All Forum Posts by: Rich Littlefield

If I could, it sounds like you are asking if it is practical to develop this.

Cap rates on Mobile homes depend on a number of factors, the closer they are to the bigger city, the 

lower the cap rate. 

A park with only 10 pads on it is also a problem.

But you are not buying it, you are developing, I am not sure you are looking for cap rate correctly.  More you should be  looking for a return on investment. 

So if you are buying a property and  price is $100,000 and the net income is $10,000 per year, 10% then the cap rate is 10%.  So you see the cap rate is referring to the purchase price compared to the price.  

I guess what you are doing, which is fine and good as it appears that you are saying something  hypothetically like: " I am buying the land for $50,000 and investing $50,000 in it  will yield $10,000.  So you are looking at it in a reasonable way, if I understand what you are saying and in essence that is a cap rate, but it is not how it is used.  

But mobile home parks are considered low risk investments, if the residents all own their  coach as  they really can't just move.  If you are buying the coaches then you have a different animal. 

The more rural the park is, the higher the risk. Therefore  the cost of money  to buy them is higher and therefore they must be sold at a higher cap rate. 

Lenders will lend on mobile home  parks in larger metropolitan areas at extremely low rates.

You are developing the property, if the property is rural, then an 11% cap rate is normal. So if you as the developer spend the money and get 11% cash flow on your invested dollars, you will not be able to sell the property at a profit, or you will have a hard time doing so. 

So if you put $100,000 and if you need to sell it at a 11%  and the return on your invested dollars is 11% then you will actually lose money after closing costs. On the other hand if it yields 22% on your invested dollar, and you need to sell it at an 11% cap rate then you will double your money - closing costs.  In other words

If your investment is $100,000 and yield is $22,000, if the cap rate is 11% then the property is worth $200,000. 

If you can buy a mobile home  park in the area for 11% now, it makes no sense to build one, pay all the carrying charges, rent it out and only get 11% if you could just buy an existing park and get the same cash flow. You need to be compensated for the time, effort and risk of developing the property.

You are certainly welcome, I mostly lend on them. I used to broker properties though.  

Search on Loopnet

Redfin is the worst, Trulia and Zillow are the same company. The Board of Realtors does have the most accurate information.

By law, a default may only stay on your credit report for 7 years, I am guessing maybe you have default plus a BK? that would be 10 years.  It is just a matter of requesting it be removed if older than that. 

Good question,  if for example the cap rate is 5% and the interest is 5% then the return will be based on 5% down payment minus taxes, insurance and up keep on the down payment portion, because the interest rate and the cap rate are canceling each other out. 

I am seeing 4.75-5.05 % on 5 year (20%  down no points) on 8-10 unit. (03/28/2019 rates change quickly) This is if you have good credit and the financials are all good. Therefore if you are getting a 6% cap then you are getting 1% the  amount borrowed plus the 6% on the amount you put down-taxes and insurance on the down.

If you are getting 7% then you are getting 2% on the borrowed money.

Now if the property is not so good, or if your credit not so good, then the rate is higher and of course  it will not cash flow. 

So if you have a 6.5% rate and a 6% cap rate, you are losing .5% on the amount borrowed. As opposed to gaining 1% on the amount borrowed had you gotten the 5% rate. 

Basically then the problem appears that the loans you are considering have too high of a rate. The only way to deal with that is to put down more money or get a better lender.

I would think at the very least that is negotiable.  Just don't hide it and get an agreement in advance.  I would tell them about it, if they demand a piece of the pie, offer to move on down the road, I am guessing they will back off on it.

Go down to the city and ask them what is involved. It may already be zoned for multifamily then it will be easier.

Nik Moushon I get it, this is a sore subject for you, you seem to feel architects are not valued or something. 

 I explicitly said  they need plans, they need an engineering firm and a they will need a land survey.  Did I not? Are you saying the engineering firms don't have on-staff architects?I do not care who draws up the plans. I am sorry if that is one of your pet peeves. 

  They need to go to the city and get permits.   I have had more than one borrower come to me and say that city does not require permits,  (Mostly Kentucky if I remember correctly, I have heard it more than once, it has been a while.)  .  You think they were mistaken. OK. I know I doubted it the first time and tried to verify it,  made some phone calls, they seemed to be correct, you are probably correct, seems reasonable, did not change the fact that we could not do the loan without permits. 

I have had them go straight to an engineering firm and it was acceptable.  We are getting off topic here, they need plans, they need engineering, they need a survey to get permits, I need the permits.  That was the answer to the question asked and still is.  Which architect draws up the plans I do not care. You are correct that getting a local architect who knows the area goes along way in getting project approved. I have seen that first hand.

Just to clarify, my experience on this is: The more regulations in the area, the more  important a local architect becomes. Yes, expect to pay more money but you are getting a lot more service. I am working on a deal right now that would have died months ago, had the architect not stepped in. He also knew that the lot could be built on. It was an odd shaped very small property. Without his expertise the buyers would not have known that they could even buy it. If you are using an architect that you found on the internet who is 500 miles away, he is not going to help you get the project through the planning department and you are making a good point about him working closely with the contractor.  But if the property is more rural, and the land is fairly flat and your contractor is very knowledgeable,  you might be able to save a couple of bucks by getting one of the architects out of the area.  Most  people should get a local architect.  The fact is if before you buy a property you may want to consult with a local architect.  Of course I could be looking at it wrong, and am always open to learning.