How are people financing mobile home parks?

Question

I'm under contract to buy a 41 unit park owned MHP in New Mexico.  Almost everyone I've spoken to so far says they either don't finance MHP's or that the sales price is too small for them to finance.  Where are people going to finance MHP's?  Hard money lenders? Community banks?

Dushyant Ravi · Answer

I work in agency financing and finance MHP's nationwide all the time but typically only finance loans greater than $1.5MM. Loans smaller than that are usually a fit for local banks.

Jayson Cain · Answer

Your best bet would be to contact a local bank where the mobile home park is as they're more likely to lend compared to a nationwide bank not familiar with the area.

Mario Dattilo · Answer

Based on size it is likely going to be a local that finances this unless you get them to seller finance. Typically loans under $1mm are financed by banks and if you add a lot of value then you can go and refi, potentially with a loan balance over $1mm, with an institutional lender. Pm me if you want some info on the different types of lenders that finance parks, what to expect from each type, and how to source them. Good luck with the deal!

Ali Kassam · Answer

Thank you @jack martin for that insight.  I was under the impression that if I went with an institutional lender like a credit union or local bank, that they would just put me in a long term loan to begin with.  My impression was only a hard money lender would have a short balloon term.

i definitely would not want a short balloon term with the current uncertainty.

Jack Martin · Answer

@Ali Kassam one important item to consider when negotiating terms of a loan is the balloon payment. You don't want to put yourself in a position where the balloon comes due and the capital markets have dried up (i.e; 2009-2011)

With most commercial loans, there are 4 items that are commonly negotiated or massaged: the % loan to cost, the interest rate, the amortization rate, and the length of the balloon payment. There are other items as well, but those 4 are the most commonly negotiated and they tend to work in concert with each other. For example, if you put more $$ down, you can achieve a better interest rate. If you want longer amortization or a longer balloon payment, the interest rate will likely go up.

The risk to pay attention to with commercial debt is the balloon. Imagine if you acquired a property in 2005 with loan that included a 5 year balloon. In 2010, you would either have to pay off the balance of the loan, refinance with the existing lender, or refinance with a new lender.  In those market conditions, DCR and LTV requirements became very strict, appraisers were extremely conservative with valuations, and the capital markets had dried up significantly, so even if you had an amazing property and managed to keep your occupancy high, it was still difficult to refinance. In those conditions, you would look back and wish you had procured a 10 year balloon instead of 5. Just keep that in mind when you are negotiating the terms of your loan.

All the best,

Jack

Ali Kassam · Answer

Thanks everyone for their feedback.  I have reached out to a number of local banks and it seems like I should be able to get financing with 20-25% down with a 20 year amortization.  Will keep everyone posted.

Nick Belsky · Answer

@Ali Kassam

Keep looking for the right lender.

Expect 20-30% down and between 4-6% interest for a 30 year fixed.

My particular lenders have 15 unit minimum, 70% occupancy minimum, 1.10 DSCR minimum to even get a look.

Cheers!

Jack Martin · Answer

Typically smaller deals under 50 spaces and locations that are more rural will be best suited for local or regional banks. You can find out which banks have an appetite for mobile home parks by asking the MH/RV brokers in your area, networking through other owners of parks in your area, or simply obtain list of the smaller banks in your area/region and call them to see if they have lent on parks in the past. If they have never done a MHP loan, don't waste your time.  Keep in mind that a $200k loan takes the same amount of work as a $2MM loan, so you may come across some banks who like MHP's yet they may not show serious interest in doing really small loans. Once you find the right banks, there will be more flexibility with respect to qualification of the deal and you as the buyer, particularly if you lack a track record in mobile home parks.

Dan V. · Answer

Local banks or credit unions. Our first park was financed by a credit union located in the same city where the park at.

Taylor L. · Answer

Local banks are popular, as is seller financing.

How are people financing mobile home parks?

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