Services have been helping mobile home park resident groups and cooperatives to organize and find financing to buy their parks for over 20 years.