Bank Financing of MHP

I called a few banks and they do not seem to be interested in financing for MHP’s. Why is there a reluctance to finance MHP’s from bank’s part?

I think your running at the wrong banks. You might try small, private banks that are used to financing farm and ranch. They are used to looking at creative income, expense and balance sheets. Shoot- one of my parks is financed through a bunch of credit unions that finance commercial properties. 

Thanks Jim for your advice. However, they seem to offer 8% interest and how does it attract a property with a cap rate of 9%. Is it worth taking the risk?

You need to maintain about a 5 point spread between the loan interest and the cap rate, to hit the really attractive return rates that we seek. At a 8% bank interest rate, you’d have to buy a park at a 13% cap rate. But I’ve never heard of 8% financing right now, so I think the problem is that you’re still not hitting the right banks. You need to be hitting the banks on Main 'Street in the town the park is located in. There are normally 3 or 4 such banks. If you hit all of those and they say “no”, it may be a sign that the deal/market is lousy and should just drop it and move on. The small town banks are huge cheerleaders for the town, and we’ve never failed to find one when we needed one. I think you’re hitting either regional banks, or some type of hard money lender. Something is definitely wrong, that’s for sure.

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Earlier this year my partner and I had to call over 100 banks and credit unions to find financing on a MHP with city utilities, paved roads, in an outstanding school district, in a very healthy major metro, with 3 years of seller tax returns documenting respectable financial performance.  I was floored at how difficult it was to get this deal financed. But all it takes is 1!  And we got one bank to go 80% LTV with reasonable terms.So keep cold-calling.  Call every bank in the State, call every credit union.  Do web research on ‘top 100 banks’ in your state, and then use Google Maps to zoom in on your city and find all the smaller banks and CUs.  Be dogged, be persistent.  Go get your financing.“Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent.”  - President Calvin Coolidge (1872 - 1933)Good luck,-jl-P.S. I must be going backwards.  On my first MHP acquisition 7 years ago, I only had to call 60 banks to get 58 rejections and 2 ‘yeses’ from banks. 

Jefferson,Do you think the lack of interest by the banks / credit unions was due to the location of the park?  Or some other factor?  I remember seeing another person post on the forum that they were finding lots of local banks willing to lend on mhp’s in their area.Robbie

I have absolutely no idea why it was so difficult to finance this park.  The location was a) very good on a county highway, b) in a very high-end suburb of c) a large metro, d) in walking distance to the local excellent public high school.  Everything about the park makes sense for a lender.Bankers make bad decisions.  My primary bank that finances me 100% LTV on my MHP acquisitions - will only do so within 30 miles of their headquarters building.  I brought them a MHP deal 125 miles away (same state) that is much better than the ones they’ve financed for me so far, … and the bank said ‘no - too far away.’ Distance to an asset is irrelevant to a bank’s profitability on a mobile home park loan.I’d argue that the key factors for a bank to avoid taking a loss lending on a mobile home park are:1. the economy the park is in2. the skill of the owner/operator3. the park infrastructure(probably in that order)Bankers’ poor decision-making never, never, never, ceases to astound me.  Yet the inefficiency in this market is part of what enables large profits.  If I’m having difficulties raising money, then everyone must be having similar difficulties (at least for that particular deal), and no one else will snap the deal away from me at a higher price.Bankers’ poor decision-making skills present an opportunity for buyers who can in fact raise capital.  Remember, 'all it takes is 1.'Your mileage may vary,-jl-

Thanks Frank and Jeff for your extreme detailed guidance. It definitely inspires me. I also have a limited credit history in US just for about 4 years although my credit score is good/excellent. (755+). Not sure if that would be a limiting factor.Thanks, but will definitely try. 

There are a couple of local lenders that I work for that lend on mobile home parks. One in particular is very knowledgeable of the industry. I have inquired to both as to what areas they make loans to. The response was most of their loans are on properties within a reasonable driving distance (one day or less) from the bank. They want to be able to check out the parks at any given time to make sure they are being well managed and maintained. Also, they want experienced park operators. This limits the geographic area of the couple of banks to most of Wisconsin and Minnesota. If anyone has deals going in these areas, PM me and I’ll be glad to send you some contact information.

Thanks Erik.

I agree with Jefferson:'all it takes is 1’We recently purchased another park.  In the end we had 3 local banks that were willing to finance.  The first bank wanted to balloon the loan in 2 years.  This was from a local bank that my husband had been talking to about a mobile home loan for approximately 3 years.  The terms during those 3 years were never a 2 year balloon.  Since a 2 year balloon was not acceptable to us, we made it our mission to find another local bank.  Thankfully, we were able to find 2 more local banks and these 2 banks were willing to offer much better financing terms.Thus, I agree with Jefferson on the ‘all it takes is 1’ and the ‘persistence’.We wish you the very best!