Assuming 75 lot MHP with 20 POHs (value $100,000), asking $1,300,000 80% occupied in good market. Lender will not lend on homes. How would you structure contract(s) so that I do not have to come out of pocket (largely diminish down payment for the MHP) to purchase MHP and POHs?
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What LTV is the bank talking?
What are the lot rents?
80% LTV
Lot rents $260
Have you asked seller about seller financing on the park owned home values?
Yes, they are not interested.
Thanks
To me this is typical. You have for example $20k per lot x 60 occupied lots (80%) for $1.2 million financed at 80% and you need 20% of that out-of-pocket or $240,000. In addition you need $100k for the homes, or $340,000 total. Plus you’ll need some startup capital. So you effectively get a lower LTV on the combined purchase than on the “park” alone. That’s business. If you can find some other way to keep cash in your pocket, by all means go for it, but I think this is typical.
Brandon@Sandell
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Thanks Brandon, much appreciated.
I’m fine with the 20% down, just that extra for the homes kills my operating and unexpected expense fund. I need to figure out a way to get the homes for less, maybe pay more for park to offset homes? As long as it will appraise then essentially getting homes financed through park?
I might buy them all from you and partner with some lonnie dealers to turn them around and create notes out of them, but there would have to be meat on them bones. Preferably a bunch of legs, they are the best. Pics, prices, city, and comps please. eric@gabrielpm.com
The breakdown between the “Park” price and the “Homes” price is arbitrary … until it isn’t. You can’t really figure on buying a park with a lot of POH for 20% down on the whole purchase price because the homes “drag” your LTV down (since no-one will lend on the homes as collateral).
Who decides the price and who decides if you can get your POH “for free?” It’s up to you and the seller, so long as the bank (appraiser) agrees. But be careful about splitting things up differently for different people (you, Seller, Lender, County property tax & recording deed fee (based on recorded value of “real” property). Different parties have an incentive to push your allocations of purchase price in different directions.
IMO It’s best to be realistic about it and realize that 80% LTV on the whole deal is probably unrealistic (overleveraged) and plan for more cash “down” as a percentage of the whole deal price - I figure generally that 2/3 of the purchase price can probably be financed. If you assume 70% then you need to come out of pocket $390,000 on this deal, not $260,000. That’s maybe broken down $100k homes, $50k startup costs, $240k down on a “theoretical” loan on $1.2mm at 80% ($960k) but that is really a $340,000 down and a loan of 960k ($1300-340).
You can swing the numbers around a little, but my point is this: a “quick-and-dirty” calculation of how much “park you can afford” is 3x or 3.5x your available cash for investment, not 5x your cash.
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Thanks ericgabriel, if I get further along I will contact you.
Hi James,
I am gearing up to purchase an MHP as well. I have been anticipating this same problem. Would you mind updating the post when there is some resolution to your deal on how it all worked out?
Mitchell
Mitchell,
Seller decided not to sell.