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Commercial lending requirements have never been tougher. People who have never had a problem getting a bank loan in the past are suddenly having their loan applications stamped "denied". Even deals with significant down payments and low loan-to-value percentages are being turned away. So how can you ever hope to finance a mobile home park acquisition?
Pretty easy, as it turns out.
The secret is seller-financed debt. As long as you think in terms of a traditional bank loan, you're never going to be able to avoid the agonizing loan process of providing detailed financial information and the dreaded loan committee. No bank is going to grant you a loan without good credit and a proven track record of real-estate ownership and success.
However, there is another option. It's called seller-financed debt, or "seller carry". Basically, it's the seller acting as the bank on the transaction. And it's one of the top reasons to buy a mobile home park.
With "seller carry", the mobile home park seller sets the terms of the note and does his own lending process. This lending process is normally nothing more than liking you - that's it. There's no formal loan application, credit review, or loan committee. Just one friendly seller extending you credit on terms you can afford.
Why are mobile home parks the best source of this type of debt?
There are two reasons. The first is that most mobile home park owners own their mobile home park "free and clear" - they have no loans themselves. In order to offer "seller carry", a park owner must have no debt on it. Since most mobile home parks are still owned by the original "moms and pops", who have owned them for 30 years or so, they have long ago paid off their mortgage and don't owe a dime to anyone. Since they have no debt, they can legally do anything they want with the property, including carrying a note on it. The other reason is that most mobile home park owners are not very sophisticated and don't know that they don't have to carry the paper. They just assume that they do, so they never even think of asking the buyer to get a traditional bank loan on it.
More important than any loan committee: bonding
One of the keys to getting "seller carry" on a property is convincing the seller that you are an O.K. person. We call this process "bonding". In "bonding", the seller feels comfortable with the buyer and is more than happy to carry the note. Bonding is an extremely important issue that many people overlook. Just by being a nice person, by spending time with the seller and getting to know them, the buyer creates enormous value. First of all, they unlock the approval from the seller to carry the note.
But sometimes, even more importantly, they unlock some amazingly attractive terms on the deal. There have been many cases where the seller will agree to zero down on the deal (I've done five deals like that). Or maybe zero note payments for the first year or two, just to give you some breathing room. Often, the seller will agree to terms that are clearly not reasonable, but they will do so just to be your friend. Remember that these moms and pops are normally pretty advanced in age, and are often more interested in helping someone out than they are in dollars and cents.
Conclusion: A big part of the process in buying real estate is obtaining the loan necessary to make the purchase. In all other forms of real estate, obtaining the loan is near impossible - even if you have excellent credit. But in the mobile home park niche of real estate, that roadblock is avoided through "seller carry".
If you've got less than perfect credit - or even if you have perfect credit - you should consider investing in mobile home parks. Not only are they the highest-yielding form of commercial real estate, they are also the last frontier on "seller carry" deals.
