REFI/Finance MHP question

[Mike Reynolds]

Sorry if this is tedious but wanted to lay everything out that may be pertinent. 

Bought a MHP back in December. Made money on the purchase as we bought it for the appraisal of the land only. The previous owner only collected cash so no proof of income. (His bad) Day one we were netting over 2.5k/month after all bills, including notes, taxes and insurance. Since then, we have increased rents by adding new homes (2) and renting vacant lots. We only have 2 left and its a waiting list for those. (we have to get the 2 old dogs of trailers out of there first) We can literally pick the ones we want for the spot. Our company is very efficient. We bought for 240k and now with a 10 cap rate it is worth over 750k 3 months later. That brings me to my question. 

We found another one we want. We can refi, pay off liens and use the proceeds for the down on the next one. My figures have the one park paying off the note just barely. the new park will pay off easily the other note or both with ease.  With both parks income we will be aces. Is this the way I should do this or should I use the first park as collateral and just do both parks in one loan? My thought is less headache with one loan but what else am I missing? Would it be better to just have 2 loans. 

[Jack Martin]

@Mike Reynolds and @Dave Rav generally, outside of seller financing, the common types of debt available for MHPs are:

Local & 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 not, don't waste your time. Also, you may come across some banks who like MHP's yet they may not show serious interest in really small loans.

Life Companies - Life co debt will typically have better terms than banks, but will come with tougher qualification criteria. You can access life co debt through a commercial loan broker, but take the time to find a broker who specializes in MHP debt. Let me state that again...if you choose to use a broker, take the time to find a broker who specializes in MHP debt. If the broker doesn't have a deep level of experience placing debt on mobile home parks, you will likely be in for a lot of brain damage and promises that are not met. Network through MHP attorneys and MH/RV park brokers or owners to find the right commercial loan broker.

Agency (Freddie/Fannie) - If the park and the buyer qualify, this will be the best debt, but the qualifications are even more restrictive. Just like Life co's, you can access agency debt through a commercial loan broker, so take the time to find the most experienced MHP broker.

Conduit (CMBS) - Conduit went away for a bit during the COVID onset, but they are back lending again. They can be a little more flexible than agency or life co, particularly with respect to the park and terms. Again, you can access conduit loans through a commercial broker.

(In addition to those sources, there are a few others that are less common, such as HUD and SBA)

Your track record of experience will have significant impact on whether a loan is considered, and whether you can negotiate the terms of the loan, so be prepared to demonstrate your experience, or the team you have built around you who has the experience.

Typically smaller deals under 50 spaces will be best suited for banks. 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.

Larger deals will open the door to agency, conduit, and life companies, all of which tend to come with better or more flexible terms, but with a higher degree of buyer experience and park requirements. For example, some lenders will require you already own and operate a similar asset in the same market as the subject property. Some will have a minimum number of spaces and pavement requirements in the park. Some will have restrictions as to total occupancy and percentage of POHs, while others are more flexible. Many of these loans can be non-recourse or limited recourse, but there will likely be liquidity and net worth requirements of the borrower. Some loans will come with defeasance or yield maintenance, while others will have step down prepayment penalties.

A good loan broker who specialized in MHP debt can guide you with respect to the right choice for you as the buyer, which type of lender will be best suited for the park, where the terms will be the most favorable, and where the hurdles will likely be. Having that relationship will help you get the best terms for the deal and avoid wasting time on a loan that is low probability. Don't waste your time with any broker who has not closed on multiple MHP loans recently (unless you really like headaches and disappointment). 

All the best,

Jack