Passive Investors For Improvement Budget & Their Returns

mobile home university
1

Hey there. I own a park that needs some big improvements (ranging from capex to buying homes) and I was considering the idea of raising passive investor’s money to cover this budget of improvements, then pay them a generous return for their contribution. I’ve never done this type of construction, and have only seen people pool money for the acquisition and costs thereafter, but I haven’t seen it done like this with a park that somebody already currently owns.

My questions were the following:

  1. What type of return and terms would make this proposition attractive? I was considering 10-12% interest, and a 3 or 4 year balloon payment. Or would it make more sense to add principal payments to it? Is the term too long?

  2. Would it make investors feel more safe if I were to personally guarantee their funding with my personal funds? So if I were not able to meet my end, they could go after my funds. I’m liquid enough to cover the budget (x3) but would rather not freeze my budget if I could. I felt having this guarantee/recourse would make up for me having a shorter track record.

  3. I am new to the concept of using other people’s money, since I’ve always used only my funds in my projects. How should the deal be structured? Should I try to involve as many investors as possible to spread out their risk? Would people like monthly updates? quarterly? I understand some of these can be googled, but would love to see what other MHP operators did that works in this specific arena rather than see what apartment people are doing since they tend to work much more differently.

  4. Would it make more sense to go after a different route to get funding for the improvements? Say a line of credit or something else? Am I missing something else? I see funding for these type of projects in the SFH & Apartment space, but not in the MHP arena. Is there a product out there for this? Usually the only way I’ve done is from cash flow & savings, but I feel this is limiting long term.

Any other ideas or thoughts are welcomed, including telling me my idea is bad, haha. Thank you for your time friends and happy holidays!

2

Hey Gonzalo, to be honest I would try to go a different route. How is the park financed? Local bank? If so and you have some equity there’s a good chance they’d look at doing a LOC for you at ~5%. Would be much cheaper than what you’re proposing and much less headache if you can get it. If you take on investors you are 1. paying a high interest rate and 2. run the risk of having a PITA investor(s) who is constantly barraging you with questions or opinions, etc. Plus they could ask for a redemption before you’re ready which would defeat the purpose. If I were you I’d try like crazy to get a LOC from your lender, or a HELOC on your primary residence, or even an unsecured LOC. Maybe you could pledge your liquid funds to a bank savings account for X period of time in exchange for a loan or LOC. I just don’t see a reason to pay private investors 10% especially if you already have the liquid funds at your disposal. Good luck!

3

Great points @chads ! LOC’s have been on my radar. Unfortunately the option of going through the financing entity for the park for a LOC is not on the table.

I am exploring some commercial or personal secured LOC’s at the moment. I see that Interactive Brokers allows you to do a margin loan on your securities at insanely low rates (1-3%!!), but the disadvantage is that if your securities dip under a specific threshold, they sell your portfolio with no warning to make up for it. But it seems you can just move your entire portfolio to them quite easily and use these benefits.

Anyone else used IB or other LOC lines? Any products or companies anybody vouches for that they have personally used?

4

Hi Gonzalo,

Where is the park located? I might be interested.

5

Sent you a PM with my contact info. Let’s chat. @Rodney

6

@Gonzalo - I applaud your creativity and initiative! Send info about the deal and your experience to cashflow@wellthyint.com

Also, why is a LOC on the Park’s equity not an option?

Blessings