Table of Content
There may also be road requirements , tenant home ownership minimum percentages, aesthetic requirements , HUD code adherence requirements, home density requirements, and amenity requirements. After a half a century of combined years in the real estate business, MHU.com is the only place that will give you the good, bad and the ugly details on Mobile Home Park Investing. If you are reading this, you are likely already thinking about a non-recourse bridge loan and now wondering what this has to do with a death in unit 146B. This article is about why you really should obtain a non-recourse bridge loan as opposed to a recourse one. Lower tenant turnover ratesTenants are less likely to move out if they own their homes.
This loan program is for investors with poor credit or for mobile home parks that are not stabilized . Because of this process, mobile home parks create a solution for consumers looking to find affordable housing during tough economic times. Mobile homes provide those consumers with the opportunity to have access to affordable housing, and possibly even the privilege of homeownership above all.
Risks of Investing Manufactured Home Parks
Years ago the main income was from pad rents where now the value is in building a commercial strip mall or multi-family homes. This has its challenges but also has huge financial gains if successfully brought to completion. In 2018 BC parks have an allowable rent increase amount of 2.5% plus proportional amounts as published by the Tenancy Branch each year. (2012 – 4.3%) (2013 – 3.8%) (2014 – 2.2%) (2015 – 2.5%) (2016 – 2.9%) (2018 – 4.0%) (2019 – 2.5%) (2020 – 2.6%) (no increases due to Covid-10 for 2021) (2022 – 1.5%) (2023 – 2.0%).
For those investors that seek immediate cash flow returns, mobile home parks are likely to be an attractive option. It was common that there would only be one buyer putting an offer in or negotiating to purchase a specific park. You could buy a park for up to and exceeding a 15% purchase cap rate.
How Much Are Manufactured Homes?
Due to the flaws in the first two methods I put all my efforts into valuing a mobile home park using the Income or Market Capitalization method. Under this method I take the Net Operating Income divided by the Capitalization Rate to come up with the Value. While this might sound like a simple process, it can be quite complex coming up with the true Net Operating Income and decided what cap rate to use in the formula. Regional Bank Mobile Home Park Loan – Rates can be fixed from 3 to 10 years and are tied to corresponding US Treasury Yields with corresponding terms and a 25 to 30 year amortization.
First is the fact that he, along with his partner Frank Rolfe, is the 5th largest owner of mobile home parks in the U.S. with over 20,000 lots spread out over 25 states. But he is equally well known for his ownership of MobileHomeParkStore.com - which was the first mobile home park listing service in the U.S. - and features between 750 and 1,000 mobile home parks for sale at any given time. Another factor in determination of an acceptable cap rate has to do with the requirements of your lender as well as the interest rates on the loan you use to purchase the property. If you are borrowing 80% at a 10% interest rate and are trying to buy the property at a 7% cap rate, you will have a large negative cash flow. On the flip side, if you are borrowing 80% at a 4% interest rate on a 7% cap rate, you should have a positive cash flow.
Manufactured Housing
Zell began his career with residential property management, then moved into multifamily, and finally settled into the mobile home park niche. Mobile Home Park investing has helped billionaire Sam Zell become a commercial real estate investing legend. You can cut through much of the management hurdles of owning an RV park by self-managing it. While this is not required, many owners find they really enjoy replacing their day job with a career as their own boss, with a varied schedule and both outdoors and indoor assignments. Only select RV parks that are “destinations” and not “overnighter”.
There are guidelines that an investor must adhere to, but a 1031 Exchange is one way to defer capital gains tax. Finally, it’s easier to finance the purchase of a mobile home park than it is to finance the purchase of mobile homes themselves. But, there are still some common requirements that your mobile home park must meet in order to obtain financing. In order to keep manufacturing efficient and therefore costs low, there are very few customizable design options when it comes to manufactured home layouts, so from the outside they all appear similar. Any exterior additions to the homes must be approved by the local building authority and/or the mobile home park operator. When evaluating a park the overall condition and often ‘first impression’ is important.
This has been a game changer for park owners and is a win-win-win for everyone involved. Although there were earlier attempts at the same type structure, the CASH program was introduced in a perfect time of need and has been a huge success since. As time has progressed, 21st mortgage now will do the same structure with most of the major mobile home manufacturers which makes this set up possible for many park owners nationwide.
So the interest rates are important to consider in the equation. Buy, Rehab, Rent, Refinance, Repeat is the five-part BRRRR real estate investing strategy that makes financial freedom more attainable than ever. In this book, author and investor David Greene shares the exact systems he used to scale his real estate business from buying two houses per year to buying two houses per month using BRRRR. Bridge or Hard Money Mobile Home Park Loan – Rates are fixed from 1 – 3 years and are tied to the 30 day libor rate plus 6.00% to 10.00%.
Another consideration is the service of utilities to the park which is also closely related to location. Most preferred is one that has full city services such as city water and sewer along with garbage pickup, hydro and cable TV. These can be more expensive at the outset but translate into easier management and upkeep. That said, it is good to also consider ‘non city serviced parks’ as there are many. These parks may be serviced by their own water wells, septic systems, lagoons, or onsite sewage treatment plants.
All he has to do is raise the rents 60% to market rate and he will hit a home run. Low Construction Starts – in March of 2020, the corona virus pandemic scared most lenders from making construction loans on projects already in the works. About 6 months later these lenders were eager to lend again. But by then, the supply chain calamity increased the cost of materials and labor making it economically prohibitive to build.
Financing mobile home parks in the past was somewhat challenging since most lenders only understood them as being very low end housing. Most lenders will still expect the Buyer to put his own cash of 30% to 40% down and they provide the balance required to complete the purchase. Current lending rates are at an all-time low so it is an ideal time to borrow funds to invest in this type of opportunity that offers returns of 5% to 9%. Lenders are now seeing this as one of the more secure lending opportunities due to the steady cash flow and debt serviceability. The combination of the higher going-in cap rates with comparable financing terms provide significantly stronger cash-on-cash yields than currently available in multifamily.
After determining what is an acceptable cap rate you need to rework the profit and loss statements you receive from the seller or broker. Your goal in this process is to determine the actual projected income and expenses for the first year after you take over ownership. Figuring out the actual income is usually not too difficult. You can take the actual number of spaces in the park and multiply this by the actual rents being charged and subtract out a reasonable allowance for collections and you should be able to come up with a good estimate of the income.
If cap rates further compress and if your occupancy increases along with the increase of rents, then you have leveraged the formula for massive potential mobile home park profits. 21st Mortgage CASH Program – a consequent effect of Berkshire Hathaway buying Clayton Homes was the introduction of Clayton Homes teaming up with 21st Mortgage to introduce the “CASH” program. This program provided an avenue for park owners to get their hands on new Clayton mobile homes that get transported to the park owner’s community . Then the park owner has a certain timeframe where he can market the home for sale, then send park screened applicants to 21st mortgage for financing. Of course, a park owner has to have some skin in the game so as park owners we essentially guarantee or back stop the loan and take over the financial responsibility if tenant defaults while we find another tenant.
No comments:
Post a Comment