Even if you’re intensely interested in mobile home park investing, it’s a good bet you don’t have the purchase price in cash to wave under the nose of the seller. And if you’re not friendly with rich relatives, you’re probably going to have to do what most real estate investors do – go to the bank for financing. As a sidenote, MHPListings.com thinks it’s a much wiser economic decision to properly finance this kind of property deal than pay in cash, but that’s a discussion for another day.
For now, let’s look at mobile home park investing from the lender’s side of the desk.
Question: What if half of the units are park-owned?
It’s no secret that a bank would prefer the park to be populated completely with resident-owned units. The reason is simple:
Owners have a vested interest in maintaining their home and surroundings. Plus it’s a more complicated process to uproot the family and move, a fact which helps insure occupancy stays high. The issue with park-owned units is that a lender considers it private property and won’t accept it as collateral on the loan and won’t consider income from such units as basis for figuring cash flow. But on the upside, your lender should also remove any expenses related to upkeep of the park-owned units when running the numbers. Ultimately, a high ratio of park-owned units should not doom the deal.
Question: Is 25% vacancy too high?
Lenders prefer an 85% to 90% vacancy rate at worst to provide permanent financing. If you can show that the park in question is in an overbuilt area, the 75% occupancy rate is normal and stabilized, AND cash flow is sufficient for the amount of loan requested, your lender should lower the red flag. A park that has seen a decline in occupancy over the last few years – different story. The bank does not like a downward trend.
There are other other factor to consider before throwing your lot into mobile home park investing, all of which we will address at MHPListings.com in future articles, but this gives the newbie investor a starting point. Good luck!
The MHPListings Team
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