Posted by ray@lcorn on October 20, 2003 at 15:12:49:
Joe,
First, there is no such thing as an “area” cap rate. For more on how cap rates are determined, see my article titled “What’s it Worth? Deriving Your Capitalization Rate”. It can be found in the How-to Articles section here on CRE Online, or the direct URL is http://www.creonline.com/articles/art-216.html
Second, your thoughts as to refinancing soon after acquisition to get your cash back out of the property is a standard practice. Generally though, the new owner makes some improvement to the property or the income stream in order to justify the higher valuation. Lenders are very wary of being the only ones with skin in the deal. Your scenario will work in theory, but unless you have an ongoing relationship with the bank it is doubtful they are going to go along. You may want to consider using your partner’s funds as debt financing with onerous terms. This will provide the justification for the refinance, as well as provide the partner with necessary returns.
What is very doable is a plan to use part of the refi proceeds to further improve the property. Often this can be the way to accomplish both the objectives of accessing the equity and improving the property for the long haul.
Posted by JoeSoCal on October 17, 2003 at 01:58:44:
Hey Fellas,
I have never purchased a mobile home park before and I am looking to get my feet wet on a small park with a purchase asking price of just over 250K. I am looking to make an all cash offer (supplied by a potential partner) because the seller absolutely has to have 100K and the remaining assumable financing doesnt have very good terms.
I would like to buy the park with cash and then turn around and refinance the puppy with a bank or so forth. I have been told that the only way I could probably get financing for a park this small is through a local bank.
My thoughts are, (perhaps i am being naive) is that it shouldnt be that hard to refinance and get the majority of this cash purchase back out.
What sort of obstacles/hurdles am i going to run into trying to refinance this park? Mind you, I have no MHP experience, okay credit, but a negative net worth (i am a youngster). My thoughts are that the property should pretty much stand on its own merits.
Furthermore, do banks ever take into account the cap rate when evaluating loan packages? For an extreme hypothetical example:
NOI: 30K
Purchase Price: $150,000
CapRate: 20%
After paying cash, could i go back a few months later and simply refinance the entire 150K assuming cap rates are generally much lower in that area? If Cap Rates were running at roughly 10%, couldnt i theoretically get the $150K out completely and still have an LTV of 50%?