All Forum Posts by: Douglas W.

Title: Financial Underwriting for Commercial take out financing of MHPs w/ mixed asset types on the same APN

Hey all...

My background is as both a real estate and mortgage broker since 1990. I am interested in updating our underwriting guidelines on MHPs where it pertains to the inevitable mixed-use asset classes that can often be found on one APN. It is common for a MHP to also have SFRs (1-3 buildings), small multi-family (2-3, maybe 4 units), RV park and/or Self-Storage all on the same APN. I want to know how a commercial lender's underwriter (U/W for future reference) would underwrite NOI (income/expenses) on such a mish mash of asset classes under one U/W umbrella. I would imagine each asset class is underwritten as if stand-alone (potentially using a 2-3 year average on NOI on the RV due to wide swings in occupancy month to month, etc.) then mashed into one consolidated NOI for value and DSCR calcs. But, most commercial lenders we know sit on that information as if it were a lithium mine they had sole ownership of. Other asset types we buy are 10-50 multi-family (pretty straight forward on the U/W side), Self-Storage (new to this asset, wonder if there are underwriting nuances I should be aware of), Senior Care and Hospitality.

I appreciate any feedback or resources on this topic. Enjoy your weekend!

Douglas

Hey all...

My background is as both a real estate and mortgage broker since 1990. I am interested in updating our underwriting guidelines on MHPs where it pertains to the inevitable mixed-use looking park. It is common to see a MHP that also has SFRs (1-3 buildings), small multi-family (2-3 ,maybe 4 units), RV park and/or Self-Storage all on the same APN. I need to know how a commercial lender would underwrite NOI (income/expenses) on such a mish mash of asset classes under one U/W umbrella. I would imagine each asset class is underwritten as if stand-alone (potentially using a 2-3 year average on NOI on the RV due to wide swings in occupancy, etc.) then mashed into one big NOI. But, I have no idea and most commercial lenders we know sit on that information as if it were a lithium mine they had sole ownership of. Other asset types we buy are 10-50 multi-family (pretty straight forward on the U/W side), Self-Storage (new to this asset, wonder if there are underwriting nuances I should be aware of), Senior Care and Hospitality.

I appreciate any feedback or resources on this topic. Enjoy your weekend!

Douglas

I am looking for information on the process of buying commercial assets using "subject to" financing. Is there anyone in here that has done these? If so, where should I look to for education on the process?

Thanks in advance...

Douglas

Very nice deal and apparently a great experience builder which is always valuable. Congratulations on a great outcome!

No unfortunately, a residential appraiser does measure the interior to establish the structure square footage and will pull a plat map from the county outlining the position of the structure on the lot and the dimensions of the lot per the county tax assessor where the subject property is located.

If you want to locate the location of each lot line you need a surveyor. They will locate the lot line markers for you for a fee that varies based upon how many markers you want them to identify.

Hope this helps!

Hope this helps

There is an Inspection Contingency in most contracts and if yours doesn't have one then write one on an addendum that references back to the original contract something like this, "Addendum #1, dated xx/xx/xxx it is hereby made a part of and modifies the Purchase Contract dated xx/xx/xxxx for the purchase of the subject property known as "12345 ABC St., Any City, Any State, Any Zip" as follows;

First and foremost, I am not an attorney nor dispensing legal advice but simply making a suggestion as to one way to word this type of clause and every buyer should seek their own legal council to verify the exact wording best used for you and your situation and state laws. All that said, here is how I might word it here in California...

"Seller to allow buyer and his home inspector/contractors to conduct all inspections within X number of days from the date of acceptance of the original purchase agreement and/or all connected counter-offers. Buyer will give seller notice of at least 24 hours before access to home is needed and agrees to hold seller harmless for any damage caused by buyer and or his inspectors/contractors. Buyer might need access on more than one occasion due to potential scheduling conflicts of various inspectors/contractors."

With this wording it allows you to do your initial inspection with your contractor(s) then come back when you find a buyer to allow them to verify the condition of the subject property is suitable to that buyer's needs. Best of luck!

IMHO...

I am a licensed and active Real Estate and Mortgage broker here in CA since 1990. I work mainly with investors. From my perspective honesty is always the best policy. That said, if a seller I am representing is in a multiple offer scenario and among the other offers, many of which are actual all cash offers, sits a solid offer that for some reason is better for my seller and is a well documented hard money financed offer, I wouldn't have a problem recommending the offer to my seller over other ALL CASH offers. The closeability of the buyer's file must be well documented from the lender involved with no room for the file to be turned down and a minimum non-refundable earnest money deposit of at least 3% (the larger you make this number, the more comfortable the seller will be) of the purchase price deposited to escrow within 24 hours after acceptance and the balance of the purchase price to be wired to Escrow within the 3-5 day period you mentioned. Also, I would need a conversation with the lender so that I could ask very pointed questions about the buyer's qualifications and probability of closing on time. Under those conditions I would feel perfectly comfortable accepting an offer that otherwise makes sense for my seller. I would add a clause that gives the seller to continue to market the property for back-up offers or even a concurrent escrow with another ALL CASH buyer that would go into play in the event your offer blows up.

Worst case for my seller is they lose a couple of days working through your viability to close and in the event I allow a concurrent escrow with another buyer (Full Disclosure to the buyer about what we are doing and his place in line to close) there really is no downside to my seller!

IMHO that is...hope this perspective helps!

It is usually considered a good idea to place title to each property in its own entity. As for which is the right entity, always best to talk with an attorney. I understand it is more expensive than heading down the internet search DYI route but you want to be sure that at the moment you do get sued over something having to do with one of your properties that you had the right protection in place and it is not an area to skimp. One property for one entity also entails more year end accounting and the additional costs associated but if you place more than one property per entity the person suing can go after both properties...better to place each separately...IMHO!

Generally you are describing a Hard/Private money situation. Even though you show low income, if you have at least 2 years of proven income in the form of capital gains the lenders would possibly look at that income as "Self-Employment" in nature and do a 2 year income average of that portion of your income. Generally speaking they will use the average unless the income from your flipping business has dropped by more than 25% from 2013 to 2014 then they would use the lower of the two years. In any other case, the 2 year average should apply. You might try a Credit Union or regional bank that holds mortgage loans in their portfolio (as opposed to selling them in the secondary market (eg, FNMA or FHLMC) as they might even look at an additional year to comprise a longer term history to average to get a better feel what you make with your flipping business. Also, Wall Street has a VERY short memory. To that end, I still get rate sheets from some of my old lending sources I as a Mortgage Broker since 1990 and owned a mortgage company in Sherman Oaks, CA from 2002-2012. For the past 6-8 months I have noticed an increasing volume of program highlights that reflect all sorts of more relaxed guidelines including Stated Income/Verified Assets (could be helpful if your credit scores are reasonable) and even No Doc loans are coming into vogue once again. Did I mention that Wall Street has a VERY short memory!!!

Hard/Private money can be tough since Dodd Frank and I have found most lenders in this category are not lending on Owner Occupied under any circumstances, Non-Owner Occupied only. You need to find someone that likes asset based lending and are not as concerned with your equity and other liquid assets.

Have a great weekend!

MAO=Maximum Acceptable Offer