Seeking MHP Financing - Posted by Dave(WNC)

Real Estate Investing Real Estate Financing
1

Posted by Dave(WNC) on February 24, 2002 at 20:44:31:

Ed,

Excellent post! I forgot to include in the previous post that I would tap into an LOC in addition to the cash but I suppose it’s moot at this point.

I have adjusted my spreadsheet according to your (and others) recommendations by backing out the trailers and essentially buying those separately.

I have a handful of SFHs and have done a couple of Lonnie deals but I am not accustomed to valuing MHPs. Here’s what I’ve come up with thus far so please feel free to correct any errors from these numbers so that I can correctly value future properties.

The lot rent on the empty spaces which I forgot to state is $185 therefore:

  1. Gross Annual Rents - $35,520 (185 x 16 x 12)

  2. Less Vacancy - $1,776 (Figured at 5% x Gross which is very conservative for this park)

  3. Total Gross Income - $33,744

  4. Total Annual Expenses - $8,611 with self-maintenance (Well documented expenses)

  5. Net Operating Income (Pre-Tax) - $25,133

  6. Figuring a 14% cap rate, value is $135,500.

  7. Ten SW Mobiles plus one DW age range between 6 - 19 years old valued at an average of $4,000 apiece for a total of $44,000 (I have all the details in writing about year, make, model but will purposely omit here for brevity’s sake).

  8. Other property not valued in include mowers, tools, sheds, etc.

  9. This is an immaculately organized and clean turn-key business. (Trust me on that one although I realize that it’s difficult to quantify a price on that sort of thing. I mean, you could eat off of the floor of the well house!). Elderly husband recently died and his widow would like to sell everything soon and move on. She may not have much time to carry any paper. They have lived onsite for 19 years. Husband ran the business completely and wife can not and does not want to handle the affairs of the park alone.

  10. Therefore park valued at $179,500.

Proposed deal structure:

$125,650 loan 70% LTV - 7.5% @ 20 with 5 year balloon leaving a $12,147 annual debt service.

30% cash down from buyer or $53,850.

Annual Net Operating Income after Debt Service (Pre-Tax) $12,986.27

OR…

Will the bank insist I buy the trailers with cash, THEN put 30% down on the park:

Bank finance 70%LTV of $135,500 or $94,850
Buyer puts $84,650 cash down ($40,650 down plus $44,000 for the trailers)

So the income from the rental houses is PURE gravy as far as the bank is concerned?!? That’s a heckuvalotta gravy!

Ed, am I getting warmer?

Dave

P.S. Of course never mind the fact that the seller will have to be hoisted from the floor after I offered her 37.8% of the asking price on her late husband’s baby. Apparently $475,000 was PFTA (Plucked From Thin Air) and did not consider bank financing as a factor. Unless a buyer just hit the lottery and it’s burning holes in his pocket, I will have to wait this one out. I would like to stay in touch with them just in case the reality fairy pays them a visit sometime. Somebody’s gonna buy it… How much is anyone’s guess.

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Seeking MHP Financing - Posted by Dave(WNC)

Posted by Dave(WNC) on February 23, 2002 at 18:21:41:

Hi All,

I am seeking financing and assistance structuring this MHP deal. Any assistance is greatly appreciated. I will be posting this on the RE Financing board as well. Thanks in advance.

Here are the particulars:

  1. Property - 16 space MHP, Fully occupied, 11 park-owned rentals, all excellent condition, 5 rented lots
  2. Income - $76,440/year or Average $398.13 per space
  3. Outstanding Leins - None
  4. Total Acreage - 4.98
  5. Used Acreage - Approx. 3.5
  6. Expansion Acreage - unknown
  7. Expansion Spaces - Possibly 3 more on parcel.
  8. Upside - Additional 3 spaces, Owner Certification for Water Tests for savings of $130 per year, 1 Rental unit $100 under-valued (can be increased to match others, all spaces at or above market rate), Near 0% vacancy
  9. Selling Price - $475,000
  10. Down Payment - 5% Buyer willing to use about $25,000 cash.
  11. Seller Carry-back - None (Seller wants all cash - Non-negotiable)
  12. FMV - Unknown - Cap Rate is 14.28% at full price ($76,440 Gross, $8,611 Annual Expense, $67,829 NOI)
  13. Condition of the Property - Excellent
  14. Buyer’s FICO - 670 (Secondary investor possible with 740 FICO)
  15. Balloon - 5 years
  16. Closing Costs/Escrow - Negotiable
  17. Realtor’s Commision - FSBO sale
  18. Sales Market - MHP market extremely tight. Seller’s phone ringing off the wall after a week with many serious buyers looking/visiting to buy. Aggressive offer is necessary quickly.

Dave

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Re: Seeking MHP Financing - Posted by Ed Garcia

Posted by Ed Garcia on February 24, 2002 at 10:52:02:

Dave,

Financing a Mobile Home Park with 5% down and NO Seller Carry-back is d@mn near impossible. The lenders who specialize or will do a Mobile Home Park, usually want at least 30% down, which can be structured with a seller carry-back.

I think you’ve got your apples mixed up with your oranges as well.

You penciled in the 11 owned mobile homes as part of your cap rate, which is not correct.

Depending on the age factor of those mobile homes, which I’ll bet are old and not financable. They should be figured differently and segregated from the deal. If not, your not going to get the correct value of the park. You’re adding income from the coaches as revenue to the park and that’s not correct.

You should break you offer down to (1) price for the park, and (2) purchase the coaches separately.
That way you won’t blindly be paying more for the coaches then they’re worth.

By the way a 14 Cap could be considered market on a park that you’ve described.

Dave, when the seller tells you that his phone is ringing off the hook, that’s sales hype.
If it’s true, there’s nothing you can do a bout it, so don’t let it influence you.

With out knowing what the spaces rent for individually, I can’t tell where we’re at in this deal.

I can tell you that there are only 3 ways this deal is going to happen.

(1) If the seller GETS MOTIVATED and carries some paper for you.

(2) If you have other assets that you can borrow from or pledge to a small local bank as additional collateral.

(3) If you take on a partner with cash for the difference.

Some of our paper experts like Terry Vaughan who deal in paper and notes, will tell you to see if he will trade for some notes. That also could be a possibility.

Good luck Dave,

Ed Garcia