Mobile Home Park Financing: What You Should Know

Investing in mobile home parks has become increasingly attractive due to the rising demand for affordable housing. However, the choice of financing plays a crucial role in the potential success of your investment. This article explores various financing options available for mobile home park investments, highlighting their characteristics and potential pitfalls.

Seller Financing

Seller financing, also known as owner financing or a “seller note,” involves the seller providing the financing included in the purchase price. This method can be ideal for investors with limited access to traditional financing, as the terms are often negotiable and more flexible than conventional loans. It is particularly useful when dealing with sellers who are eager to close the deal quickly or who understand the likely benefits of offering financing.

However, not all sellers are open to this option, which can limit your opportunities. Sellers might also charge higher interest rates compared to traditional lenders. Additionally, sellers may retain some control over the property until the loan is fully paid off, which could be a disadvantage for some investors.

Local Banks and Credit Unions

Most local financial institutions, including community banks and credit unions, offer traditional commercial loans for mobile home park acquisitions. These lenders usually focus on their geographic area, providing comprehensive banking services to local borrowers. They are known for being more accommodating when it comes to properties with a higher percentage of park-owned homes and often offer lower loan fees.

However, interest rates for these types of properties can often be relatively high. Banks tend to favor amortization periods of 15 to 20 years, which might constrain the cash-on-cash return expectations. The fixed interest rate period may be short, typically around 3 to 5 years. The financing process can also be lengthy, with extended timelines for underwriting and completion.

At Keel Team, we prioritize acquiring mobile home parks through local bank financing, usually with around 75% loan-to-value (LTV). This strategy includes signing recourse on the loan and focusing on heavy value-add projects to increase the property’s value through infill, raising rents, and billing back utilities.

National and Regional Banks

National banks offer more comprehensive loan terms, ranging from 10 to 30 years, with competitive interest rates and LTV ratios between 65% and 80%. These banks can provide larger loan amounts and typically have experienced lending professionals to guide you through the process. They are suitable for larger projects and offer flexibility in repayment periods.

However, the recourse nature of these loans can vary, with some banks requiring a personal guarantee, which can put personal assets at risk in the event of default. Non-recourse loans, which limit personal liability, often come with more stringent underwriting criteria and higher down payment requirements. The regulatory compliance for national banks can also result in a potentially lengthy approval process, and their service may be less personalized compared to local lenders.

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By Andrew Keel

Conduit Lending

Conduit lending is usually tailored for substantial mobile home park developments. This method involves bundling multiple loans into securities sold to investors, often resulting in more competitive interest rates. It is suitable for large projects and offers potential for lower, more competitive interest rates. Conduit loans are usually non-recourse, limiting personal liability in case of default.

However, conduit lending involves intricate structures and requirements, making it less accessible for some investors. It often necessitates meeting specific criteria and may require substantial experience. Additionally, conduit loans typically cater to larger loan amounts, usually greater than $1-2 million, which might not be suitable for smaller investors.

Agency Financing

Agency loans are offered by government-sponsored entities like Fannie Mae and Freddie Mac, catering to multifamily housing projects, including mobile home parks. These loans are known for their favorable terms, such as non-recourse, competitive rates, and flexible fixed-rate periods.

However, agency loans usually have strict eligibility criteria and a lengthy approval process. They often work with less populated markets and require addressing deferred maintenance, maintaining occupancy above 90%, removing hitches from homes and keeping park-owned homes (POH’s) below 25%.

We focus on qualifying our mobile home park investments for long-term agency debt through Fannie Mae or Freddie Mac, usually holding 60% LTV. This strategy allows us to refinance every 10 or so years after that and hold the properties for long-term cash flow. Our investors remain equity shareholders for as long as we hold our assets!

HUD (U.S. Department of Housing and Urban Development)

HUD typically offers loan programs beneficial for mobile home park acquisitions and developments, particularly those with a strong affordable housing component. These loans come with flexible terms and competitive interest rates, often featuring long terms up to 40 years and high LTV ratios up to 97%.

However, the application process for HUD loans can be complex and time-consuming, taking longer than 6 months to a year for approval. The eligibility criteria are stringent, making it challenging to qualify for HUD financing.

Loan Brokers

Loan brokers specialize in connecting borrowers with suitable lenders, likely providing expert guidance to navigate the complex financing landscape. They typically offer access to diverse financing options, helping investors find the best deals.

However, loan brokers charge fees for their services, which can increase overall financing costs. Additionally, brokers may have relationships with specific lenders, potentially influencing their recommendations. It’s essential to choose a reputable broker to help ensure unbiased advice.

Securing the Down Payment

There are several ways to obtain the down payment for mobile home park financing. Options include using personal savings, tapping into home equity, using credit cards, utilizing self-directed IRA funds, seeking help from relatives, leveraging the JOBS Act for Regulation D Rule 506(b) & 506(c) syndicated offerings, bringing in partners, or using cash flow from flipping other mobile home parks.

Conclusion: Choosing the Best Financing Option

The best mobile home park financing option depends on your specific circumstances and investment goals. Seller financing typically offers flexibility, local banks usually provide personalized service, national banks generally cater to larger projects, conduit lending often suits significant developments, and agency loans usually offer favorable terms. Consulting with financial experts or real estate professionals can prove to be essential to help make an informed decision based on your unique needs.

Are you wanting to learn more about mobile home park financing and the strategies we implement to potentially secure strong returns for our limited partner investors? Get in touch below to speak with a Keel Team representative today!

Disclaimer:

The information provided is for informational purposes only and is not investment advice or a guarantee of any kind. We do not guarantee profitability. Make investment decisions based on your own research and consult registered financial and legal professionals. We are not registered financial or legal professionals and do not provide personalized investment recommendations.