October 2006

This issue of the MobileHomeParkStore.com Newsletter includes: 

1. Important updates, news, and new features of MobileHomeParkStore.com
2. Preparing Your Manufactured Home Community for Financing", by Tony Petosa and Nick Bertino of Wells Fargo Commercial Mortgage
3. "The Double-Wide Two Step:  What to expect when on half of a multi-section home is destroyed" by Kurt Kelley of Mobile Insurance
4. "Financing Smaller Mobile Home Parks" by Steve Murden, Star Capital Corporation
5. Tell us what you think!

First of all, I want to thank all of you that have helped us continue to build this site and make it the Ultimate Resource for the Manufactured Housing Industry.  In September we had over 150,000 visitors to the site and about 500,000 pages viewed.  It is exciting to continue to see the site grow month after month!This past month we have added a couple of new sections to the MobileHomeParkStore.com website which should lead into great resources. 

• The first is that we have added a new page which lists all of the Mobile Home Parks that have been sold!  You can visit this new page here
• Another section that has been added is for those of us that are constantly looking for homes to buy in order to fill those vacant spaces in our parks.  Here you list what you are looking for and how many so that the dealers and sellers have an outlet to quickly sell the homes to qualified buyers.  Here is the link to this FREE section

In the past 30 days, there have been over 80 new mobile home parks listed for sale on the site and some of these have been sold very quickly.  Take a look at what these people had to say: Dear Terri,  I have more people than I can deal with in response to my park for sale ad for my Arlington Texas park.  Please go ahead and remove it.  I am confident that I have it sold.  This is a great service and I am paying no commissions.  Thank you, Edward H Hi, Dave. We just closed escrow yesterday on our mobile home park, Van's Trailer Oasis, so would you please take our ad off of the mobilehomeparkstore website? Thanks so much.  What a great tool the mobilehomeparkstore website is!  We found our buyer and signed in only 4 days!   Carol R Here are some great articles by the professionals in our industry.  If you have an article and would like to have it included in a future issue let us know.

Preparing Your Manufactured Home Community for Financing By Tony Petosa and Nick Bertino, Wells Fargo Commercial Mortgage

