How do I put a PML in second position on my property?

Question

Please poke holes in this.

I have a single-family home that is sitting on two lots and one of the lots is empty...both lots have the same address. I currently owe 85k on the address.

I want a private lender to lend 100k for 1 year so I can affix a mobile home on the empty lot.

My plan is to get the 100k, affix the mobile home to the property, and then get a HELOC on the property. I would aggressively pay off the 85k before the year is over...this would allow me to get the HELOC so I could pay back my private lender.

I want to present this to a potential lender, but I want to get some opinions on my plan prior to having the conversation. I also know he will want some security on the loan, so I am curious to how I can give him that...I figured second position on the property would be the best way.

How do I go about putting my lender in second position on my property?

Is there another way to offer him security/collateral?

I want to make this as simple as possible.

Wayne Brooks · Answer

If they lend you the money, you simply sign a Mortgage Document which gets notarized and recorded in the county records, in addition to a  Promissory Note.

Whether you can legally put a mobile home on the empty lot or get a heloc afterwards are different questions.

Patrick Roberts · Answer

Hi Kelby,

I strongly recommend you partner with the lender who will help you exit this deal before taking any action. Getting permanent financing on "mobile homes" (i.e. manufactured housing) is not as straightforward as it seems and is highly technical. Getting a HELOC on a manufactured home can be even more difficult. Depending on the circumstances, there may also be seasoning requirements to refinance this deal on the backend which can impact your timeline. If all of the requirements for converting a mobile home into real property aren't met, traditional financing may be very difficult. I just went through this twice with clients in Zachary and West Feliciana on two different purchase attempts.

Once the parcel is subdivided, you may be able to obtain a cash-out loan against the standalone lot. There's a local credit union in Baton Rouge who has an appetite for lot loans right now. If you're buying a new manuf. home, the dealer may have a financing option for you, also.

I don't know any private lenders actively funding stuff like this. Might be worth posting on the two BR Facebook groups for REI. Might get some bites there.

Caroline Gerardo · Answer

Follow Ken Selmer from Impresa on Linkedin. (He's not on BP will ask him to sign up but he's the CEO and busy). He posts competitors advice, construction advice, gives a free graduate school class of reading material. I built an Impresa house. You can't tell it's not stick built- after the CZU fire, we faced narrow roads but we plotted the steps, and up in three days, and it appraised okay.

@Kelby Schimming fitting into the triangles and star shaped boxes that lenders want is the femur bone that supports investors. Using other people's money is a way to success.

Kelby Schimming · Answer

Yes sir, thank you 💪

Kelby Schimming · Answer

Hi Caroline, Thank you for the feedback. I'm glad you made the comment on the prefabricated home. I will look more into prefabs rather than mobile homes.

Also, "the plan is not a fit for how lending works" thank you for this insight. If I am going to spend the time and money on the project, it sounds like the better plan is to get a prefabricated home and divide the lot into two legal parcels.

Caroline Gerardo · Answer

Are there are two property tax bills and two separate lots? Will county planning allow adding a "mobile home"?  Will you have two water lines two sets of utilities? County planning office not google allows you to file a 433A and make it real estate with what type of foundation?

Most HELOC lenders will NOT loan on mobile homes.

Adding a ADU to your two lots is a different animal than adding a separate unit on it's own lot. Dividing the lots into two legal parcels with two stand alone units will appraiser much higher than adding a ADU or adding a mobile home.

Look into prefabricated homes rather than mobile and having two sets of utilities and separate lots. They will rent higher and appraise much higher.

Once you put a mobile home on land it devalues by 50%, the cost to install will NOT be the same as value to sell or what a residential appraiser says it's worth.

Hard money is only going to be for 18 months and they might only give you 65% max of valuation NOT the cost to construct. Then you have to sell as a refinance appraisal to conventional is going to come in much lower than the cost to build.

The plan is not a fit for how lending works.

This part: "I think after the addition, the property would appraise for 250k." is the flaw. Find comparable sales that closed with a single family plus your same mobile home that closed WITH A CONVENTIONAL Loan in the past three months nearby/same size, my guess there are none.

David M. · Answer

@Kelby Schimming

So, i'm a bit lost.  Have we answered your questions?

Gall Davidovitch · Answer

If you need only 100K I suggest you do credit card funding, you can get up to 100K with 0% interest for 12 months.

you can DM me and I can connect you with the company I did it.

good luck with your investment.

Kelby Schimming · Answer

My ultimate goal is to get a mobile home on my property and create a new stream of income asap.

I would truly affix the home to the property so an appraiser would recognize the value of the addition.

The value 8 months ago was 150k. If I did a HELOC based off that value, I would only have access to about 20k. ((150,000 X .70) - 85,000) I think after the addition, the property would appraise for 250k.

I don't want to use the 85k cash I would earn throughout the year because it will take me a year to start the project. If I borrow the money, I can start the project now and once its complete, the money the mobile home would generate would cover the interest owed to the PML.

So I want to do the project now rather than later because it's a good opportunity to build trust on a safe investment with my private lender.  Doing the project with my pml will cost me 10k in interest but will be covered by income from mobile home. If I wait it out and use my own cash, I won't have the income from the mobile home. So the only difference between the two is that one option allows me to build trust with my private money lender...I guess that is part of my ultimate goal.

Kelby Schimming · Answer

With the new value of the property, I would get a HELOC to compensate my private lender.

How do I put a PML in second position on my property?

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