On this episode of The Mobile Home Park Lawyer Podcast, Ferd discusses re-trades – how to go about it and how to respectfully drop deals. Ferd shares some personal experiences about re-trades and gives his best advice on how to handle re-trading.

HIGHLIGHTS:

0:00 – Intro
0:37 – Ferd mentions how this episode will cover the topic of how to drop a deal
0:41 – Ferd explains what he means by ‘drop a deal’
1:13 – Ferd states that he has been seeing non-refundable deals from the outset of the contract recently
2:16 – Ferd describes what the due diligence period is for
3:42 – Ferd shares his advice on what to do if you’re planning to re-trade
4:10 – Ferd shares his favorite way to carry out a re-trade and explains how you want to have logic and not emotion when re-trading with the seller
7:40 – Ferd mentions how he generally wouldn’t answer the phone if the seller calls you right after you send the re-trade email and explains why
8:11 – Ferd explains some other options you have if you want the sale but the seller won’t accept the re-trade
10:22 – Ferd speaks about two deals that he has dropped out of roughly 20 deals that he has closed and describes how he dropped them respectfully
12:00 – Ferd explains how the seller called him back to negotiate numbers because of the fact that he was respectful and logical in his exit
16:43 – Ferd advises you to be smart, be respectful and do what you’ll say you’ll do and re-trading will work out for you
17:10 – Ferd mentions how he hates having to re-trade and he tries not to
17:13 – Ferd shares a final piece of advice for anyone who is looking to re-trade and encourages you to re-trade one time, don’t do it early, have everything aligned and then re-trade one time. Ferd also encourages you to be ready to walk away

TRANSCRIPTION: 

This is the mobile home park lawyer podcast with Ferd Niemann. If you’re looking to generate wealth and passive income in the lucrative world of mobile home parks, you’re in the right place. You’ll discover solutions to the common, legal, and operational pitfalls and how to optimize parks to maximize income.

Your host is in the trenches. He’s a real estate attorney, financial analyst and mobile home park investor, and operator. Now let’s turn it over to Ferd Niemann.

Welcome back mobile home park nation. Ferd Niemann here again today with another episode. Today’s episode, I’m going to talk about how to drop a deal. And what I mean by this is generally when you tie up a piece of real estate in particular commercial real estate or mobile home park, you have a due diligence period or an inspection period. Sometimes you have a financing period or you have other outs or conditions precedent to set to acquire, you know, for example, satisfactory insurance policy, appraisal, environmental study survey, title work. Sometimes you have extensions, but ultimately it’s industry norm to have a kind of free look period. I’ve recently even seeing some deals that require firm or hard money may nonrefundable from the outside of the contract. So at the very real for maybe say I have on the other day, it was $150,000 from immediately, which I don’t generally like as a buyer and as buyer’s attorney in this case we had to negotiate some outs, you know, for example, seller default, seller fraud, things like that. Which I’ll cover in another episode.

But if you have a non-refundable amount of money right out of the gate, you probably want to have an access agreement or some other agreement that allows you to get on the property to at least kick the tires a little bit before you’re under contract. Now you typically will not have the property under full control and taken off the market with an access agreement. But at least you’re not going to go firm on a 150K and potentially lose a bunch of money before you’ve really had a chance to kick the tires. But for today, we’re going to talk about dropping a deal during the inspection period or the due diligence period. And ultimately what’s the due diligence period for?

It’s for looking around both offsite and onsite, you know, doing things, I’ve got all kinds of episodes on these sort of due diligence items and landmines, but basically you want to figure out is the deal that I think I’m buying for the price I’m under contract for really what I’m buying or is it worse? And sometimes you’ll find out I looked at a deal yesterday, actually, where the price, it was $3 million. The price looked really good. We didn’t end up offering on it, but price looked really good, did some more research. And it turns out the treatment plant as a million dollar province, a huge treatment plant for over 200 pads and million dollar problem. City sewer is too far away to connect to. It’s like, okay, well it’s not really worth 3 million to me. If the first thing I got to do is fix a million dollar problem.

