All Forum Posts by: Isaiah Foster

Hi all, 

Myself and two buddies have a mobile home that was given to us that we would like to rehab and sell. This mobile home seems to need a lot of repairs. Was wondering if there are any tips or tricks to flipping mobile homes? This mobile home is about 30 years old, so we don't want to put too much into it, but we want to make sure we can sell it. 

Some of the repairs/updates we planned on doing was:

-Update flooring in all rooms (vinyl/carpet)

-New paint in all rooms

-Paint cabinets in kitchen

-Update appliances

-New skirting

-Repair roof

Based on this list, any tips? Also, how much does a typical rehab for a mobile home run? 

Just as a quick insight - we do have an LLC set up with the mobile home in. We also have a $30,000 Line of Credit to help along the way for large expenses.

Thanks for any help you all can provide! 

@Ty Monroe Most typical vacancy rates in the Lafayette area are actually between 5-12%. Most units are filled within a month after becoming vacant. 

@Ty Monroe what specifically would you like to know about the Lafayette area? I work at a local bank in Lafayette as a credit analyst. I analyze several Real estate deals daily as all of those run through the commercial side. I may be able to help you with your questions. 

This post is to generate possible ideas for myself and not necessarily exact terms of a deal. Just fishing for all of your oppinions here.

There is a commercial space on the market where I live that is in an area that has been the focus of revitealization in my town . It is in downtown across from the courthouse with heavy traffic. 

The building is up for sale for a measly $69k and contains just under 3k square feet (not including basement). This unit is occupied by a local game store who sells Magic the Gathering and board games. It has appeared to have a pretty decent amount of traffic given the town size.

The seller would like to lease back the property upon selling it. I do not know the terms or whether there is a lease in place already between themselves (I asked if this is negotiable).

Here is my dilemma and area where I need opinions. The reason I found this property is because I have been trying to find rent rates on a small amount of space to possibly open up my own small business. Don't expect to make a whole lot starting out as it is going to be a testing period. I am wanting to sell comics, tin signs, and other things for nostalgia sakes. Some of which could potentially work well with the current business in that building. 

What are your opinions on discussing with the current owner about buying the property and potentially having my own stuff for sell as well? Does this sound greedy? How should I go about discussing this? 

I May have some difficulties finding cash for this deal, but if I could find an investor for this I would even give them all the income generated from the property in exchange for just part of the equity. Obviously that would only be if I could come into agreement with the owner to sell my own stuff there too.

I know this was probably a lot of rambling, but just trying to get opinions on the matter and maybe ideas on how to set it up to benefit all parties (should a deal take place). 

Welcome @Tyler Phillippo. I live in the Crawfordsville, IN area and work in Lafayette. Glad to see someone from the same area!

 Nice to meet you Bill, and great questions!

1). Yes, sorry if I was a little confusing. If the sale price is lower than the appraisal value then the LTV will be based on that sale price.

2). This actually brings up a good point. Sometimes we will require an inspection after improvements and other times we do not. It depends on what the improvement be made are. If the improvements add square footage for a tenant or adds an additional tenant then an inspection may not be required because lease agreements will be used. However, if the improvements don't change the leases and only improves the appearance of workability of the property then the inspection most likely will be requested to verify that the improvements in deed add value to the property. Hope this answers that question??

3). Very good question about stress testing. Lately I have been stress testing by raising rates by almost 6 percentage points ( 3% to 9% for example) or even testing the borrow to see if they can hold the debt with no projected income, but still see expenses for utilities, taxes, insurance, etc. 

As for the 1.20 DCR, we typically add covenants to all loans mentioning that everyone must submit financials to the bank yearly which will be analyzed, that way if a borrower falls below 1.20 DCR we hold the right to call the loan if we feel it is necessary.

Hope these answered your questions! Feel free to ask more if you have any or might need something cleared up.

Nice to meet you Joe!

You will very rarely be able to finance such a property over 30 years at a community bank. Reason being is that the banks know that most likely you won't keep the loan there that long, so they will shorten your term and amortization to 20 years typically. 

As for the structure, there are several different ways that they may structure it. From my experience, they will come up with at least two options from which you can choose from. Yes, some of the options are a balloon payment after 5 or 7 years while the amortization may be for 20 years. This will then force you to refinance when rates are higher (most likely) in 7 years. Another option might be a 20 year term and amortization with a 5 year ARM. Price will then reset every 5 years to the 5 year T-Bill + or - a certain percentage point(s), or other rate that the loan officer might come up with. There is always room for negotiation though so don't be afraid to ask the loan officer for what you would like.

 Nice to meet you Tyson!

