long rambling about finance strategy - Posted by wayne–OR
Posted by wayne–OR on May 20, 2007 at 22:07:42:
Before anyone jumps on me about thinking about this stuff and just get out there and do deals…I am out there driving the bumps daily, and in contact with 5 parks that I have permission to work in weekly, including driving through each of the parks once a week.
This is just some side thoughts about bridging financing acquisition strategies for stick built houses and applying them to MH houses (which is mindracking sometimes since MH’s are personal property and stick build is real property).
So some backstory:
As a side venture, I wanted to expand out a bit (and not contribute too much time–limited amount of time) to being able to have the ability to latch onto Land/Home package deals and lay the foundation for a land/bank if the opportunity arises.
SO in anticipation of this I have been in contact and seen several local hard money lenders and it clicked some ideas in my head.
Heres where the rambling begins (please dont misinterpret my writing as lecturing as it is just my take and interpretation to how I believe things are done)
First off, the hard money lenders must and insist on first position for the lien.
So when you acquire stickbuilt with a wrap around mortage (illinois land trust, All Inclusive Trust Deed–whatever)…with a wrap around mortgage with the wrap being done on the hard money lenders first position.
Questions arise as too…for arguments sake…if the HML’s first lien is 5k and your sales price is 10k…you take a second lien position for 5k or for 10k? Do you have your wrap include the first position amount or just the amound of your sales price minus the first lien position?
It makes me wonder to have it for the entire sales amount (including the first lien) for a total of 10k, that way they write one check to you and you turn around and write a check for the first lien position, since you are going to have to sign a personal guaranty with the HML anyway.
This way you are sure that the first lien is paid monthly and you sleep a little better at night.
and after talking with some of them, the points, interest, maturity (balloon date), fees, (escrow is a must from what I can see), and the borrower pays the entire escrow fee…it is just simply not feasible to use a HML for lonnie deals in a park.
Just running some numbers on small amounts, they become alligators if your holding goes over a month…and even if you do sell quickly with no concessions on lot rent, not to mention property taxes…the yield is almost non-existant…
So this method is more for Land/Home package deals.
With the exception of if you find a private lender that will adapt to your ways of business with just a percentage payment on their loan and a first position…someone that is not as stringent as a HML and wont insist on points, balloon…pretty much inflexibility that you simply cannot adapt to your model of doing business.
If you were to borrow 5k from someone at 15% interest…no points (beats the hell out of CD’s)…give them a first lien position—then it raises a couple other problems.
How are you to insure that you can still have the power being in second position to still evict deadbeat buyers??
and the private lender you use in the first position doesnt want the hassle of getting the home back…that is your job…I would assume you have a written agreement or limited Power of Attorney from the private lender giving you the rights you would normally have in first position without diminishing his rights and position too much.
Any input or tweaking of these strategies is greatly appreciated.