You recognize that interest rates are near historical lows and you have decided that you are going to refinance your manufactured home community.  Or, perhaps you have identified a property you want to purchase.  Whichever the case may be, you are going to need a loan.  But before calling your mortgage banker or lender, the first step you should take is to assess and prepare your property for financing.  This article will outline questions you should consider before seeking financing, the various items that you will need to provide, and the manner in which information should be presented in order to insure that you receive timely and reliable loan quotes. To begin with, take a step back and assess the overall asset quality, or "curb appeal", of your project.  Is the landscaping adequate and well maintained?  Do the homes reflect pride of ownership and are community regulations being enforced?  Are the age of the homes, density of the community, and amenities in line with the competitive properties in the market? These are all questions that a lender will consider when pre-screening a property to determine not only whether the property qualifies for financing, but also at what loan-to-value ratio and at what pricing level (i.e. interest rate spread) it qualifies.  It is always helpful when you can provide recent, good quality property photos. You should also have a good handle on the market conditions where your property is located.  Is your property situated in an in-fill market with barriers to entry?  Are your rents at market when compared to nearby manufactured home communities?  What is the general demographic profile of your market and how does your property successfully compete for residents? While assessing the condition of the property and its market, it is likely that you will encounter some shortcomings.  At the very least, you should have a plan for mitigating any potential concerns.  For example, perhaps the community you are purchasing has several older homes.  Your business plan, then, may be to upgrade or replace these homes over time.  You should make the lender aware of this business plan and detail how you will incorporate it.  If you have been successful in completing upgrades to homes on a community you currently own, you should draw the lender's attention to that fact. The next step is to evaluate the financial operations of the property.  Most typically, a lender will ask you to provide a current rent roll along with property operating statements (income and expenses) for the most recent three years.  When examining the rent roll, the lender will be looking for any repossessed, lender owned, or investor owned homes in the community.  While the property owner will realize additional cash flow when renting out both the home and the lot, from a lending perspective, the fewer third party owned homes, the better.  In most cases, the lender will discount any additional rental income derived from a third party owned home and underwrite solely to the lot rent.  Keep in mind that you may be required to provide bank statements for the prior 6 to 12 months that reflect deposits that are in line with your most recent monthly rent rolls from the same time period. In addition to the income stream from the lot rents, lenders will also look to see how much of the overall income is attributable to "other income" items.  It is important that you are able to break out other income items on the historical statements as specifically as possible.  On separate line items, you should be able to identify income from utility reimbursements, laundry facilities, vending machines, late fees, etc.  A loan underwriter will be trying to determine whether this "other" income is sustainable through the foreseeable future.  Typically, as long as you can demonstrate a good history of collecting these other income items, lenders should be able to include this income in their underwriting. In your evaluation of the property's historical income and expense statements, you should look to identify any large fluctuations in the numbers on either the income or expense side.  If there was a significant increase in overall rental income, for example, from 2004 to 2005, you should be able to explain why.  Did the property experience a high vacancy rate in 2004?  Does the 2005 rental income figure reflect a fixed rent increase on all of the lots, or perhaps lease up of vacant lots?  The same kind of analysis and explanations should take place on the expense side, particularly with respect to expenses that may be unique to your ownership operations.  If you allocate "home office" overhead to your property in lieu of a management fee, for example, be sure to identify that expense, as a lender will automatically input a management fee even if you do not charge one. While it is very common for property owners to expense as many items as possible on their operating statements for tax purposes, it is of great benefit to the property owner to identify and explain any expenses that are not directly related to the property's on-going operation.  An underwriter only needs to include expenses that lender would incur when operating the property, so, whenever possible, you should provide an itemized breakdown of any capital or non-recurring expense items that are embedded within the operating statements (such as paving or clubhouse improvements).  If you identify these expenditures for the lender, they can be removed from the underwritten expenses.  Because the lender will already be including a "replacement reserve" deduction to account for long-term improvements, you should make sure that capital expenditures are not being double counted.  The goal is to maximize the underwritten net operating income because this will typically translate into higher loan proceeds and/or a lower interest rate spread on the loan. After you have provided the necessary information on your property, you should provide a general overview of yourself, the borrower.  What is your background and real estate experience and how many other properties do you own?  What is your financial strength in terms of net worth and liquidity?  What is your business plan for the asset you are refinancing or purchasing?  The lender will be looking at you not only as a borrower, but also as a business partner, so you will want to demonstrate why you are someone with whom the lender should be doing business. Believe it or not, what can often times be just as important as the information being presented is the manner in which it is presented.  Is your management and accounting computerized, or do you handle it manually in a notebook?  Computerized management and accounting is always the preference as this gives the borrower the image of being an experienced, professional owner/manager rather than a less sophisticated property owner.  Your rent roll should be clear and accurate, arranged by unit number, and no more than one month old.  Operating statements should provide separate line items for various revenue sources as well as expense items.  You should also have the ability to create a trailing operating statement for the most recent 12 months, as many lenders will want to receive this just prior to loan closing.  You will find that computerized accounting not only looks more professional, but that it also reduces the chance of having mathematical errors, which you may encounter when performing calculations manually. In conclusion, if you take the time to prepare your investment property for financing as discussed above, your mortgage banker or lender should be able to provide you with deliverable loan quotes within 24 to 48 hours, and to ensure that you are obtaining the best terms available for your asset.  Furthermore, by providing accurate and detailed information in the beginning, you will help to create a much smoother loan approval and closing process down the road.   Tony Petosa is Regional Director and Nick Bertino is Associate Director for Wells Fargo Commercial Mortgage.  They specialize in arranging financing on manufactured home communities and RV resorts, offering both direct and correspondent lending programs.  Petosa and Bertino can be reached at 760/438-2153; 760/438-8710 fax; and via email:  anthony.j.petosa@wellsfargo.com, bertinn@wellsfargo.com. 

