MHP Financing with Hard Money Loan?

Question

How would you finance this value add MHP? Here are the details:

-28 lots currently rented, 32 more are cleared with utilities run

-of the 28, 15 are park owned homes, 13 are lot rent only

- The plan is to get the other 32 upgraded with electric and ready to rent over the next 12-24 months, increasing NOI by 8000/month

- so far, (commercial) financing is available with only a 3 or 5 year fixed period.  Once the upgrades are completed, and lots rented, terms would be significantly better (would meet criteria for a Fannie backed loan program).

- would you look for a HML for 2 years? Take the bank financing offered and refi after 3 -5 years?. Do HML lenders lend on mobile home parks? What kind of leverage is typical?

Looking for any advice you can offer, TIA!

Nick Belsky · Answer

@Zara Ryan

I suggest you keep looking for more lenders... I don't see anything in your post that would keep my lenders from lending on a 30 year, fully amortized note...

Based on Credit and the property cash flows, you can expect 70-80LTV, but 70-75LTV is more typical.

Rates on properties like this can be around 6-7% without buy down, but some lenders even offer 5 or 10 year I/O options to help offset costs and get improvements and cash flows up before paying the fully amortized payments.

Cheers!

Scott Wolf · Answer

Then yes, a HML or Bridge Loan would make sense with a refi in the future.

Zara Ryan · Answer

Thanks @Scott Wolf.  It’s a good question- I’ll try to edit my original post-the bank is setting out some complicated criteria that I’m not sure I can meet at this point, but after improvements, the place will qualify easily.  So basically, I’m thinking that the hard money could be worth it because it would get it to the place of  increased cash flow so much faster.

1.Bank wants to put the park owned homes on a separate, shorter note. I plan to sell these off and make the park mostly lot rent.

2. I need big cash reserves + down payment + money for Cap Ex- I don’t have enough cash for all 3 “pots” of money, but would after a year of cash flow

3. I need to get the park under professional, 3rd party management or bring on an experienced partner.

Scott Wolf · Answer

@Zara Ryan, if the commercial rate is fixed for 5 years, why would you look at a HML?  I'd assume a HML will charge a much higher rate than a commercial loan.  You can always refinance the commercial loan and look for better rates when it's stabilized.