1031 Timeline for Buying Mobile Home Park Too Tight to Work Out?

Question

I'm selling some single family homes and would like to 1031 into a Mobile Home Park, but as I look through the timelines, it seems impossible to make everything work on a park purchase. Anyone have any input on how to order things to make them more manageable?

If a 1031 wouldn't work, then any suggestions for how to creatively access the equity in our rental homes to apply towards the down payment on a Mobile Home Park? Bridge loan? I can't cash out refi the homes because I'm up against my DTI ratio.

Since the right park seems hard to find, It seems wise to find a solid park first, do some diligence first to confirm that I want to pull the trigger, and then proceed with selling the rentals (Since I have 45 days to select the new property after i close on the first property).

Here's the way I figure the events have to go to not have to either eat a lot of rent for vacancy in the process or sell too far ahead of finding the right park:

Day 1: Select a MHP, Put in contract, begin DD (Generally 90-100days to close on a MHP, right?)

~Day 14: I should pretty solid on the park by now. Give 60day notice to tenants once I've done enough DD on the MHP to commit. (2609 Only one rental would require 60days. The others have been tenants <1yr, so 30 days will do.)

~Day 30: Apply for financing on MHP (60 day process?) - It seems like this is our first tight spot: The MHP bank would probably require cash in the bank at this point. Not sure if they would tolerate the homes being in process of closing

~Day 44 Tenants are out of First property. List it for sale.

Day 74-ish: Last tenants are out of the last property. List it for sale.

Day: 125 Last property COE (The properties would likely sell quickly because they're in a good area with low inventory).

Worst case it all turns to a taxable sale, which is not terrible, but I'm wondering if I could rearrange things to make this flow more quickly? Thank you, everyone!

Scott Bond · Answer

I'd be really interested in your referral to a good 1031 group. Much appreciated! It sounds like creativity will be necessary on this one!

I have been through their home study course. It was incredibly helpful.

Dave Foster · Answer

@Scott Bond, The reverse does add an element of cost along with the risk mitigation but don't think you have to go all the way to hard money. There are smaller community banks that keep their loans in portfolio that like this kind of product. Also, I don't think a reverse necessarily needs to cost you 10K.

Scott Bond · Answer

Dave Foster, Thank you for your input on the process. I'd lean heavily towards the reverse option, but for the need for hard money lending plus 10k +/- in fees for the reverse 1031, (which together seem like they would eat up a good deal of the money you're saving through doing the exchange).

Likewise, in a reverse exchange there is the risk that after assuming hard money loans on the new park, I don't successfully finance the new park with a bank loan, in which case I would likely forfeit the park or sell at a loss.

I like the idea of selling the rentals with more or less a variable closing date to coordinate them better. But it still puts me in the position where I may have to jump on a not so ideal park to avoid a taxable sale. Thanks for your thoughts on the situation. I appreciate it!

Scott Bond · Answer

Christine Mwai, thanks for your input. For multi-unit, leaving the tenants in place makes sense, but for SFR's, that cuts down your marketability to owner-occupants. Most of them would not want a tenant in their new home.

Now maybe I'm just wanting a perfect world, and need to give in to some imperfections in the deal, but it seems that the places would yield higher values if they're shown with fresh paint, sparkling clean, and no junk piled in the bedrooms. I'd offer them a discount, but seems like it may be better to put that money in to paying the mortgage on a vacant home, and it back in yielding higher offers. But then that will likely force me into a taxable sale since decent parks are so hard to come by. Finding a good replacement within 45 days may prove difficult.

Dave Foster · Answer

@Scott Bond, You could talk to a local community bank/portfolio lender about a reverse exchange where you actually control the MHP before selling. That would eliminate the most risk and provide the greatest flexibility to both locate the right park and sell the rentals high. Many of these lenders will be willing to take a security interest in the rentals as well as the MHP. Which could help you out with your ceiling.

Barring that, selling the rentals with closing set as an on or before date that gives you time and add to that a contingency extension for locating a replacement property for you 1031 is a pretty good option.

You could also go the other way and do the leg work to find an unlisted but willing seller and contract contingent on selling your rentals.

The bottom line is that its all about risk. And the more perfect things have to be to work out the less perfect they will be.

Christine Mwai · Answer

Interesting scenario. Are you not able to list the SFH with the tenants in place?( if the tenants are good, cooperative and want to stay) Maybe sell to another investor that wants a buy and hold?. just curious. Or still list if they will be moving and offer a discount for their inconvenience?

1031 Timeline for Buying Mobile Home Park Too Tight to Work Out?

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