The Double-Wide Two Step:  What to expect when one half of a multi-section home is destroyed. By Kurt Kelley of Mobile Insurance in Texas

When one section of a manufactured home is destroyed, the question becomes -"What is the extent of this loss? Half the home or the whole home?" The destruction of one-half of a multi-section home can be more traumatic to the home's owner than the destruction of the whole thing. Today, in most circumstances, manufacturers refuse to build a replacement section. Manufacturers report that if they rebuild one section of the home it will not match the remaining section(s) like it would have if built at the same time. Carpet colors, paints, etc. can vary slightly and create product quality and image concerns. Furthermore, sections may not match-up at the marriage line accurately.  Nevertheless, the retailers that own a home which has had one section destroyed, and their respective insurance companies, only want to pay to replace half the home, not the whole thing. To make things more interesting, many manufactured home physical damage policies only offer to pay for the physical damage to the home. Thus, if an insurance company pays to replace a destroyed section, the insurance company may have technically satisfied its policy obligations, whether or not the home owner can actually replace just one section of the home. This leaves the home's owner with a large uninsured loss. In the battles over the years between insurance companies and manufacturers on whether to build a replacement section to home, both have prevailed. To protect yourself from a large uninsured loss, make sure your insurance policy has specific language in it stating that if one section of a home cannot be rebuilt, then the home will be considered a total loss. Furthermore, you should demand that all hired transporters carry a "cargo insurance policy" that includes a "pair and set" or "multi-section" clause.  If you do these things, you may not limit your time on the dance floor doing the double-wide two-step, but at least you know you will have a chair when the music stops. (For a copy of a model Transporter/Installer agreement, visit www.MobileAgency.com  and go to the forms section).   Contact Kurt at 281-367-9266 or email Kurt@mobileagency.com 

Financing Smaller Mobile Home Parks By Steve Murden, Star Capital Corporation

Many first-time and experienced commercial real estate investors are turning to mobile home parks for strong returns on their investment.  Parks tend to have higher CAP rates than apartments and have similar stability with lower expense ratios.  There is an endless demand for affordable housing in just about every market in the country and manufactured housing meets the needs of low to moderate income tenants. For many real estate investors, there is a limited amount of liquid assets available to purchase an income producing property and they must look at properties that are more affordable.  The properties below the $1,000,000 sales price are more reasonable to purchase and manage.  Financing is available for loan amounts starting at $100,000 up to 90% LTV.  This has opened the door for many investors that were purchasing single-family homes and basing the investment on appreciation rather than cash-flow.  Even a smaller park can produce a healthy return without a great deal of capital. The decision many potential park owners must make is whether to acquire a park where all of the homes are owned by the tenants or one that may have a high density of homes owned and rented by the park.  The "pad-only" parks are much easier to maintain and operate, but do not produce the higher returns that can be achieved by renting out the homes.  The maintenance of the homes can be cumbersome for those without on-site maintenance or experience in repairing mobile homes.  Many parks have a mixture of tenant-owned homes and park-owned homes which can provide good cash-flow without taking on 100% of the maintenance of all of the homes. Lenders do not consider the value of the mobile homes when appraising these parks which can create a problem with a seller basing the purchase price on the net income from both the pads and the rental homes.  If the homes are not taxed as real estate, they are not collateralized by the lender and their income and value are not included in the underwriting.  This leads to situations where the seller must be willing to carry a note on the trailers to meet the needs of the buyer and the available liquid assets to put into the transaction.  Lenders will finance the park based on the appraised value of the real estate and the notes on the homes do not affect the combined loan-to-value ratio. We have structured many park acquisitions with a combination of debt on the park and seller-held notes on the mobile homes.  The buyer's strategy may be to increase pad rents over time and thus increase the value of the park to a point where at the end of the seller's note, they can refinance the park based on the pad rents and pay off the outstanding balance on both the park and the homes.  In addition, the buyer may create notes with the tenants to purchase the park-owned homes and sell these notes to note-buyers as a portfolio of performing seasoned loans.  The exit strategies for these seller-held notes vary, and we see investors getting more and more creative. There are many smaller parks available for sale and they must be evaluated closely to determine whether they are a good investment.  Those that are purchased at a fair price with up-side potential can be a great addition to an investor's portfolio.  Many parks have not raised rents in a number of years and are in improving markets.   The buyer must consider the current cash-flows along with the long-term potential of the investment.  The acquisition financing is crucial to getting into the park and creatively structuring the transaction is necessary to meet the needs of both buyer and seller.  Understanding the available loans for these parks is an important aspect to negotiating the purchase.  With smaller loans available at high loan-to-values, there will be many opportunities for park-investors to acquire multiple parks and spread out the risks.   Contact Steve Murden at 540-342-6520 or email stevemortgage@aol.com or visit his  website at www.starcapitalcorporation.com