Financing Sought- Land Development for RV/Mobile Home Lots- Texas

[Scott Novak]

Goals and story: Hello, any advice would be welcome. have a business model developing RV/Mobile lots in a rural area to hold for long-term rental income by bringing in utilities (water, power, septic) to platted lots of land in a particular subdivision in Texas. I live in California, but I have equity partners living in the subdivision acting as property managers and supervisors of contractors developing the properties. Their stake is much Junior to mine. Their property management fees are 10% gross rent, and they receive 1099 income for land development supervision activitites. I am in the process of establishing an LLC. I currently have 9 developed, unencumbered developed lots in the process of being leased up and I have 27 more undeveloped, unencumbered lots.

Type of property: Lots of raw land, or developed for renter owned RVs/Mobile homes.

Location of property: All property is in a subdivision 10 minutes off the freeway between Houston and College Station - about a 45min-1hour drive from Houston and a 35-45 minute drive from College Station.

Purpose of financing: Seeking $250,000 for development of 10 more lots and $100,000 for purchase of 14 more identical lots in the same subdivision using letter campaign.

Type of financing sought: I am looking for a long-term option.

Current or prior ownership of real estate: I own my own home and house-hacked it by adding rooms (turned a 3-2 into a 4-2) and rented out 3 rooms, getting my mortgage paid.

Occupancy: Mostly investment with traditional long term leases that are basically long-term RV housing, but some lots will be reserved for short term RV rentals.

Value of property at present: $503k - 27 raw lots at $9k for $243K plus $260K worth of developed lots - Calculated utilizing 2% rule for 5,200k fully leased up rent. ($5,200/.02 = $260k)

After Development Value: $920k: 14 new lots from 100k of off-market purchases, + 16 already owned undeveloped lots =$270,000 ($9k*30). Add in 19 developed lots renting for $13,000/month (We've learned ideal lot design and RV placement for ideal rent so 10 new lots should get $7,800 in rent - $7,800+ $5,200 = $13,000/month). With 2% rule $13,000/month is worth $650,000. $270,000 + $650,000 = $920,000.

Anticipated or actual appraisal issues: Lots go for $10k on open market. Appraisal may discount for illiquidity. But homogeneity of lots in one subdivision means appraisal shouldn't be too difficult or costly.

Current rents per month: $2,150 (Still being leased up - $5,200 expected after lease up)

Fair market rents per month: $5,200

Down payment or equity: specify down payment for purchase mortgage, or how much equity you will have in the property afterwards if a refinance.

Source of down payment funds, if applicable: Own Funds

Income Source: Salaried W2, Rental income from primary residence

Gross monthly income (optional): Current $10,425 (Should be $13,475 at lease-up of my already developed lots which is in progress)

Monthly debt obligations appearing on credit report, plus (if applicable) personal rent and alimony/child support/etc: $7,988

FICO: Low score due to high utilization, but I have never missed a payment in my life.

Credit issues: None. Never missed a payment.

I would appreciate any advice you have to offer, thanks!

Scott Novak, CFA

[Pete Harper]

@Scott Novak Have you done any recent market analysis post Covid-19? I own rental property in BCS and regularly drive the I-45 corridor. Post Covid I’ve noticed most of the RV places along the freeway are almost empty. There are only two RVs left in the property south of Corsicana, last summer it was full. A lot of the people who lived in these parks worked in the oil and gas industry following the work. With the bottom falling out of the oil market a lot of these guys go laid off. No telling if or when the market is going to bounce back.

After listening to Brandon on BP talk about mobile home parks I’ve been doing some research into them. I’ve watched 4-5 parks in central Texas sitting on the market since last summer. Do a search on LoopNet and you’ll see what I mean. There is a lot of inventory; one currently listed in Huntsville, Conroe, North Houston two in Palestine, and Crockett,

Regards, Pete