So if I was under contract on that park, I would want to terminate that contract or potentially retrade. Everyone hates the retrade. That’s when you come back and say, look, I thought I was buying it for 3 million, but I’m not going to anymore. So I have the right, generally the unfettered, right with my sole discretion to terminate the contract for any reason or for no reason. But sometimes I don’t want to just terminate. I want to, I still want to buy it. I just want to pay 3 million. So maybe I say, look, I’ll buy it for 2 million. Obviously the seller is not going to be that Jones about a $1 million price reduction, but it might be reasonable. So if you’re going to retrade as a general rule, if you don’t retrade and you get a reputation for not retrading, that really helps, especially with the broker that says, Hey, these guys don’t retrade, Hey, these guys close, but if you’re going to retrade, it needs to be well-founded. It needs to be like, look, you said there was 50 occupied homes, upon inspection there’s only 40. You said that the lagoon system was in good repair, upon inspection It’s not and so on.

So my favorite way to do it, I used to do it in person and you know, kind of like, Hey, look, I’m man enough to face you in person. But what I’ve found is that really makes emotions high. And the point of a retrade is to have a win-win that’s at a lower price, but still a win-win. So you have to have logic involved instead of emotion. So what I typically do is I write out a very detailed email and I say, look, here’s the problems. Collections are this, number of occupied lots are this, the roads we’ve got bids for this that you didn’t disclose, these demo homes you don’t have title to. So now I have to go through the abandoned housing act process where I have to demolish them.

And I go through all of the items and I put it in writing and I give a range. I say, look, I got bids. You know, you don’t have to necessarily show me your bid. Sometimes they want you to do that to seller. Well, but you can say, look, I got bids for plus or minus 20,000 or for 20 to 30. And then you can predict, if they ask, you can produce a bid for 30, say, I think it would be 20 or 30. And you can add up all the ranges at the bottom and say, look, it looks like I’ve got a range of discount from X to Y. That is warranted. And if you disagree, please let me know. But here’s my inspections. And then realistically, the seller knows these problems and sellers like, yeah, I knew that the collections were down. Yeah, I knew that the water system was leaking a lot. I’ve been trying to fix it. I thought I fixed it. Oh yeah, you’re probably right. And you just spell it out logically. And I’ve been doing that by email now and I don’t do it the last day before my inspection period is up in case they need more time or in case I’m bluffing perhaps.

But what I’ll do is I’ll do it at least several days in advance. And it helps if I’ve been communicative throughout the process with the seller like, look, I’m coming onsite with my camera guy. We’re going to camera the sewer lines. Okay, cool. Hey, I’m coming onsite my phase one guy, his name’s Robert, and he’s going to reach out to you and so on. And they see you, you know, quote, working on the property. When I was in retail, that was really important. Cause it was a long gestation period and due diligence because you had to get entitlements and tax incentives and rezoning, all that stuff that it might take six months. So it’s hard to be pissed if you wait five months and then start working on it.

So we were working around at the gate. We’re meeting with city council members. We’re putting plans together. We’re spending money on engineering, sellers like to see that you’re trying and you’re giving it to, you know, good old college try. And it really helps if later you need to retrade or drop the deal. If you drop the deal, really doesn’t matter that much, I guess, because as long as they don’t try to tie up your earnest money with title company, then you don’t really need to be friends anymore, but maybe you do. And I’ll get to that in a minute.

So basically you spell out the re-trade terms, the logic, if you want to provide bids, you go ahead and do that. And you say, look, the ranges between 500,000 and a million dollars of pain. And dear John, I like your park. I’d like to buy it, but obviously I can’t buy it. It would be irresponsible of me and I would not be a fiduciary to my investors. And frankly, I just don’t feel like working for free. So I can’t buy it at the price could be unjustly enriching you, but I’d like to see if we can work together to find another solution. Let’s chat in a day or two when you’re ready.

And then you let John Smith sleep on it and he can, you know, throw the newspaper and, you know, punch his computer screen and yell at the screen and all that when he reads it. But he has a chance to calm down. If they call me right away after I email, I generally won’t answer. Cause I’m not, Cause you can’t put the toothpaste back in the tube, so to speak. If he calls and yells at you or you say, you know what? And you’re a horrible operator and you’re breaking FHA violations and I’m going to turn you in. And then you’ve let your emotion get over the top. And you’re never going to get a deal made.

And sometimes I’ve done this and the guy doesn’t budge and I have to drop the deal. Sometimes the guy doesn’t budge and I can still find a way. And typically the way you find a way is if most people, when they make decisions, they think there’s either option one or option two, like it’s yes or no, it’s black or white.

