Current Interest Rates for MHP Mortgages?


#1

Friends -

I’m refinancing my mobile home park. I currently have a $360,000 mortgage running at 8.3%, 25 year amortization, 3 year baloon. This was the going rate in early 2007 for small-ish mortgages from local banks on parks with dirt roads and few amenities.

I’ve improved occupancy and cash flow dramatically over the past 16 months. I’m hoping to now borrow upwards of $750,000 on similar terms (25 year amortization, 3 year baloon). The only question I have is: what interest rates are being charged today on such mortgages for 1-star parks like mine?

Any thoughts appreciated,

-jl-


#2

Jefferson’s post about refinancing his park reminded me of a saying whose author I can’t recall:“If you don’t know what’s coming, then you will never know it when it arrives.” (I suspect that the author was one of the Austrian macro-economists.) It is common knowledge that today’s interest rates are unusually low. In fact, the Federal Reserve’s overnight lending rate is 2%, although we all know that price inflation is substantially much higher. (I believe that the real, not the CPI, price inflation is above 10%.) Consequently, the cost of borrowing in real terms is negative, presently. This cannot be a long-term situation. The closer we get to paying the piper for our (actually, the government’s, the Fed.s, and Wall Street"s) previous sins, the more positive (the higher) the real interest rates will become. Remember Mr. Volker’s harsh, but temporarily effective, medicine to cure our previous inflationary imprudence?

Therefore, if Jefferson would do conservative refinancing today, for a longer than a 3 year balloon term, that refinancing should be very profitable for him. Also, paying the loan with depreciating dollars could be an additional profit center. Further, if the refinancing would provide him with additional non-taxable dollars, he would be in a position to invest in, say, precious metal coins, which are presently very cheap and are universally recognized as the only real money that is not simultaneously an obligation on anybody-- another profit center


#3

Agreed. In todays climate - once you actually find a lender who will close, the term is more important then the rate. (When I say term I am referring to when the loan balloons.)

I have clients on their 7th or 8th extension due to institutional financing (some may remember the $14 Million dollar deal I was syndicating the equity portion of recently). In this case the equity was quite easy to raise - in fact, both my clients and I where successful finding the equity without much effort. But the debt markets are definitely in turmoil (and deservedly so).

When/If you can borrow for any competitive rate that is less then (real) inflation and then pay with depreciating dollars - LOCK in the longest TERM before the balloon possible - even if it costs a 1/2 point or more in the rate. This is not the time for short term calls!


#4

Try private money lenders, offer them a rate better than they get for CD’s etc. and try to lock in a long term deal. Local banks are the best on these type of parks but it depends on the state and the bank. I have one in Alabama where they will lend if you live in the area but not if you live out of state. Another where they had no problem lending if you lived out of the area but it was a 15 year term with a 3 year call. No problem re drawing the note if you pay on time (cost me $35 when I re did it recently) drawback is that they go on current prime rate so yes my interest went up from 6.5 7o 7.25%. None of the big companies would touch it as it was too small a loan, park owned homes and it they would consider it they said rates would be 9.5-12% with a 5 year pre pay. Ouch.

All said, I have had the best luck with small local banks and they get to know you and treat you like a person not a number. Also had good luck with private lenders but they usually only go up to 60-71% of appraised value.

Good luck.


#5

Jefferson,

Rick G. and I visited with the president of a local bank (Oklohoma) and his terms where:

75% LTV on a 10 cap valuation

no money for homes or notes

1.5-2 points over prime variable no call

would consider a 2 point over fixed with a call

wanted 10 year amortization but said he consider 15-20

Thanked us for being so “knowledgeable”.

Let us know what you are seeing.

Karl


#6

I am really surprised to see all of these high rates for MHPs being posted.

I guess I am really lucky.

I have two parks on land contract. One at 5% and the other at %6.25

The other 2 I have bank financed at %5.95 !

I have a great relationship with my small local bank. I guess that is something that takes time to build. Trust and personal relationships with the bankers is key.

Anytime I am trying to purchase a park on contract I have 2 great letters of references delivered with my offer.

Briton (IN)


#7

Hi Briton,

Nice rates - most of us enjoyed terms like these before the credit crisis - how long ago was the 5.95% originated? If recent then WOW!

Any other important info would also be appreciated if you don’t mind:

Amortization

Call

Fixed or variable

Closing costs

Lender name, contact person, and phone #

Thanks and congrats on the good terms!

Karl


#8

Hey Karl.

These are recent.

I have them amortized over 12 years I believe. I had a couple 5 and 3 year loans come due about the same time and I was able to wrap 3 loans up together at this rate.

Closing costs were minimal.

The rate is fixed.

It is a local bank that I have been doing business with for 5 years. I have never made a late payment. I am sure my history is the reason I got such a great deal.

I would rather not say more about the bank on the forums however if you email me I would be glad to give you more info.

Briton (IN)


#9

Briton, you are not lucky! Luck is a chance event while the odds are stacked against you. The hurricane (Ike) that ripped off roofs, toppled trees on site-built houses around our little development, left our M.H’s unscathed-- except for the top of one chimney. That is luck.

Your consistent achievement of low interest rates on four parks speaks highly of you, indicates your competence, and predicts a glorious future for you.

I am quite certain that interest rates will soon sport double-digit figures. You seem to know that inflation is not a loss of wealth but rather a redistribution of it. You should be one of the beneficiaries.

It is conceivable that a temporary paradigm shift is active for the MHP business. That is that for the next 10 to 15 years, we can realize even greater profits from today’s loan investment rather than from the park business per se-- presumably tax free.

I compliment you; I applaud your intellect and your earned success.