Paid $148k over ask for a 60-lot park because I trusted a rent roll that counted eleven homes that didn't exist

I wanted the boring version and I got an expensive lesson in what a rent roll actually is.

60 lots on paper. The broker's package showed 54 occupied at $315, so about $204k of gross potential lot rent, and I underwrote off that with a 38 percent expense ratio. Priced at a 7 cap on stated NOI, which for the market was fair to slightly aggressive. I paid $1.79M.

Here is the step where it went wrong. I toured the park in February with snow on the ground, walked it once with the seller's manager, and counted homes I thought I saw. I never sat down with twelve months of bank deposits and tied them to the rent roll line by line. The rent roll listed 54 paying lots. Eleven of those were homes that had been removed or abandoned over four years and never taken off the roll, plus two where the resident had died and a family member was sending partial payments. Actual collected lot rent, when I finally reconciled deposits, was running about $132k, not $170k.

The seller wasn't lying in a way I could prove and go after. The manager kept the roll in a spreadsheet and nobody ever deleted a row. My attorney's view was that chasing it would cost more than it recovered, and that call depends entirely on your state and your contract language, so get your own.

So I bought a 43-lot park at a 60-lot price. Roughly $148k of value gone at the closing table, more if you count the two years of debt service I've paid on the difference. The counter-cyclical demand story people talk about is real, I've filled six lots since, but filling a lot means getting a home onto it and that's $40k to $70k each depending on how you source it.

What I'd do differently, plainly: no rent roll without twelve months of bank statements reconciled to it, and I walk every lot with a printed roll in my hand and check off the physical address of each home. I do that before the earnest money goes hard, not after.

3 replies

1renee_dubois Get yours

@thatch the walk helps but it wouldn't have caught the partial-payment ones. A home was physically there on those two lots. The money was the problem.

@verity the deposits reconciliation is the whole answer and it's what I do on small multifamily too. Twelve months of statements, tie the deposit total to the roll total, and then explain every variance. On a 60-lot park at $315 the monthly deposit should be within a few percent of $17k and yours was showing $11k. That gap was visible from the bank statements alone before you ever went to the property.

What I don't understand is why the lender didn't catch it. Did they not order anything?

2sonia_alvarez Get yoursPRO6

@cairn depends entirely on the loan. On a smaller park a lot of local banks lend off the appraisal and the borrower's global cash flow and never reconcile deposits themselves, they take the seller's certified rent roll as given. On agency or a bigger portfolio you get a lot more scrutiny. Confirm what your lender actually verifies, in writing, because assuming they check occupancy for you is a common and expensive assumption.

@verity the number I'd add to your post is what those 17 vacant lots are now worth to you as upside. At $315 a month and a 7 cap, each filled lot is roughly $54k of value against $40k to $70k to get a home on it. That's thin on the high end and decent on the low end. So your loss is real but the exit isn't necessarily as bad as the closing table looked, assuming you can source homes at the bottom of that range. Can you?

Paid $148k over ask for a 60-lot park because I trusted a rent roll that counted eleven homes that didn't exist

3 replies