So my uncle taught me this and he learned it. He’s a big time attorney in CPA in Nebraska. And he learned it from the head of a big time corporation, who was an attorney at their firm and went to be the CEO. And he had me draw two dots on a piece of paper. So if you’re not driving, do this draw two dots in a piece of papers. Those are the two decisions most people think they can make. He said, connect the dots. So what I do, I connected the dots and I went left to right. And I drew a straight line between the dots. And he said, those are all the options on the decision tree that you can have. It’s not just drop the contract or don’t, it might be dropped the contact or don’t or Hey, maybe it’s price concession, or maybe you sell or carry the homes, or maybe you throw in the pool table or maybe you sell or finance the land. Or maybe you give me a 90 days or maybe to get more investors with who have a lower yield requirement. Or maybe you allow me to do a master lease with option to purchase. On a line you know, there’s infinite points, but he said, let me take it a step further. And I connected the dots in a straight line cause that’s just, you know, that’s the shortest distance between two points, right? He drew a circle and the first, the circle started, the first dot went up around to the right, came back down, hit the second dot, went through the second time, and went back around, down, and back to the left and up and connected. And the point was clear that there are more options than I thought about with just connecting the two dots. There are more than two that are more than the amount of dots within the line. There are many, many more.

So if you think creatively, you think of solutions, you can solve more problems and that’s when you get paid in life, right? You add value, you add value, when you solve problems that people haven’t thought of the questions for yet that’s when you’re going to be really valuable. So it’s thinking critically, it’s thinking ahead.

So back to dropping a deal, I’ve had at least two off the top of my head deals, I’ve closed about 20 deals. At least two of those were deals that I dropped. I dropped a contract, but I did it tastefully. And I said, look, I tied this thing up on the first day on the market. I realized, you know, I realized that I was buying it at a reasonable price based on the list price. But upon further review, it is a lot less valuable to me than I thought. And I’m not going to retrade you on price, cause I’m sure you can go back to market. And I didn’t say there’s a greater fool than me, but I didn’t lose probably another buyer out there. I’m just not that buyer. And I don’t want to waste your time. And I’ve only been under contract for 25 days and I’ve got 60, but I’m going to give it back. And I wish you guys well.

First time I did this, they were pissed, they were quasi pissed. And they tied it up with the next guy and repeat and next guy, repeat, repeat. Well, I had shown some effort. I had analysis and logic in my numbers, look, it’s too far gone. I didn’t even throw a concession number out there or a retrade and I’d let the deal go. Now I had some risk that somebody else would close on it, but I didn’t think they would. And I’ve done that once and it didn’t work. So it’s not like I’m bulletproofing on my decision making, but it was a calculated risk and wouldn’t you know it, four or five months later, they called me back and said, Hey, you gave this a good old try. You seem to be right. The other guys won’t close either, what’s your number? And I throw out a number and then a counteroffer, we got close to it. I ended up closing on about a third of the price, what I did previously, when I had under contract previously. Because I was respectful and logical in my exit, They called me back.

Fast forward a couple of years, similar deal. I tied up first day. I thought it was worth like, I don’t know, 650. It was on the market for like 450, 500. I was like, sweet. I tied up full price first day. And it was dog, I’d seen it years earlier. I’d been in this market. It had just fallen apart. And it had a lot of hair on it. I was like, I cannot buy this. And it was a father, son team and my dad and I are a father, son team and we had renovated and bought and sold another park in the same market. And they had seen that we had done a good job as far as cleaning it up. And this was their hometown, not my own town, but they’re like, yeah, you did a good job in our hometown. So we appreciate you. We’ll go with you. Well, I just said, look, I’m way off on price. I can’t even, this deal is worse than I thought and worse than your broker represented, I blamed the broker. It really was the brokers. They had a bunch of RV, but that wasn’t in the offering memorandum. It didn’t disclose that like, RV is not as good as MH from a caprate perspective, from a banking perspective, from a stability perspective, like I’m not paying for one-third RV, I am paying MH pricing. It’s like, you know, I want a steak. I’m not going to accept hamburger for the same rate. So I dropped the deal and I forgot about it basically. It went around for like eight months.

