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Financing – Structuring the Deal With interest rates at near historic lows it is an excellent time to consider financing whether you are analyzing a park to purchase or refinance your existing investment. Understanding your situation and your future plan helps you determine which loan program best fits your needs. You should ask yourself some questions: In the past interest rates for mobile home parks have been higher than single family home rates and until recently slightly higher than apartment loan rates. Today apartment and mobile home loan programs are comparable. Many lenders offer fixed rate, adjustable rate, and hybrid (fixed for a period and then adjustable) loan programs. Fixed rates have the advantage of security and stability, but come with the trade-off of a large prepayment fee. To achieve the lowest interest rate, lenders need to structure fixed rate loans with a prepayment charge more onerous than adjustable loans. The very best fixed interest rates come from loan programs that are “securitized”. Here lenders pool loans that become collateral for bonds typically sold to institutional investors. This process is also known as “conduit” lending. Recent turmoil in the bond market started with well publicized problems in the “sub-prime” residential mortgage market. Mortgage bond pools (collateralized mortgage obligations, and others) are now being reevaluated. Today there is a narrowing of the price differences between conduit loans (those marked for resale) and conventional bank financing. For the borrower this can mean new loans are available at a similar interest rate but without the severe prepayment charges. Clearly if you have a shorter ownership horizon this is the way to go. Enter the Hybrid Second, the term of the loan can be for 25 to 30 years. This removes the refinance risk inherent with the shorter term fixed rate loan. Further the prepayment charge is significantly reduced. Interest rates are very competitive and the fixed rate period can be from three to fifteen years. Maximize Value How Long Does It Take to Close a Loan? In Summary __________________________________________ Mobile Home Park Financing is a Bridge Capital Specialty Contact: T. Budd Fletcher (831) 239-8504
When financing mobile home parks the lender’s collateral consists of the ground and common area improvements. The net operating income drives the value of the park and supports the loan. Since the tenants finance or own there homes outright as personal property, space (or pad) rents are the majority of the income. Other income sources include laundry income, vending machines, utility reimbursements, and storage. If the “other income” is sustainable this is generally included.
The hybrid loan began a few years ago and offers mobile home park investors certain advantages. First, it is usually a portfolio loan program. This means that the loan is underwritten by and maintained on the lender’s books for the duration of the transaction. Guidelines are typically more liberal and the greatest concern is the economics of the deal. This program makes funds available for smaller, older or more rural parks at lower interest rates than were previously available.
Buyers and Lenders evaluate a mobile home parks in much the same way in that they want the transaction to be successful to all parties. A few things to think about when looking at the overall asset quality:
One of the most asked questions in the lending business. And we understand – you have to make your own plans first. Your concern is ours as well. The answer is that you can close as fast as you can get an appraisal done. Many parks are situated in rural settings so that it can be difficult to get an appraiser to complete the assignment in less than 3 or 4 weeks. The closing can follow the appraisal by about one week.
The outlook for Manufactured Home Communities or Mobile Home Parks is excellent. They are not prone to overbuilding and do not face huge competition. An industry analyst recently stated “Once they are leased they are pretty hard to unlease...” Manufactured housing communities have survived recessions better than other asset types. The communities provide affordable housing. They are similar to multifamily apartments with much lower maintenance costs. Financing is readily available but it helps to prepare before you work with your lender. Our objective is to provide options and make your financing an asset to your investment.
Some Helpful Forms
Loan Programs
Bridge Capital Commercial Real Estate Services
425 Capitola Ave #4
Capitola, CA 95010
bridgecapital@gmail.com