Creative financing to purchase mobile home park
I'm looking to buy a mobile home park in the next year whether I partner up or buy this alone. I'm trying to think of ways to come up with the capital other than finding multiple investors to put down on the property. I would like my first park to either be just myself or with one partner. I have a friend who just closed on his first park last week in South Carolina, so it's good to see the processes that he is having to go through. For my situation I'm seeing a few options to get the money but I'm not sure what is best. I'm trying to leverage what I currently have to create passive income.
Option one:
Use the current HELOC I have on my primary residence of 100k to fund a downpayment on one and then use the cash flow to pay down the HELOC. Yes I am aware that rates can fluctuate and many people say only to use this for short term but I also know lots of people who have used this strategy for long term with success, just slightly riskier I guess.
Option two:
Get a cash out refi on my primary house which I could get somewhere between 120k-140k and use this money to fund the downpayment and other associated costs.
Option three:
Use a combination of either option one or option two PLUS pull some money out of my 401k to aid in a larger downpayment.
Any advice will be greatly appreciated. I'm open to any suggestion you have. I obviously would factor in all my monthly payments on the money used plus the mortgaged amount and factor that in to make sure I'm positive cash flow still. I'm just trying to utilize the power of leverage to become financially free one day and i want to make sure whichever path I choose is the smartest way in my position. Thanks y'all
#1 Short-Term & Vacation Rental Discussions Contributor
- Investor
- Greer, SC
- 13,511
- Votes |
- 11,470
- Posts
#1 Short-Term & Vacation Rental Discussions Contributor
- Investor
- Greer, SC
Another option is to find an owner willing to owner finance some or all of the purchase price.
Absolutely. I forgot to mention that in my post but I would even then need capital for a downpayment most likely, thank you
I would avoid withdrawing from your 401k if at all possible due to the tax implications. If you are under 59 1/2, you will pay taxes and a 10% penalty on the withdrawal. You may be able to take a loan from your 401k, that would need to be paid back within 5 years. For what it is worth, I used a HELOC To buy my first MHP.
To add to your list:
1) You can also partner with others. For instance, your friend who just bought one park.
2) You can find private lenders, offer them fixed rate for a while. Renovate and then refinance the park,
Thanks Janene, I knew about the 10% penalty but i did not know about it being taxed as well, thanks for the info. I have taken a loan in the past from my 401k so that is still a possibility. If you dont mind i would like to hear more about your first MHP purchase using a HELOC, I can PM you? Thank you
#1 Short-Term & Vacation Rental Discussions Contributor
- Investor
- Greer, SC
- 13,511
- Votes |
- 11,470
- Posts
#1 Short-Term & Vacation Rental Discussions Contributor
- Investor
- Greer, SC
Also be careful of the per door price. MH parks are highly desired by investors. I have never tried to buy one because the prices are so inflated.
I can buy single family houses cheaper than the per door cost of a MH park.
Now if someone was willing to owner finance the whole park and it would cash flow then I would be all over it.
I have been using my self directed Roth IRA to buy houses for cash to generate tax free income. As I buy more houses that generate more cash I can buy more and more houses.
An alternative to taking a 401k distribution is taking a 401k loan.
If the 401k you are referring to is your current employer 401k, you may able to take a loan from the plan.
If a former employer 401k, you likely can't take a loan but may be able to rollover funds to a Solo 401k which does allow you take a 401k loan.
If you are self-employed with no full-time employees and have funds in a former employer plan and/or non-Roth IRA, you can set up a Solo 401k, rollover the funds and then take a 401k participant loan. You could then use those funds to purchase the mobile home park.
First, you must be eligible to set up a Solo 401k. In order to be eligible, you must be self-employed (e.g. providing goods and/or services through your personal effort), reporting self-employment activity on your taxes (e.g. Schedule C if you a sole proprietor) & you do not have any full-time w-2 employees (i.e. working 1000 hours or more per year) working for your self-employed business or otherwise.
The repayment terms are equal monthly/quarterly payments (as you prefer) of principal and interest (e.g. prime + 1%) spread over a 5 year term (or longer if you will use the loan to purchase your primary residence). There are no prepayment penalties and no restrictions on what you can do with the proceeds of the Solo 401k loan. This means that the typical Solo 401k real estate rules (i.e. purchasing property from an unrelated person, NOT living in the property, NOT working on the property, etc.) do not apply.
Here is more information regarding Solo 401k loans:
That's alot of helpful information George, thank you for taking the time to type that up for me. I have a current employer which my 401k is going through so I will look into all that for sure. Is there usually a cap on how much you can withdraw at one time? Thank you
#2 Mobile Home Park Investing Contributor
- San Antonio, TX
@Sean Harris Owner financing is another option if you can find a seller who does not need all the money upfront and would like to save on the tax hit. Good luck!
I agree with @John Underwood, owner financed deals are fewer and harder to find but they allow you more flexibility and there's no limit on how many owner financed deals you can get!