AVERAGE RETURN - Posted by John B

Posted by Penny on April 16, 2007 at 10:39:07:

You basically have a deal that is 100% leveraged. I have included 2 links below on figuring your cap rate and the pitfalls of 100% financing that Ray wrote:

It is important to estimate what return you will receive for your efforts versus the risks you will encounter. The payments you make on your down payment need to be factored into your rate of return and whether you have positive cash flow.

If it were me, I’d steer away from any co-ownership options. My business attorney said he sees many poorly defined arrangements that cause headaches due to misunderstandings, unrealistic expectations of inputs on decision making and poor memories of what was agreed upon, sometimes despite what is on paper.

That said, others in this forum may have had great success going this route and can provide you with other suggestions and advice to minimize risk.

I have Ray’s Dealmaker’s Guide to Commercial Real Estate and it has excellent material on financing and deal structuring. I would expect the Mobile Home guide to be just as good.

Since you know how much you need to borrow, you have three main parameters that affect your payment and cash flow - the interest rate, loan term and the amortization period. Any loan amortizied over 25-30 years would give you primarily interest payments and a little principal paydown during the first few years. You could also specify interest only for the first few years, if you like, and even no payments for the first several months or even first year, providing the lender is agreeable. There are a lot of ways to do this. This will make your payments the lowest and allow you to manage your cash flow.

I would suggest analyzing what interest rate you can afford to pay versus what this person could get through other investment opportunities, as I don’t know how you arrived at a 12% interest rate. As you’ll see in Ray’s guide, the financing has a huge effect on whether a deal is a good one or a mediocre one.

Good luck!

AVERAGE RETURN - Posted by John B

Posted by John B on April 16, 2007 at 06:31:21:

I just bought Ray’s book about Mobile Home parks yesterday, In the meantime I am continuing to pursue the purchase of a MH park that I found.
The lender I am dealing with tells me that a 90% loan
( purchase price 280K ) is available and I will have to come up with 10% plus 5% closing, so I need about 42K.
I have spoken with a number of family & friends who I believe have this amount of money available to invest, I may have found a provider last night, At the moment this person indicated he could become interested I felt the deer in the headlight sydrome sweep over me ( NOW WHAT ).
So I have been brain storming ideas on how to handle this beyond my pitch of I need 50K for this deal to work would you please lend it to me and here is a couple of ideas I have;

  1. Offer a 12% rate of return with no prepayment penalties that will provide a monthly payment to him.
  2. Offer a 20% share of ownwership with no monthly return to him until the property sells at some point and time down the road at which time he would recieve 20% of the sale price less any additional investment to the property I will make.
  3. Offer 15% share of ownership plus 10% of gross reciepts per month.
    I would appreciate any ideas you may have for constructing this agreement.

Re: AVERAGE RETURN - Posted by Keith

Posted by Keith on April 20, 2007 at 20:27:49:

If you are just needing a loan I wouldn’t recommend sharing ownership of the park. The BIG question is whether this park will cash flow with 100% LTV.

Post the details of the deal to help us give you better options for acquiring the park.