- Owning a mobile home park (MHP) has become an attractive investment opportunity for seasoned property owners and newcomers alike, thanks to a number of creative financing options available.
- As with any kind of financing, the type of loan you get for mobile home park financing will depend on what you qualify for and the type of real estate you’re buying.
What Are Mobile and Manufactured Homes?
Mobile homes, also known as modular or manufactured homes, are built completely in a factory for single-family occupancy. Every mobile or manufactured home must be built to the Housing and Urban Development (HUD) code, which is the federal Manufactured Home Construction and Safety Standards. They are called mobile homes because they can be shipped to their final property location, usually via truck trailer. Mobile homes typically come in two sizes: single wide and double wide.
Many real estate investors have created spaces where mobile homes and manufactured homes can make up a neighborhood. These are called mobile home parks (MHP) or a manufactured housing community (MHC). The owner of the mobile home park will own the property that each mobile home sits on, although the homes themselves will belong to individual buyers.
MHPs and MHCs are considered an important part of housing for rural and non-city communities. This means that lenders have an interest in financing them as part of HUD programs across the U.S.
What is a Mobile Park Loan?
A mobile park loan is debt that a borrower takes on to buy a mobile home park and pay back over time. In order to buy a manufactured home park, you need a good chunk of money — depending on where it’s located, a park with 80 lots can have a purchase price of $800,000 or more. Most real estate buyers don’t have that kind of money just lying around, which means they’ll turn to financing.
There are many ways to finance a mobile home park, from traditional loans to seller financing and other creative options.
Where to Find Loans for Mobile Home Parks
In order to find the right lender for your mobile home park loan, you’ll need to answer a few questions about your financial situation, what kind of park you’re looking to finance, and what kind of financing is right for you.
Some things to consider include:
- Your business credit score and personal credit score — credits scores are the number one way that lenders determine your risk level. More favorable scores can open you up to loan programs with better loan terms, interest rates, and a higher loan amount. Nav can help you determine your credit scores and may help you find ways to improve them. Sign up for a free account to get started.
- Your down payment — how much money do you have to put down? This will help you determine if you’re looking for a more traditional bank loan or if you’d like to look into alternative financing options that require less money down or a larger loan size. Don’t forget about closing costs and other fees; you’ll want to be able to cover those, too.
- Your tolerance for risk — many MHCs or MHPs may appear to be good investment opportunities solely because they need a lot of work and you think you have the time and ability to improve them. But they can also be risky whether they come in good shape or in bad shape and regardless of how much time and investment you’re ready to spend on them — just like any other loan or investment. Make sure you know how much you’re willing to risk before you decide which lender to choose or which property to buy.
- Facts about your MHC or MHP — will mobile home buyers be interested in your location? Which property types will you offer buyers? What kind of improvements will you need to make to the property after you purchase it? Are there accessibility issues? What kind of insurance will you need? These are all important questions you’ll need to take into account when considering your MHC’s location.
How to Finance the Purchase of a Mobile Home Park
There are several loan options available for mobile home park financing, including:
This is the simplest way to buy a mobile home park: buy the whole thing with cash. Of course, few buyers have the ability to pay cash for an entire property.
Traditional Loans or Bank Financing
If you’ve got excellent credit and a good business history with at least a 20% down payment, you may be able to choose from a few different small business loans for the mobile home park. You’ll typically get a five-year term and a recourse loan, with an option for both fixed rate and variable rate interest. Commercial mortgage or commercial real estate loans will often offer competitive rates for financing mobile home parks, but smaller, local banks will be a good option if your MHC or MHP loan is under $1 million.
Commercial Mortgage Backed Securities (CMBS)
Known as conduit financing, these loans are originated at traditional financial institutions but then sold at smaller banks or financial brokers. While you can only qualify for one of these loans for financing of at least $1 million, they offer 10-year terms, low, fixed interest rates, and are non-recourse. You can also use them to cash out and pay for other necessities around your mobile home park, like improving shared facilities. However, beware of “defeasance”, which is a penalty for paying off the loan early, and can be almost as large as the loan itself.
Federal Loan Financing
You may have heard of Fannie Mae (FNMA) and Freddie Mac, the federally-backed home mortgage companies that buy and guarantee mortgages via secondary mortgage market lenders. These programs also have mobile home park loan programs that you can apply for. These federally-backed loans provide fixed rates for a number of loan terms and are generally stable because they’re backed by the U.S. Congress. They also tend to be quick to fund and relatively flexible. However, the requirements to qualify may be limiting, such as:
- Previous experience owning or operating a mobile home park, which would make it difficult for a first time buyer
- A large amount of liquid assets or cash
- 85% minimum occupancy requirement for the property
- A preference that the site can accommodate at least 50% double-wide homes
About 60% of mobile home parks in the U.S. are owned by the people who originally started them in the 1960s, and many of these owners are ready to retire. Seller financing may be the best option if you’re buying a MHP from one of these mom and pop owners that own the property outright and are interested in selling quickly. This is also a good option if you have poor credit or little to no down payment. In this situation, the seller “owns the paper” to the financing, and you pay them instead of a bank. There are usually fewer closing costs and it’s a quicker process, although you may pay a higher interest rate overall.
Master Lease with Option
A master lease with option is a type of real estate deal that only exists within the MHC or MHP financing world. It’s generally reserved for parks that have been run very poorly and can’t get any kind of financing because it would be too risky. In a master lease with option, you agree to pay the seller a flat monthly rate for a set number of years, and you have the option to buy the park at a set price during that time. If you’re willing to put in the hard work of cleaning up a property, raising rents, and cutting costs, this can be a good option to own a park in the long-run or even sell it to a third-party. It’s lower risk for you as well, because if you can’t get the park into a better condition, you can still walk away at the end of the term.
Another form of seller financing is a wrap-around mortgage or loan, which is a type of refinancing that includes the balance still due on the property as well as the amount of the purchase price. A seller may use this option when they can’t afford to pay off the mortgage they already owe. They’ll receive an IOU in the form of a promissory note, and the lender will collect money from the borrower to pay the original mortgage. It involves a higher amount of risk, but may be an option if you want to buy a MHP quickly.
Business Line of Credit or Business Credit Card
You probably won’t be able to generate enough money from business credit cards or a business line of credit to finance the purchase of a mobile home park. However, you can use this type of financing to pay for other costs, like equipment, marketing, fuel, etc., to help set your MHC up for success.
The Best Loan Options for a Mobile Home Park
A few options for mobile home park loans are listed below.
- Manufactured Nationwide
- 21st Mortgage Corporation
- CMBS from Fannie Mae or Freddie Mac
- Life Company