No other sector of U.S. real estate has as many financing options as mobile home parks. Indeed, there is a virtual buffet of options that do not exist outside our asset class. In order to be a successful buyer, you have to be aware of the financing tools available. So here’s a list to get you started.
One of the most unique features of mobile home parks is that they’re predominantly (something like 90%) owned by moms & pops that own them free and clear. So what does that mean? It means that the sellers are very often able to offer the buyer seller financing. This is the best type of financing for real estate that you can get. Not only does it allow for lower down-payments than traditional bank debt, but it also means no risk of getting turned down by an ignorant bank committee or because of sketchy credit. It also means no costs (no appraisal, no property condition report, no points), longer loan lengths and non-recourse debt.
These are from local and regional banks, and are pretty much the same as you’re used to seeing. Typically, they are 20% down, with a 5 year term and full recourse. They are our least favorite form of lending, as they have shorter balloons and not as attractive terms. We use these when the note is under $1 million and seller financing is not available.
This is our second favorite method behind seller financing. Conduit loans have some amazing attributes. They are ten-year terms, with fixed, low interest rates and fully non-recourse. They are based on 70% LTV, so if the appraisal comes in higher than you’re spending, it’s possible to have down payments as low as 0%. The only negative to conduit loans is that they cannot be pre-paid without paying a large penalty called “defeasance”. But the loans can be assumed, so that solves the problem in most cases.
Master Lease with Option
Under this structure, you take over management and operation of the mobile home park until you groom it into a condition that allows for a solid loan. At that point, you buy the park at an already-agreed-to price. This type of financing is normally reserved for deals that are so poorly managed that they cannot pass bank muster until they have been “fixed” with better operations.
One popular way to buy parks does not require financing at all. It’s called “selling assignments”. When you tie up a park under compelling terms, it is often possible to sell that contract to a larger mobile home park player for big money. We pay out roughly 5% to 10% of contract price as an assignment fee. So there is a way to get into the mobile home park game with virtually no capital at all. There are few, if any, other sectors of real estate that you can do this in.
The power of real estate is leverage – the ability to buy a larger property than you can afford to buy for all-cash, and bridging the gap with sensible financing. Fortunately, mobile home parks offer more options for financing than virtually any other real estate sector. If you can find a compelling deal, you can find the financing to make it happen in this niche.