Hi everyone,
In researching financing a park, it seems that I’ve come up against one potential roadblock:
Is the max value of the park you purchase limited to your net worth?
Say you have 500k for a down payment, but that cash is the majority of your net worth. If you use it as your down payment to leverage into a 2M park, will most banks limit you to 500k since that’s your net worth? That makes it seem impossible to leverage financing in that scenario. Any input would be appreciated!
Since the mortgage is backed by the asset/park, I don’t see why your total net worth should be a factor but it could be… My guess is that lenders all have different criteria; perhaps you have high debt? Try reaching out to a few different lenders.
Irrespective of if the lender will finance this or not if you use all of your cash, I think its prudent to always have some money in reserves and operating. If you get hit with an unexpected large expense on the front end that can’t be paid out of the park, then what? Maybe look at a 1.5M dollar deal or somewhere in between.
I agree- the property should be their fall-back. I don’t have high debt- just am planning on sinking the majority of my funds into this deal, with the exception of my reserves for repairs and emergencies. I’m definitely keeping that in mind as we proceed.
I would underline the need of having a large cash reserve. Also having a sizable line of credit would a very good thing to have.
These things are especially important if you are carrying a lot of debt, which it sounds like you are planing to do.
Some years ago Forbes had an article on the 20 biggest real estate investors where they outlined their careers. All but one had gone bankrupt at one point. Why? Too much leverage and not enough reserves. The list was of the guys who were able to rebuild. There must be a huge number no one ever heard of who hit on hard times (like almost all business do) and never were able to recover.