Mobile home parks - does funding exist to fill up empty lots?

Question

Hi everyone,

About a year ago, I decided to focus my investing efforts on mobile home park investing.  It's been an interesting journey so far, but I've had some success buying some out-of-state properties - specifically in Indiana.  FYI, I'm from California and don't know anyone in Indiana whatsoever.

Nonetheless, it's been a good experience so far.

I have purchased and flipped a distressed mobile home park.  From there, I acquired a small park (14 lots) and about to close on another 41 space park less than a mile from the small park I currently own.

The great thing is I was able to purchase these parks with very little down.

The bad part is, the banks have only been willing to finance the park, but will not allow me to borrow money in order to bring in used homes to fill those lots up.  That's what is really needed in order to maximize the revenue and value of the park.

Does anyone in this forum know lenders that might be willing to assist with something like this?  I'm open and flexible to different options including possible partnerships if it makes sense.

I understand the Clayton CASH program, but they require the park owner to be a dealer, which I'm not.  I'm looking into getting a dealer's license but so far it's been a confusing process and I don't know if I will qualify.

So for now, I'm looking for funds to bring in mobile homes into my communities, which will really help boost the value of my parks substantially.

If anyone knows someone, or can suggest any good options for this, I'd greatly appreciate it!

-JP

Thomas Gardner · Answer

This is my exact business model. I work with park owners who need to fill up empty lots. I finance the purchase & rehab of the home and the park owner funds the move and set up. I market the home and sell to a park qualified tenant. I then create a note on the home. I get the cash flow from the note, the park owner gets the revenue from the lot. It's a win win.

The key will be finding someone like me in your area. I'm in Richmond, VA and it's worked pretty well so far. Hope this helps.

Tom

The key will be finding someone like me in your area. I'm in Richmond, VA and it's worked pretty well so far. Hope this helps.

Tom

James Park · Answer

Oh boy, so got some news today from the bank.  I was able to purchase a 41 space park - 27 occupied with 14 vacant lots.  I close next week.

I had to pay for an appraisal where the bank chose the appraiser.  Good news - the appraisal came in at almost double the value of what I'm paying for the park!

I completely assumed the bank would provide me with a 75% LTV loan.  That meant I could borrow enough to wipe out the seller's current loan, and get maybe $100K on top to improve the park - and create even more value.

But got news today that the bank does not want to increase their exposure to the park more than the amount of the seller's current loan.  Even though that amount is close to 50% of what appraised value!

What gives?  I was really banking on those funds to use for working capital and without it, I'm kind of stuck.

Any advice here?  Will it help if I approached local banks instead of using the loan from this larger bank?  Any other sources of financing to help me improve the park and maximize it's value?

Brandon Cravens · Answer

I just got my new LLC. I am planning on filing my paperwork tomorrow to get the Dealer's License. In MO it isn't difficult.

James Park · Answer

@Thomas Gardner Thank you for the detailed and thoughtful response!

To answer your first question - the reason I even considered this in the first place is because I got to know the maintenance man when I was interested in purchasing the park for myself.  Even after I wasn't able to purchase it, I kept in touch with him and asked him to keep a look out for parks and mobile homes to invest in for me.

In talking to him one day, it sounded like the new management was going to render his job obsolete.  And he also mentioned they wanted to sell off the park owned homes.  So he put me in touch with them and we got talking about me purchasing the entire portfolio of homes from them.  My thought was to utilize this handyman for this project, not do the work myself.  He was paid $10 per hour and lives in the park and very much wants to continue working as he was for the previous owner.

To your second question - probably not.  I don't think they would sell me their whole package of homes for pennies on the dollar, just to see me flip them to residents.  I could be wrong, but I've been afraid to broach the topic in fear that they may just decide to do this on their own.  I believe their motivation to do this deal with me is that I am someone they can trust to hand over their homes to, and now I'm responsible for lot rent.  So they get their certainty in collecting lot rent from me for 33 homes and not have to deal with individual tenants and collections.  Right now, they are not all occupied but most of them are.  The new management has been working to rehab some of them and rent them out.  There's only a handful that I'd take on once I took the portfolio of homes over.

So I don't think selling off the homes or making them responsible for lot rent will work in this instance.  I think that's the main reason they are allowing me to do this deal.

Another good thing, however, is that I may be able to do this on a lease-option arrangement.  So that way I can put very little down and work the business without committing to buying them all just yet.

