No Suprise, But I Disagree - Posted by Tony-VA/NC
Posted by Tony-VA/NC on June 04, 2003 at 12:26:56:
Once again I disagree with your figures and terms on the purchase of a small mobile home park, but as I recall you have not bought one so you can only guess.
Commercial Loans are NOT Typically ammortized over 30 years. They are more often to be 15 or 20 year ammortizations with 5 or 10 year balloons. Even on a refi, though from time to time, a new, local bank that is growing may consider a 30 year note I still believe this to be unusual and not “typical”. This is based upon my meeting with many banks (both local and national) and talking with investors across the country. Again, it may be a local abheration you are referring to but that is akin to the dealers and brokers quoting price leading rates (and payments) to get people in the door, all the while knowing very, very few people will obtain such a rate. It is a Best Case scenario.
A 6% interest rate for a commercial loan, especially a mobile home park seems a bit low, even in light of the lower market rates, but again, there may be a small bank or Broker in your area that Says they will go such a rate. Credit, seasoning, performance, experience etc. will also determine this rate. A Mortgage Brokers may quote you such a low rate but few seem to be able to close a mobile home park at such a rate. Again, it is a price leader approach to get you in the door.
Closing costs on a small park are not going to run $7k even with an appraisal. Chances are the costs would be half of that. If you are buying with owner financing, then paying a couple of grand for an appraisal is not likely to be necessary. The buyer needs to convince themselves of the value of the property, not allow some appraiser to try. Banks rely upon appraisers, we don’t.
Without such an expensive appraisal, the closings costs will likely be less than a grand.
You also left out a very important fact when buying a commercial property. You will be walking away from closing with cash from pro-rated rents (best to buy in the beginning of the month) as well as Security Deposits (to be placed into an Escrow account).
I have also noticed that you tend to quote the “norm” for percentage figures but I suggest that since you don’t own or operate a small park, your figures may be inaccurate and are likely taken from courses such as Ernest and Ray’s material that are primarily based upon the purchase of large park that requires a different expense strategy typically involving employees of some degree.
I suggest that the buyer of a small park use real expense figures and not the “typical” figures from stated percentages. It is not difficult to get a handle on the true numbers in a small park. A few phone calls to local utilities, taxing authorities etc. provides the lion share of the expense due diligence.
I think you will find that 35% is too high an expense figure, unless you are taking into account a management salary. However, I would still agrue that real figures are more relevant and important.
We may both be wrong and as you say, everyone is entitled to their opinion. I just wonder from time to time what people are basing these opinions on.