All Forum Posts by: Nick Schoch

@Jack Martin Interesting to say that large national banks don't lend on parks when Wells Fargo has a page dedicated to lending Manufactured Housing Communities. See here: 

https://www.wellsfargo.com/com...

In addition, they share a decent handbook on how to finance parks.

I used to work at another large regional bank that loved lending on manufactured housing communities. There are a few quirks but we found that well-located MHCs have a lower risk profile than apartments!

Hard money loans will have an interest rate of at least 8%. Where are you going to buy that offers a return to cover that borrowing cost? Unless you see this as the cost of getting your feet wet, it's tough to make sense of borrowing at hard money rates except for short-term situations

The 13Aug2019 Freddie Mac Multifamily Small Balance rate sheet I'm looking at indicates 4.76% for standard markets in the Southeast. Freddie's program requires a minimum loan balance of $1 million, so if your loan amount will be less, then it is likely you'll see higher rates with less competition.

@Kai Van Leuven touched on the same point I would make: the pool of investors buying 1-4 unit investor properties is much larger than 5+ unit properties. This pushes cap rates down/prices up, and makes it harder to get a good return on your investment without getting creative.

Many small but wealthy investors find a niche between institutional investors and small investors in an effort to find better returning opportunities. But these days, even some institutional players are in the small 5-10 unit space. Manufactured housing communities/mobile home parks used to be an overlooked property type, but not so much anymore.

The low risk profile, easy financing, and other positives mentioned in this thread drive strong demand and low cap rates. Compound this with a flurry of 1031-exchanges and you have a frothy market where it's tough to get yield. 

If you can't find a traditional lender, private/hard money is always an option. While the rates are higher (8-10% or 4-5% over the lowest cost conventional debt), it can be a good bridge/shorter term solution.

As others have said, lenders want to see sufficient sponsor/investor capacity to support the asset or at least not burden the asset with other problems in their world. For example, if a sponsor has cash flow issues elsewhere in their portfolio or other indications of limited capacity, this increases the probability of default on the subject loan. So even though the lender knows the sponsor isn't obligated to come out of pocket to cover any deficiency or otherwise support the subject asset, the sponsor's ability to do so reduces the probability of default on the subject loan.

Regarding verification of capacity, most lenders will ask for a personal financial statement, liquidity statements (bank/brokerage statements), a schedule of real estate owned, and tax returns.

If you know you're going to use it, then as a banker I would expect you to accept an unused fee. The unused fee would be applied to the average unused/available balance for the trailing quarter. I would expect the unused to be at least 0.25%.

I posted this response to a similar question here:

An investor property line of credit is definitely harder to find than a mortgage/term loan. They generally do not come with terms as friendly as a Home Equity Line of Credit (HELOC).

When I sold and underwrote these types of facilities at a large regional bank, we generally limited the offering to strong relationship clients. Even then, we would charge unused fees to ensure that we collected enough income so the deal made sense. Lots of investors like having the capital available and never use it. Consequently, they never pay interest. This is great for the investor because they pay only if they need it. No so great for the lender who still has a commitment and isn't collecting interest. The bank still has to reserve capital for the potential usage and it costs them money.

The downside for the investor is that most lenders limit the term on their lines of credit between 12-36 months. This means that to renew the facility, the borrower must go through the underwriting process every 12-36 months. Depending on the size of the loan, this could mean paying for new third party reports like an appraisal. Some lenders streamline this process, but it can still be a hassle. You can mitigate the appraisal/third party costs by providing a negative pledge on the would-be collateral property and getting an unsecured line of credit. This may be only available for high net worth individuals with strong balance sheets.

Ultimately, I would call around to local banks and credit unions to see if they have an offering. The less standardized the loan product, the more variance you will see in offerings. As such, calling around will get you the best deal.

You can get a commercial loan on an apartment where you, the owner, occupies one of the units. Most lenders will underwrite the property without your income. See below for the underwriting exception language from Freddie Mac's Small Balance program:

If I was your banker, I would say "thanks for the info" and move on so long as you kept making the payments. If I tried to declare an event of default due to you prudently executing your personal wealth strategy, I'm pretty sure I'd have a hard time foreclosing the asset on a non-monetary default.