Financing a large park

[Joseph Anthony]

Today I heard from a broker they will have a $4.9MM mobile home park going on the market in the next few weeks. She would have the details of the park in a few days after the appraisal is completed. She noted 200 spaces, space rent is $395-475 with double wide, single wide, and RV spaces. Owner probably willing to carry 20%. Oregon property taxes would be expected to be about $74,000 per year. Water/Sewer are covered by the tenants, garbage by the landlord. 100% occupancy (which is reasonable for the location of the park.)

I was a credit analyst for years and was the primary analyst on a few participating loans. I have also seen many of the difficulties that companies and individuals have had getting large loans. This is going to be the biggest hurdle that I have to overcome with this place. I have great connections but was always the guy behind the relationship manager crunching the numbers and have never been the one begging for the loan. This might be a little easier if this fell within the scope of a guaranteed SBA or USDA loan, but it does not because of the size, so far as I know.

I currently own a 4 unit property which has given me experience in owning and managing. I am a CPA candidate and will start taking the exams after we issue the comprehensive annual financial statements this year. My wife, who is also an accountant, would actively manage the properties while I would continue to work. I am prepared to handle the management, especially the books and financials. I also have family and friends who are good licensed and bonded contractors and handy people for any issues that would arise. 

This property is especially appealing considering the high growth prices in Portland because of the growth in the area and limited supply of housing. I think rent is able to be raised immediately on all units too.

My questions:

1) Assuming that the numbers are as I expect, and I'm able to get this under contract, how can I ensure financing?

• Should I consider bringing in an experienced equity partner to assist with, mentor, and ensure financing?

• What about something like Fundrise or converting this into a REIT? Has anyone ever worked with them before?

• Are there any other financing options that you can think of?

2) I've read books on real estate investing and mobile home parks, have been listening to the bigger pockets podcasts, and understand the concepts and theory with what I'm doing here. What should I go back and re-read or re-listen to?

3) Am I in over my head? I was going to pull out equity from my current place to get a $300,000 to $750,000 deal. Should I stick with that range?

4) How much equity will I need to put in? I have about $75,000 that I could access from my current rental and could come up with another $25,000, but this is still small beans compared to what I'm asking for. How would I get these people to take me seriously if I'm not able to contribute the same slice of pie that I'm asking for.

4) What else am I missing?

Thanks for reading!

[Matt P.]

Hi Joseph,

I just recently completed another purchase, this time a 230 space park in the NE and have been in this business as an owner for 20 + years. Hopefully I can elucidate some things for you.

Please excuse the tone of my advise if it comes off a bit harsh..I mean you no ill will, rather, I want to help manage your expectations.

Having a history as a credit analyst I think you'll get what I am about to lay out pretty clearly.

1) From a lenders perspective you have "no" experience managing anything close to this size of an operation. In Monopoly we jump from 4 green houses to one red hotel. Not so much in the real world. If you we're looking at a 20 space park that would be seen as less of a "risk".

2) Skin in the game. Given the numbers (200 pads at $410 ish a month at 100% occupancy) the park grosses $984K annually. Lets say 30% expenses so $688K NOI. A $4.9mm price is a pretty good price. Unless there's missing info (there usually is). That being said, lets say the park appraises for $5mm. Any lender will want 30% down, especially if you are new to the game. That's $1.5mm. You will also need to show reserves. For the park I just purchased the lender required me to have $500K reserves and that's after putting $2.1mm down to buy it.

Yes, you are in over your head with THIS particular park.

If you can find an EXPERIENCED equity partner that can show a history of successful park operations of similar sizes and use that relationship to build your experience portfolio that would be the best scenario if your heart is set on this park. You have a valuable skill set as an accountant. This always translates well into becoming an investor as managing the numbers is always an important component. 

*Personally I'm never so hot on 100% occupied parks unless the rents are grossly under market and even then you're sometimes limited statutorily on how much you can raise them. Always look for the upside.

Good luck!