| First and foremost, the mobile home collateral is | | | | higher cap rate in valuation. This is apparent in the |
| considered personal property when it is located in | | | | market vacancies any underwriter will utilize in |
| a park. It has, historically, been a quickly | | | | determining the stabilized cash flow of an RV |
| depreciating asset. The costs associated with | | | | rental property. |
| lending on this type of asset push many banks | | | | From an investor standpoint, reliable or |
| out of the market altogether. This leaves | | | | easier-to-produce income is more valuable than |
| park-owners and private investors as the driving | | | | income that takes more time to create or is less |
| forces behind the mobile home rental arena as far | | | | reliable. From a lending standpoint, reliable or |
| as mobile home park financing is concerned. | | | | easier-to-produce income contains less risk of |
| A conventional financing program will not typically | | | | interruption and therefore less risk of default. |
| consider income from park-owned mobile rents | | | | Lenders will only accept real estate as collateral to |
| for the debt service ability of a real estate loan. | | | | secure a CMBS (commercial mortgage backed |
| There are some higher rate alternative programs | | | | security). A CMBS is a loan that is secured against |
| out there, which consider all park income - both | | | | commercial real estate and offers the flexibility to |
| mobile home rent and pad rent. The most | | | | lenders of being sold much like any other bond |
| common problem buyers have with these types | | | | security traded on the market today. This type |
| of parks is the numbers sellers or Realtors | | | | of money has become much more prevalent in |
| provide them. They will often times consider all | | | | recent years. Many national lenders today, with |
| income when determining cap rates, value, etc. | | | | products typically more aggressive than a local |
| The incomes from mobiles are never used in | | | | bank may offer, employ this type of lending |
| determining an appraised real estate value. This is | | | | structure. Very similar in investor consequence, a |
| due to the fact that mobiles in parks are not real | | | | CDO or CDS structure may also be employed |
| estate improvements. One cannot simply throw | | | | today. |
| several different types of incomes together in the | | | | The issue of different asset-types (real estate |
| blender and determine a value based on a single | | | | and personal) being sold simultaneously often |
| cap rate. All parts are not equal. The income | | | | leaves inexperienced buyers in the middle of a |
| stream generated from park-owned mobile | | | | purchase contract with a need for additional cash |
| homes run different risks of interruption or loss | | | | to cover mobile value since most lenders can only |
| than the income stream generated by a mobile | | | | offer loan dollars against the real estate value. |
| pad. A safer income stream deserves a different | | | | Real estate loans are not the answer without |
| valuation and also a different loan interest rate - a | | | | considering some type of cross-collateralization, |
| reflection of risk. | | | | which is atypical of most conventional finance |
| The easiest way to picture these types of parks | | | | options. One of the most common solutions is to |
| is in two components. You have the real estate | | | | have the seller carry a note for the value of |
| component, which consists of dirt and any | | | | some or all of the mobiles. If seller financing |
| verifiable land improvements. Typical mobile home | | | | doesn't pan out, there are a number of private |
| park improvements may include mobile pads, RV | | | | investors who may be able to offer a variety of |
| pads, clubhouses, laundry room, pool, office, etc. | | | | options depending on the situation. The key |
| The real estate value is largely determined by the | | | | phrase to remember in securing financing on |
| normal operational income generated from real | | | | property such as a mobile not considered real |
| improvements. You also have the personal | | | | estate is, "Chattel Mortgage." In commercial real |
| property component or chattel. Personal property | | | | estate, this term is typically reserved for a |
| may include mobiles, equipment, appliances, etc. | | | | situation where a mobile home is in a park and |
| There are finance products available for these | | | | not occupying its own tax lot. |
| chattel portions at higher rates, shorter | | | | There is an occupancy issue to consider. There is |
| amortizations, and shorter fixed periods than one | | | | usually less incentive keeping a mobile renter in |
| might expect with a normal real estate loan. | | | | the park. A tenant owning their mobile is much |
| These different streams of income deserve their | | | | less likely to move out than a mobile renter. The |
| own separate determinations for investment | | | | costs and efforts to move a mobile are often a |
| value. An income derived from rental real estate | | | | factor helping to safeguard long-term occupancy |
| such as a mobile home park pad is viewed as | | | | for tenants owning their mobiles. |
| more reliable and valuable than an income derived | | | | There is also an added expense to consider. Any |
| from personal property such as with a mobile | | | | person in a rented mobile is less likely to take |
| home rental. The cap rate for a passive | | | | care of it. Mobile owners are responsible for the |
| investment such as a mobile home park | | | | maintenance and repair of the home. When a |
| (considering pad rents only) may be in the 8% | | | | mobile can no longer be rented due to use, the |
| range in some markets whereas the cap rate for | | | | owner must pay to dispose of it. |
| a more business intensive project such as mobile | | | | There are many different benefits and detriments |
| home or RV pad rentals may be in the 12% | | | | to owning mobiles in a park. Parks can be very |
| range for that same market. Obviously the actual | | | | profitable when they collect mobile rent on top of |
| cap rate will vary greatly across different | | | | pad rent. The determining factor of whether or |
| markets, but a more risky income will still warrant | | | | not to employ this type of rental style park is |
| a higher cap rate than a less risky income. This | | | | usually, "How much do you want to put into the |
| type of thinking suggests that $1 of income from | | | | project?" If you are looking to get into a property |
| a mobile pad is more valuable than $1 of income | | | | and put the time and work into it, park owned |
| from a mobile home rental. | | | | mobiles could be a great way to maximize cash |
| Just because two income streams are generated | | | | flow - be sure to approach the financing |
| through real estate improvements does not mean | | | | appropriately. For the passive investor who likes |
| they are equal still. Although RV pads can be | | | | to collect checks every month, a pad rent only |
| valued as real estate, they are still more work | | | | park is the route of choice - expect to receive |
| intensive and their income streams less reliable | | | | the most competitive rates and terms. |
| than a mobile home pad and therefore warrant a | | | | |