And the guy called me, the dad called me back eight months later and said, Hey, here’s the deal, Here’s the new, I was at like 450 I think. Here’s the new price. Somebody else tied it up at, and we agreed for eventually he retreated us down. It’s now at 295, Now the guy saying I can’t get the loan because it’s too small. He wants me to seller carry. And dad was the one that was the financial guy. And he said, if I’m going to seller carry 250, I’m going to do it for somebody like you and your dad that know what you’re doing and not this guy. And the guy says, he’s going to walk if I don’t seller carry. So he goes, I want to get the deal done. But I wanted to see if you’re ready in the wings if the guy walks. Cause if so, I’ll tell him to go pound sand and no seller carry. And I said deal. So the old man tells the other buyer, no seller carry, close or don’t. And the guy says I dropped the contract and he immediately then signed a contract with me. And we bought that deal 30 days later. And it was from being respectful and being and being a closer when I need to be and being somebody can turn a project around I need to be. And the deal fell back in my lap. And I like to, when you’ve heard me say this before, you know, you make your money when you buy, you get paid when you sell or when you refinance. So I got paid $200,000 in that day. Now I still own this deal and it’s not turned around yet. So I have not put that 200,000 in my pocket. But I will either refinance or sell this deal. Probably first quarter 2020 to 2022, I think I’m six months out. I’ve only owned it for six months. So I mean 200 grand on a deal. I got to put like 50 down and we got to put some capx in it, but it’s going to be a real good yield. It’s a small deal, but relatively close to our other projects, know the market.

And what’s worked out even better because we closed. We had some problems right out the gate. There was one guy there that had an RV and he was a big time drug dealer, which we didn’t recognize. And he was letting a bunch of homeless people and crazy people, you know, taking a crap in the middle of the street and daylight and just like crazy stuff like that going on. So the police department previously was, let’s just say less than helpful in getting involved. We tried to pay them like off duty cops. They just didn’t want part of it. So I called this guy and said, this thing’s lot worse than you said, what can you do? [16:05 inaudible], you can’t catch everything. And it turns out he’s like the richest guy in this town. And he’s like, I’m actually at dinner with the mayor and the police chief. We’ll get it taken care of for you. And turn the world around for us. These guys have been able to, so again, I dropped a deal with logic, but tastefully, it fell back in my lap. I’m going to get paid $200,000 when I finished a project on it. And I got the seller’s dad helping me with legitimate, but political connections to help make my project easier and make my deal better.

So lesson learned, be smart, be respectful. As my dad often says, you know, do what you’ll say. Like, look, I’ll close at this price, if it’s this representation, but it wasn’t this, so I’m not going to close, but if you do this, I’ll do this and just, you know, treat people respectfully and they treat you back and Hey, it works out. So that’s just a little bit of a how I retrade. I try not to retrade. I really hate doing it. And if you’re going to retrade, here’s another tip I just thought of, because I see this all the time with my clients, I got one client particular, he retreads five times and he’s closing deals four or five deals this year. So good for him, but everybody’s mad. There’s no like high fives at the closing table. It’s just a crap show if you will. So if you’re going to retrade, just take one bite at that apple do it once.

So don’t do it early. And then something else came up, get all your ducks in a row, do it once and mean it and be willing to walk away. It’s kind of like an old auction. You know, I bid on a deal at an auction. I had a number on my head and [17:52 inaudible] my head. We calculated it and said, this is what I’ll pay. If it goes higher than this, I walk away and deals in auction sell for more than they’re worth all the time. And that’s why the auction business, frankly, I think exists, people pay $500 for a lawn mower for $200 because the energy and the excitement and the winning it’s kind of like gambling where there’s like an irrational emotion involved. So don’t do that. Get your ducks in a row, know what you’re going to do if the guy says no. Retrade if he says, no, no, I’m going to counter. I was bluffing or I wasn’t. And I think bluffing is not that good in this business because frankly people don’t go for it as well. They want some analysis and some logic and some proof. So anyway, until next time have fun. God bless.

You’ve been listening to the mobile home park lawyer podcast with Ferd Niemann. Ready to learn more? Go to www.themobilehomelawyer.com for free resources and materials to help you succeed. If you love the podcast, go to apple podcasts, give us your review, and subscribe today. Thank you for listening. Neither the Supreme court of Missouri, nor the Missouri bar, reviews nor approves certifying organizations or specialist designations. The choice of a lawyer is an important decision and should not be based solely upon advertisements