Which is better if I’m selling my park? Park owned homes or tenant owned
homes. I just read an article that said parks that own most of
their own homes are harder to finance. I do own most of the homes
in my park and had little trouble getting financing with 20% down.
Park owned homes also generate more cash flow.
Has anyone out there had trouble getting financing on a park where
most homes were owned by the park?
When I purchased my MHC one of the big lenders told me that because of the high percentage of park owned homes they did not want to look at the request. Went to a local bank and got the loan with no problem. Land lease sites are great when you have a waiting list but terrible when the borrower cannot afford the home and after nine months the finance company pulls it out of your community and you get hit with the loss. Park owned homes tend to be more management intensive but you can control more situations when you own the unit.
Sam
I own all of the homes in my park. If you believe everything you read then you would think that owning all of your own homes would be a negative thing. I disagree with that line of thought. I went to my local bank and I had no trouble getting the financing I needed.
In fact, I am getting ready to expand my park, adding more lots and homes. If you are a good Landlord and you take care to keep things in good repair, then you can keep your overall expenses to a minimum. I also recommend that you do home inspections at least every three months. I have a good relationship with my tenants and sometimes if I provide the paint they paint their homes themselves. If you take pride in your property then the majority of your tenants will too.
If you do inspections this helps to catch repairs that need to be done before they become major repairs. I send out a letter giving them at least a two week notice that I am coming and what I will be looking for when I come. I am very explicit in the details of what I expect when it comes to housekeeping. Example: I tell them I expect the stoves, refridgerators, bathtubs, sinks, commodes etc. to be cleaned, If it isn’t done to my specifications, then I write them up and give them only one more chance to get it right. I also check the batteries in the smoke detectors and check for needed repairs.
A lot of park owners get in trouble when they want to pocket all the monies received and not perform or pay for repairs. It doesn’t take long for something like a simple leak to damage a floor.
I’m a 46 year old single woman and I run a 19 unit mobile home park. I do contract out some of the major repairs to a local remodeling contractor. He gives me great rate, and dependable service. I’ve been told by my tenants that I am the best landlord they’ve ever had. Also, adjoining land owners have expressed their appreciation for how well I maintain my park and park grounds.
The County Board of Supervisor’s, the County Building Inspector, the County Planning Commission, along with Class A building contractors, have stated that I have the best maintained park in the county. What ever happened to taking pride in your work? I know it makes me feel good when people in my community compliment me on my park.
MHP owners have to take responsibility for their properties. I do all the mowing myself to keep the grounds looking neat, I pressure wash my homes, I do not allow trash or junk to collect on my property. I am making a good living. I do not have any other job, and I work less than 20 hours a week unless I am painting a home, or something on that order.
I have also made an offer on a 50 acre trac of land that adjoins my property, and plan to develop it if my offer is accepted. Everyone’s situation is different. We may be a minority, but I would rather work for myself than anyone else.
If I owned several parks, I would look for lease lots. If I do expand, I can always hire someone to help me manage my properties when it gets too demanding. You should also set aside some of your rental monies for home replacement. Eventually, you will want to replace a home as they get wear and tear on them, so put some in savings out of each months rent and you will be prepared when the time comes to replace one.
It sounds like you take great care of your park Cherrie! It’s good to hear owners taking pride in the quality of their property.
Local banks are excellent sources for getting into a park with a high ratio of park-owned mobiles. Local banks can be flexible and blend many products into one single payment. When a local bank considers mobile homes and pads in the collateral equation, they will be essentially blending a personal property value with a real estate value. In loan terms there is the personal property portion which may typically consist of a 10-15 year amortization (payment schedule), and a real estate portion which may consist of a 20-30 year amortization. The result will usually be a blended amortization of something more than the personal property portion and less than the real estate portion, say a 15-25 year amortization.
The rates that go along with these loans will typically be based off the prime rate index. Since the park-owned mobile home park is more management intensive, it is often times qualified much like a business loan hence the prime rate index.
Also, because your options may be limited to local bank financing, the number of available lenders becomes narrower. You will need to find a local bank with the appropriate “taste” for these kinds of deals or who is comfortable with you as a borrower. Different local banks will be lending on different property types based on their investor’s goals, company mission, etc. Many borrowers move from their local banks when they need more aggressive terms or bigger loans (Large Commercial starts in the range of $5 million to $20 million and goes up to around a $1 billion). Local banks are typically not able to finance these larger deals or cannot provide the more competitive terms needed by some investors (lower rates, longer amortizations, etc.).
Just like local banks, national lenders have their own “tastes” for project types based on their investor’s goals, company missions, etc. National lenders tend to be more rigid than local banks in the terms they offer. Usually a program is created with a certain “spirit” in mind. There may be a program dedicated to offering finance options for properties that have been stabilized for many years and borrowers that are exceptionally strong in cash-flow and weak in assets. The program offers longer term financing than might be available or desirable with a local bank program. We might call this program “No Assets-Long Term Fixed.” Pardon the lack of a better name! 
This program would most likely not be available for a property that is in need of rehab or has had tenant occupancy problems historically. Since the program is made for a very specific collateral with a very specific borrower in mind a different option will be needed. The rates offered are reflective of the risk inherent in the collateral and the ability to repay. The program is designed to be very streamlined so the people behind the scenes are performing a very specialized skill intended for a single product. A local bank might have the same loan officer who looks at personal property financing to also look at real estate financing hence the flexibility and the single point-of-contact. This is rarely so in the national lender arena. As a result of the higher volumes and specialized skills in considering a single type of project, these streamlined programs allow for rates and terms priced more competitively with respect to the project type than a local bank will typically offer.
The difficult task in utilizing national loan programs lies in finding the right program for the right borrower and the right collateral. In residential lending this is quite easy because the collateral is quite predictable: same purpose, many comparable collaterals within a small area, same source of repayment, etc. The only “wild card” becomes the borrower. This is why residential loans rely so heavily on borrower credit and income.
In commercial the ability to repay usually lies in the collateral (for stabilized property). An office space operates quite differently than a restaurant in how it makes money, spends money, etc. They also perform quite differently in “loan terms”. An office building is usually a much lower risk than a restaurant and the rates and terms reflect that.
Oops, I’ve got to get going or I’ll miss the plane for San Diego!
So in closing, local banks are a much easier way to obtain financing for certain projects which have multiple facets such as personal property and real estate. They can be flexible and more agile in their decisions. Most borrowers begin their commercial lending experience with a local bank.
National lenders tend to offer more competitive rates and terms for very specific project types. A bit more time can go into placing a project type with the appropriate program. If you work with the right finance professionals, you will quickly learn what their specialization is and will be able to rely on them for that expertise. However, you may need to rely on multiple “specialists” in order to meet a variety of finance needs.
The industry is taking big strides in the small balance commercial sector. There is a lot of consolidation going on right now with mid-sized lenders which is allowing more and more options from a single point-of-contact or a “one stop shop” if you will.
So it all comes down to an investor’s priorities and goals. These are the factors that will determine whether or not a national or local bank lending program is right for you.
See you at the conference!
Colby