Rental Property Investor · Nashville, TN · Member since 2015 · 102 posts · 129 votes
Hey BP, I am excited to share my creative finance story on this deal I just wrapped up. So the mobile home park details are as follows:
Purchase price: $110K
13 homes, 2 lot rent and 11 park owned.(2 vacant units)
City water/septic
Rent: $200-450
Auto Loan 20%down, 7.75% for 6 years full amortization.
The payment is kinda high but I like the idea of having it paid off in 6 years. This local bank proposed these terms and I accepted. It was by far the easiest loan process I’ve ever done. So now I own 2 mobile home parks, a duplex, and my single family home. The wheels are starting to spin faster and I’m building momentum. Please respond with comments and questions.
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
7y
Here are some suggestions for you:
1) Give the POHs to the existing residents and raise their lot rents to $300 per month (if the homes are not part of the collateral pool to the car loan). Only the real property rent goes towards the cap rate, so put all the emphasis on that. Plus, at those rents, you're actually losing money on the homes when you factor in R&M, taxes and insurance (after you subtract out the lot rent).
2) Renovate and sell off the two vacant homes for whatever you can get, focusing on the $300 lot rent.
3) You now have the following economics: 13 lots x $300 x 12 x .6 = $28,080 NOI.
4) Your payment is roughly $2,000 per month P&I, as far as I can figure. So you can completely cover the debt.
5) After 6 years, if you continue to increase the rent only 5% per year, you will be taking home about $36,000 per year in net income. NOT BAD ON A $22,000 INVESTMENT.
VERY CREATIVE WAY TO FINANCE A MOBILE HOME PARK!
We've used everything from credit card debt in the early days to seller carry -- but never a car loan.
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
7y
Here are some suggestions for you:
1) Give the POHs to the existing residents and raise their lot rents to $300 per month (if the homes are not part of the collateral pool to the car loan). Only the real property rent goes towards the cap rate, so put all the emphasis on that. Plus, at those rents, you're actually losing money on the homes when you factor in R&M, taxes and insurance (after you subtract out the lot rent).
2) Renovate and sell off the two vacant homes for whatever you can get, focusing on the $300 lot rent.
3) You now have the following economics: 13 lots x $300 x 12 x .6 = $28,080 NOI.
4) Your payment is roughly $2,000 per month P&I, as far as I can figure. So you can completely cover the debt.
5) After 6 years, if you continue to increase the rent only 5% per year, you will be taking home about $36,000 per year in net income. NOT BAD ON A $22,000 INVESTMENT.
VERY CREATIVE WAY TO FINANCE A MOBILE HOME PARK!
We've used everything from credit card debt in the early days to seller carry -- but never a car loan.
Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
7y
Congrats super unique way to get the deal financed.
Questions.
1) how did you find the deal?
2) the bank,? Did you already have a relationship with them and other loans?
3) how did you get the money for the down payment?
As far as what to do next I’ll leave that to the expert MHP folks. I’m curious long term if POH bring in more money versus TOH, when factoring in time requirements.
Rental Property Investor · Nashville, TN · Member since 2015 · 102 posts · 129 votes
7y
@Ryan Murdock the bank collateral is the land and homes.
@Frank Rolfe unfortunately the homes are part of the collateral pool so I can’t give them away. I was thinking about some kind of rent to own agreement. any thoughts?
@Account Closed I found the deal on the mls. But got it for a little over half the asking price because it had been on there for some time.
I used a local bank recommended by the broker. I didn’t have a previous relationship with them.
Down payment was savings(15k) and a line of credit(~10k)
Super interesting deal. I love these kind of outside the box deals. I’d be looking to off board those POH’s ASAP. R, M & taxes will eat you alive.
Any way you can sell them off with the bank’s blessing I’d do it.
Structure something like this: $12,000 for a home. Take $3,000 down payment and create a note for $9,000 @ 12.99%. That’d give you $303.20 a month for 36 months. If the bank hems and haws tell them for every home you sell you’ll give the bank the down payment (or a sizeable chunk of it) as an additional principle payment. That’d be upwards of $30,000 in additional principle. And banks always love it when you have more skin in the game.
Just some food for thought, but again great job on putting together a very creative deal.
Rental Property Investor · NC · Member since 2018 · 776 posts · 776 votes
7y
I'm interested on why the bank gave you a car loan. Did you look into a personal loan? You probably could have got the 7.75% interest rate without the 20% down.
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
7y
@Dennis M. I'm assuming that the mobile homes are registered as motor vehicles, and that's how this was accomplished? I'm hoping for a little more info as well.
@Frank Geiger the bank wanted to have some collateral so they probably wouldn’t have done a personal loan. Not to mention my debt to income ratio probably would’ve supported a personal loan. But my backup was an internet loan.
@Jason D. it was the banks idea. I simply filled out a loan application and gave them the park details, and that’s what they proposed.
@Dennis M. the mobile homes are personal property that are titled like vehicles, some the bank recommended that loan product, as the don’t finance “parks”.
@Jason D. they are titled like cars and the lien from the bank is like a car.
Investor · Sewell, NJ · Member since 2016 · 68 posts · 48 votes
7y
@Brandon Brown If I was your dad I would be impressed and proud! I am 67 years old and retired with seven mortgage free properties. I bought my first one in 1976. Be careful with leverage but from your post I think you already know that. Congrats again!
@Brandon Brown very cool deal, thanks for the post. When you use a line of credit for part of the down payment, do you try and only make minimum monthly payments? Or do you try to attack it with your rental income prior to cash flow (+)?
Real Estate Investor · Ste. Genevieve, MO · Member since 2009 · 363 posts · 944 votes
7y
If the homes are collateral under the loan, I'm not sure you can do a rent/credit because it binds you with selling the collateral at some point, and that's a right you don't have under the loan. You might find out if there is a release price the bank would give you on the home collateral. Otherwise, you are stuck renting the homes.
However, you can still internally allocate that home rent however you want, and you should push as much of the rent as you can into the lot rent pile. Those are the numbers that your future buyer or banker will be looking at. Talk to your CPA and see if it would be smart to separate the home business from the lot business, and you will then have your books in the right position years from now to maximize a loan or sale. Effectively you are running two businesses: 1) the real property business consisting of the lots and any other real estate and 2) the personal property business consisting of the mobile homes.