First Investments Property

[Gregory Schwartz]

Hey everyone, trying not to jump in the deep end before I can swim but my personality is to get over excited and ignore the warning signs. Hoping you all can sanity check me. 

After about 6 months and a few offers on different property types I think I've found a good niche in my area of Wilmington. Hampstead NC is a coastal town a few min from the beach, a short drive to downtown Wilmington and it boasts one of the best school districts in the area.  The avearage home sells for 250k. Nestled in the heart of the town is a upscale manufactured home neighborhood originally built on a golf course. The golf course is no longer operating but but community is still strong. With in that community I found a foreclosure with some promise.

Manufactured home built in 1985. 3/2 1500sqft. 

Asking : 60k     Looking to offer: 50k

Repairs: 30k (kitchen, master bath, flooring, paint inside and out, hot water heater)

ARV: 95K Since its a manufactured home I'm assuming the appraisal value will be low (85K)

Looking for hard money interest only for 12 months at 10%. (20% down = 16k, loan = 64k)

Rehab for 4 months, then find a renter at $950.

Cash out Refi based on 85k and a LTV 75% 64k loan (i dont get money back out of the deal but i pay off the hard money lender)

I factored in 10% property management, 10% repairs/capex, 5% vacancy rate 

Monthly cash flow $155. CoC 10.3%.

Concerns are finding a bank that will cash out refinance on a manufactured home.

Alternate exit strategy is to flip and walk away with 2-3k and a few lessons learned. 

I feel like the numbers are on the conservative side, if the rehab is under budget or the appraisal is higher then I will be able to pull cash back out of the deal. 

Thanks in advance. 

[Christopher K.]

I am impressed with your thoroughness and how you appear to have allowed for multiple contingencies throughout your early projections and calculations. This is important.

However, I agree with most of the other guys that have posted so far. The deal is too thin IMO and not worth the trouble.

I used to own a manufactured home dealership in the early 2000s and also flipped several dozen in the mid 2000s (Mfg homes permanently attached to land, so it was real property and not personal property).

Getting a cash out refi (or even a just a rate/term refi) on a non owner occupied manufactured home is going to be extremely difficult, if not impossible. Do you already have a bank or lender identified that has given you a written pre approval for a refinance on this property type based on your credit score, income, financials, etc?

If you insist on proceeding with this skinny deal with multiple layers of higher risk and red flags, and haven't already done this - make darn sure you have a reputable lender lined up on the refi who has already pulled your credit and reviewed your financials. And be doubly sure the LO, their manager, and or the underwriter has verified to you that they'll give you a loan on a non owner occupied 30 year old manufactured home. Try and get this stated in writing. And then pray that they don't change their guidelines before you get done with this whole thing.

Secondarily, have you made sure that whichever HML you plan to work with will loan on a manufactured home? Especially one this old.

Also consider that manufactured homes even permanently attached to land are typically harder to get loans for even as an owner occupant. IE - many larger banks either won't touch them, or if they do, they have an underwriting overlay or subset of guidelines above and beyond whatever the underlying base loans guidelines are (FHA, etc) that makes it very difficult to qualify for. In other words, they don't like lending on manufactured homes.

Even if some things have loosened up on this side of things over the last couple of years and I'm not aware of it, which may very well be the case - I said all of the previous paragraph to say that when the market softens again (and it will) - manufactured homes were one of the first property types in the crosshairs of the major lending institutions. After 2008-2010, lending on manufactured homes for owner occupants got almost entirely killed off. There were very high levels of default on these properties and because no one could get a loan on them, short sales weren't a viable option, and your typical owner occupant couldn't get a loan on it even if they were highly qualified. So there were lots of foreclosures and the only market that existed for them were cash buyers (investors). So the property values tanked.

You may find yourself in the same situation. I'd strongly caution against collateralizing long term on a manufactured home, especially upwards of $60k-$75k+, as you could find that the comps that support that $95k or whatever it is now, all evaporate into $30k-$40k comps. And then that's what your investment property is worth. At least to any bank or appraiser or potential buyer (if you needed to wanted to sell it off or refinance after this point). Sure the market for them could rebound again if something like this happened. But it could be a very slow process. My point is that this property type is very volatile and subject to changes in the wind, so to speak.

I'd definitely pass, if I were you. If you could flip it and make a decent return, I'd go that route. But I wouldn't try and hold on to it long term with that much $ leveraged on it for all of the reasons I stated.

Best of luck!