In general, yes you could handle debt of $1,667/mo to bring you to a DCR of 1.20. Now, it is important to note that your taxes, insurance, and any other expenses that may not be included in the lease will also be viewed. But I'm going to assume those expenses were taken out of your example to lead to $2,000/mo after expenses. The other thing to note is each bank will view this differently. For example, at my bank we will look at the proforma of the borrower as well as perform a 'market value' analysis. This would be based on if the bank got the property back how well would it cash flow. In this analysis the taxes, insurance, a management fee of approximately 7%, maintenance fee of (6%), and a reserve fee of 3% will be used. So, as many have mentioned on bigger pockets before, the more conservative you are with your own expense estimations the better off you are.

As for the commercial property you are talking about, it will be completely based on an appraisal.That appraisal will use a mix of market value and income approach, typically. The appraiser will request a copy of the lease agreement. If you still have some improvements to be made to it when you go to the bank then I would let the lender know. If you have the costs of these improvements you can give them to the lender to give to the appraiser. This can help you get a higher appraisal.

But in general, yes it will be based on an appraisal. You can make an estimate yourself as well based on taking the NOI from your lease divided by the cap rate in your area.

Hope this helps. :).

Nice to meet you @Jordan Decuir.

1).I am personally unaware of investors being pre qualified before having a specific property. Reason being is that the property being purchased will also need to be analyzed as well before being qualified. Now, if you are able to get a guidance line of credit, it similar to being pre qualified in that you are approved for up to a certain amount and then the borrow can purchase several properties at a time and it is quicker. These are more typically used by investors who flip properties.

I say all of this but I can not stress the importance of actually discussing with potential lenders what you might be doing in the future and get to know them. I have personally noticed that borrowers who are close to the lenders tend to have their requests approved much faster because they will be bumped ahead of others. Also, the lender may be able to discuss your weaknesses with others at the lending institution or bank to possibly get your loan approved when others, in similar situations, may be denied. 

2) In this situation you and your partner's financials will be analyzed to see how you guys would fair personally. The first things I would look at is whether you two could handle the debt without making any income from the property. If you cash flow above a 1.20 DCR then you will be in a good situation. Also, if your credit scores are strong like you say then that helps as well. As for assets.... The balance sheet will be looked at for assets and liabilities and your Debt-to-equity would be analyzed prior to the real estate purchase and after. As long as you are below a 2.5:1 then you will look okay ( typically).

So, with the being said, really your lack of experience won't harm you as long as you are strong financially. 

Hope this helps! Feel free to send me a message or ask on here if you have anymore questions.

@Dion DePaoli 

You'll have to excuse me as I'm not sure what the abbreviations GSE are?

1).As for our portfolio loan guidelines, we usually make decisions based on a few criteria. These include LTV, cash flow of the rental property, and overall strength/cash flow of the borrower/guarantor.

A global DCR ( Debt Coverage ratio) is one of the first things measured of the borrower. This is a combination of the cash flow for the borrower/guarantor and all related entities. While analyzing this the most typical requirement is a DCR of 1.20:1.00. This basically means the borrower can pay their debts 1.2 times after all taxes, family living expenses, and any other expenses that may be incurred are taken out.

As for the investment property itself, the bank generally likes to see the property cash flow with a DCR of 1.20 as well. However, I know our bank as well as many other smaller banks will go as low as 1.00. If the investment property looks like it would cash flow at 1.00 or below then that is where the strength of the Global DCR comes in. The stronger the borrowers ' personal cash flow is then the easier it is for the bank to accept less than ideal cash flow for the property.

As for the LTV of the property, typical guideline is 80%. We have even gone as high as 85% foe very strong borrowers if they have very good liquidity ( lots of cash and/or other liquid assets).

I didn't mention the balance sheet much because it isn't heavily relied upon at our bank or other smaller lending institutions in this area because they tend to be over inflated by the borrower. However, we do typically quickly analyze and look mostly at D/E (Debt-to-equity) of the borrower as well as their current ratio ( current assets/current liabilities). An ideal D/E ratio is below 1 but is acceptable even up to 3:1. 

So to sum up the first question, guidelines at our bank tend to be based upon having covenants for the borrow to have a DCR of 1.20 and the investment property to have a DCR of 1.00. Required LTV is 80% but may go higher if it's a strong borrower.

2). We definitely have done this at our bank. I have to ask in which way you are asking though? There are a few ways that we cross collateralize loans. This is generally done when we refinance a large portfolio for a borrower who requests a cash out refinance. Typically each property will be held under its own loan number but will be cross collateralized with the other investment properties. In general is this what you are asking about or are you asking about a new loan being cross collateralized with an older loan if the LTV of the new loan is too high?