I'm more interested to know what I can expect from a maintenance expense standpoint.  I need to assume for now that I will have to pay the handyman full time hours at $10 per hour.  So the rest is a question mark in mind in how much I'll need to shell out for supplies and such.

Thomas Gardner · Answer

Hey James, Sorry for the delay in getting back to you. The first thing that popped out to me was this. Why would you want to create an almost full time job in maintenance and repair? But i do have a couple questions.

Are all 33 homes currently occupied? Is the park owner ok with you making these into "resident owned" homes?

Any vacant homes i'd rehab and and list for sale at 2X + your all in cost. (i.e.) You buy the home for $1000, you invest $1500 in rehab and you end up with one months lot rent and one month's utilities. Your all in cost is $2,800. Offer this home for sale for $7,000 and take a $1,000 down payment and create a note for $6,000 @ 12.99% interest for 24 months. That gives you a $285.22 cash flow for 2 years on an $1,800 investment. That's a 380% ROI on your $1,800. It also gives the buyer pride of ownership and shifts all the repair and maintenance to them.

I'd also have the resident owner sign a lease with the park owner for the lot rent. Offloading that obligation to a qualified tenant that passes his screening process.

On occupied homes i'd talk to the residents and offer them a nice deal. If you paid $1500 for the home offer them a no money down purchase for maybe $3,500? Give them an 18 month note @12.99% and you'd get $215.05 a month for an ROI of about 250% on your $1,500 investment. If the occupant refuses give them an evection notice for after you've done all the vacant homes like i listed above and do the same with this one. If they accept i'd also roll them over to a lease with the park and not take on that liability.

All this is obviously contingent on the new park owner being agreeable and relatively easy to work with.  And if your market research shows this to be a viable option in this area. And that's a big "IF".

It just seemed like you're taking on a lot of risk (lot rent & repair and maintenance) when you could essentially create the same cash flow and offload most of that risk to the new resident owners. Yes some may default, but you simply repo the home, rehab it and sell it all over again.

You'll most likely need to get licensed in your state to sell that many homes, but that's a minimal cost. And obviously i'm not an attorney so you'll want to run everything by your guy for that.

Hope this helps or at least shed's a little light on some other options.

Thanks,

TG

James Park · Answer

@Brandon Cravens Don’t they require you to get a dealer’s license? Have you gotten one already? If so, how difficult is it to get a dealer’s license?

Brandon Cravens · Answer

Try 21st mortgage. I am currently working through through getting enrolled in their partnership program where I can sell new or used mobiles to the end consumer on my vacant lots and 21st century provides the loan.  I am just in the beginning stages so no feedback yet but seems exciting!

James Park · Answer

@Janice V. I've looked into these business loans.  The problem is, I haven't owned the parks for long enough to show much of a history.  I'm going to look into them again in another 3 months or so.  Thanks for the advice!

James Park · Answer

@Thomas Gardner Maybe you can shed some light on another deal I'm looking at.  The story is that there was a mobile home park I was looking at (actually 2 parks in one package) that totaled 58 lots.  It was a great deal, but I was not able to purchase it because I couldn't close another deal in time to buy this one.  Long story short, I maintained contact with the seller, but also reached out to the new owner.  I am working out a deal with them to purchase all 33 of the park owned homes in the two parks.  I'll be able to get in cheaply, but the risk is that I am responsible for not only renting out the homes but I have to be responsible for the lot rent to the park as well.  So, it might be great for income, but I also wonder how deep the downside is if things don't go well.  I feel confident I can get good renters in there over time, but I'm worried that tenants might damage the homes and I'll be responsible for expensive repairs, maintenance etc.

To provide more detailed numbers, I am going to be able to buy the homes for between $1,000 and $1,500 each.  Some of the homes are older, but some are not too dated and most of them are in pretty good shape.  The owners of the park want to boost lot rent from $190 (current) to $250.

Based on the park's history and analyzing the market, I should be able to charge $450 to $480 per rented home.  So that's between $200-$230 per month for each home that I am able to rent out, then $250 goes to the park for lot rent.

Do you think this is a good deal?  Or are there risks that I may not be seeing or downside that I should avoid?

Janice V. · Answer

@James Park

It is from business lending company who would look at your bank statements in last 3-6 months showing income coming in from your park. You can use the money however you would need to help grow your park.

Shoot me a message I can suggest you a company who can help.

Mobile home parks - does funding exist to fill up empty lots?

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