Bird-dogger from Ridgecrest, California
I have my sights on a high-end mobile home park in Arizona. It has all the amenities, long term full capacity (according to agent who reps it); there are no "park owned" homes; the park's value is $4,393,450; park provided figures are: GOI: $1,292,836; Expenses: $562,273; NOI: $682,933; all homes are double-wide, on double-wide lots; No RVs; all services directly billed to residents. I already have a buyer on the end deal to purchase extra land which would then cover my 20% down and all the closing fees and my costs.
What I am looking for is a $30,000 loan for one year with monthly payments and a balloon payment at the end. My intention is to pay it all off after the 90 day close, but things always take longer than you think they will so I'm allowing myself the year. I am aware the interest rate should benefit the person making the loan to cover taking money out of the bank or CD or money market where I suppose the money would currently be and I accept that cheerfully.
Use of funds: establish a sub-chapter S corporation on which to build business credit; an LLC for the purchase of the property; fees for expedited D&B credit building; attorney fees; accountant's review of the books; environmental report; building inspection; transactional funding fees; monthly payments on the borrowed money loan; traveling to and from property for inspections and meetings, etc.
I have a high debt to income score because I'm on social security. I've never filed bankruptcies or been foreclosed - not even close. I'm currently buying my mobile home from the park I live in but I don't know if I'm getting credit for that on my credit report. I do not own a car.
I have no "skin in the game" unless you count all the work I've done locating the property, checking the State and County reports and locating end investor, etc. If this property doesn't work out, I believe I can repay the loan by flipping or buying another property. I know this is "pie in the sky" but you never know unless you put it out there. I want more for my life and I know I would be really good at bird-dogging or investing in my own properties if I had the chance. Any Angels out there?
Real Estate Investor from Ellicott City, Maryland
Essentially what you're looking for is the equivalent of "pre-development financing", which has a lot of inherent risks to the lender -- first, due diligence may indicate the deal isn't a good one, and second, you have no commitment on funding the deal even if your due diligence is favorable. There are a lot of ways an investor can lose their investment if this is what you're using it for.
So, if you can find someone to finance this, expect either to provide some equity in the deal in return for the financing or high debt costs (or a combination of both).
Next, you don't mention anything about permanent financing for the deal. You mention that you can come up with the 20% down-payment, but you still need someone to fund the other 80%. If you have high DTI, few assets, little income and no experience, it's unlikely you'll be able to get a commercial loan.
If you really want to accomplish this, here's what I would recommend:
1. Figure out your permanent financing solution -- whether that be a commercial loan or private equity or a combination. This will be immensely important when taking the next steps;
2. Get control of the park. Either an option agreement or at very least a LOI will be needed to give an early stage investor some confidence that the money they are providing could generate a return;
3. Determine what you are willing to provide in return for the investment. If debt, what terms? If equity, what percentage?
Once you have those three things in place, then it's time to start looking for investors to help you fund the due diligence stage of the deal.
J Scott, Lish Properties, LLC
E-Mail: [email protected]
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Bird-dogger from Ridgecrest, California
Thank you very much for your input. I have 3 different "creative financing" loans lined up. They are more interested in the quality of the park. I didn't mention it because I thought it was a foregone conclusion since I had the 20% down covered. Sorry about that. Yes, earnest funds are the sticking point. I'll draft a LOI and get it out there in the meantime. Thanks.