financing a small mobilehome park with 100% POH

[Joseph Chacko vellukunnel]

Hi BP,

I am looking to finance a relatively small deal.  its a 4  unit mobile home park, all POH, 100% occupancy with slightly undermarket rents  separate sceptic and a single well.

At the asking price of $240K, there is 12% cap rate. Two of the homes are over 25yrs old, and offer the upside potential to renovate and increase rents to market once the current tenants move.

Question to this community is, are there any recommendations for lenders in this deal size and in this area?

side note, I am new to MHP investing, and I'm also thinking that working with a lender will make sure my sure diligence is thorough.

thanks

joseph

[Rachel H.]

@Joseph Chacko vellukunnel Sounds like a small deal. You may want to bring in a private lender and/or partner in on the deal. 

Another option would be to check with small local banks and credit unions. 

Hope that helps! 

[Logan M.]

Quote from @Rachel H.:

@Joseph Chacko vellukunnel Sounds like a small deal. You may want to bring in a private lender and/or partner in on the deal. 

Another option would be to check with small local banks and credit unions. 

Hope that helps! 

 I agree with Rachel but I will add one addition, Credit Unions. If you have a relationship with a smaller bank in some cases they will lend on smaller parks located within the area they operate.

[Dave Rav]

Agree with the previous sentiment.. this will likely be quite challenging to find financing in the marketplace.  Two major factors: the fact that it's so small and the associated loan amount.  Most commercial lenders won't look at loan amounts <500k (they make the same % commish on a loan for $3M vs $300k, so they go after the higher loan amounts).

A 3rd factor is it a MHP (yes, thats correct, many lenders won't lend on MHPs - as crazy as that sounds).

@Logan M. and @Rachel H. mentioned local banks and CUs.  They are your best bet for institutional.  First question you should ask when vetting = do they loan on MHPs?  Then go from there, but make sure to get out the fact its a MHP and see if they loan on this asset type.

[Joseph Chacko vellukunnel]

thanks for the note everyone, I am getting on the phone with the local credit Unions.

On a side note, does this mean that I have limited exit options once I want to pullout of this investment?

[Roger D Jones]

Push the seller for seller financing.  Park is too small to attract any private equity interest so seller is in a bit of a jackpot trying to sell something so small and so unique.  Trying to sell something that no one can get funding for is more his problem than yours.  240k can leverage a lot of bigger parks and investments in general.  

Also as a side note I would seriously question a 12 cap on an all POH park.  I would recommend you get way into the weeds on your due dilligence- septics, roofs, subfloors, hot water tanks, drainfields, etc.  What is the status of that well?  At 25 years all those roofs are coming due to be replaced.  Was the owner doing his own repairs and hiding the costs?  

Sorry to be a Debbie Downer but if you are new to this you don't want any surprises.  

[Jeff Flynn]

When you say it is a 12% cap rate, does that include the rent collected from renting the mobile homes themselves? When banks (and MHP investors) look at the value of a mobile home park, they will not count the income generated from the mobile homes themselves as mobile homes are considered personal property.  I have done a few all POH deals and I can tell you they are not only a night mare to finance, but they are a night mare to manage as well. 

Another thing to consider is that you may have a difficult time trying to find a buyer for that property down the line.  Most people looking at MHPs want 20 lots or more so you could end up getting stuck with this park for good. The homes selves also tend to depreciate and not appreciate so you could find yourself overpaying. 

[Logan M.]

The real play is to get a seller-financed note and then sell all the homes during the term they give you and then refi out.

[Rudolph Shepard Jr]

@Joseph Chacko vellukunnel FYI if these are older mobile homes with the original roofs you will have floor issues, yes floor issues. I would check for water stains on the ceilings and leaks around the windows as well as soft spots on the floors. We always add a metal roof with overhang to any older homes we purchase. Hope this helps in some way. I agree CU are the way to go for financing.

[Don Konipol]

Quote from @Joseph Chacko vellukunnel:

Hi BP,

I am looking to finance a relatively small deal.  its a 4  unit mobile home park, all POH, 100% occupancy with slightly undermarket rents  separate sceptic and a single well.

At the asking price of $240K, there is 12% cap rate. Two of the homes are over 25yrs old, and offer the upside potential to renovate and increase rents to market once the current tenants move.

Question to this community is, are there any recommendations for lenders in this deal size and in this area?

side note, I am new to MHP investing, and I'm also thinking that working with a lender will make sure my sure diligence is thorough.

thanks

joseph

I think your analysis is incorrect.  4 unit MHP typically operate at a loss, not a $30k profit.  The owner showed you a p and l that didn’t include all expenses, or include scheduled income instead of actual income.  The repairs and maintenance on 25 year old mobile homes is sky high, the uncollected rent and evictions on park owned mobile homes is astronomical, and I bet the owner isn’t carrying any insurance.  Further, this type of operation is not financeable at anything other than the high end of hard money rates.