Owner Financed Mobile Home Park (Balloon Payment)

[Kaleb Woods]

Hey all,

I'm about to put a seller financed mobile home park under contract in June, and am trying to get a few ducks in a row for the future balloon payment. The asking price is 460k, I'm coming to the table with 20k, the park grosses $4600 a month, my payment to the seller is $2200 a month plus i'm assuming a loan on the property in the amount of $1700 a month ($3900 all in a mo). 

The seller wants the balloon payment by June of 2022 as that is when his loan matures (2 year deal). The concern: my LLC is brand new as of 2020, and will have about 1 1/2 years of income under it's belt to show a bank when the full amount is expected to be paid. I still earn a good income from my W2 job, and plan that to be the case in the next 2 years in addition to this mobile home park. The worry is that the bank will really want that 2nd FULL year of reporting before they even consider touching this deal. My big question is: would you recommend going the traditional financing route here, or would a private lender make more sense? Do private lenders even exist for these circumstances? I'm all ears and will be grateful for any recommendations/advice.

Thanks!

[Frank Rolfe]

14 x $325 x 12 x .6 (because the park is small, otherwise normally) = EBITDA $32,760.

So the value of the real property, at a 10% cap rate (just a general measure) is $327,600.

Then you add the value of the homes to that number as personal property (what they would each sell for).

The price of $460,000 might work -- based on the valuation you make on the homes -- but the financing you've put together is going to be a real problem. The appraiser will typically only give you credit for the real property ($327,600). The bank will then do 70% to 80% of that (around $225,000) as a loan, leaving you $435,000 short.

As evidence of this situation, look no further than the seller's existing note which is $230,000. That's ll you will probably get, too. So when the note hits a balloon, you'll have to come up with around $230,000 in cash. And if you can't, you'll lose your $20,000.

The bottom line is that, unless I have the numbers wrong on total lots. etc., this deal will not work and you will almost surely lose your down payment.

So how can this be fixed? You'd have to get the seller to carry $200,000 on the homes for 10 years, get the bank to extend the current mortgage for 10 years, and use $30,000 for the down payment. Plus, the mortgage would have to be transferred to your name.