How to Buy a Mobile Home Park with No Money Down

Mobile home parks can be a great investment opportunity for those looking to enter the real estate market. However, the cost of purchasing a mobile home park can be significant, with many requiring a substantial down payment. Fortunately, there are several creative financing options that I will cover that can help you get an idea of how to buy a mobile home park with no money down. In this article, we will explore a few of these options and discuss the pros and cons of each.

Before we continue, I want to say that even when you buy a property for “no money down” there always seems to be a little bit of money required here and there for random things. It is never a bad idea to keep an emergency fund just in case you need that extra $1000 quickly for something that might come up.

Seller Financing Mobile Home Parks

One option how to buy a mobile home park with no money down is seller financing. This involves the seller of the mobile or manufactured home park lending you the money to purchase the property. The terms of the loan, such as the down payment, interest rate, and length of the loan, would be negotiated between you and the seller. This type of financing can be beneficial for both parties.

The seller may be willing to finance the sale if they have been unable to find a buyer that is able to secure financing through traditional means. They not only will become the bank and hold a real estate backed first lien, but they will also have collateral they already know firsthand. They will earn more interest on their money than they would in a bank account, and instead of paying all the capital gains taxes on the money they make from selling the property in one year, they pay a smaller amount over time as they receive the income from the buyer.

The buyer can benefit by negotiating a lower down payment, potentially $0 down, along with more favorable loan terms. The buyer also benefits from not having to go through the expensive and laborious process of obtaining a bank loan with credit score checks, fees, third party reports, and all the other headaches. Not to mention, sellers will make loans based on the current condition of the park, in cases where normal banks would not. This include situations where the occupancy is low, or the expenses are higher than the income in turn around parks.

Main points:

  • Low to no down payment
  • More favorable loan terms
  • Mutually beneficial agreement between buyer and seller
  • No need to go through the process of obtaining a bank loan
  • No minimum credit score
  • Buyer saves money in fees and third party reports
  • The property you want to buy doesn’t have to fit the banks cookie cutter criteria
  • Seller benefits from having a real estate backed first lien, earning more interest than the money would in a bank account
  • Seller has collateral they already know first hand
  • Seller defers paying capital gains tax all at once with this type of loan

Here’s an example of a seller financing deal:

  • A mobile home community is for sale for $1,000,000
  • The seller is willing to finance the sale with a 20-year loan at a 6% interest rate.
  • The buyer does not have the funds for a traditional down payment.
  • The buyer and seller negotiate a deal where the buyer makes a down payment of $50,000 and the seller carries the remaining $950,000.

Under this scenario, the buyer would make monthly payments of $6,806 for 20 years to the seller, which includes the principal and interest. The seller would earn $683,462 in interest income over the course of the loan, and the buyer would be able to deduct the interest paid on the loan as an investment expense for tax purposes. In this example we could have just as easily used $0 as the down payment. If the park’s income covers the expenses and mortgage payment, then you would decide if the remaining cashflow meets your investment goals.

Partner With an Investor to Buy a Mobile Home Park

Another option how to buy a mobile home park with no money down is to partner with an investor. This can involve finding an investor who is willing to provide the down payment in exchange for a share of the profits or ownership in the mobile home park. The terms of the partnership would be negotiated between you and the investor. This is exactly how I bought my first park. You could use seller financing or obtain a bank loan with this strategy.

Pros:

  • No money down
  • Mutually beneficial agreement between buyer and investor
  • Investor may share the risk of the investment
  • The investor can potentially provide capital to help improve the mobile home park as well

Cons:

  • The investor will expect a return on their investment, which can cut into the buyer’s profits
  • The buyer may have less control over the management and decision making of the mobile home park if expectations and roles are not clearly documented up front
  • The investor may want to sell the mobile home park before the buyer is ready
  • The partnership agreement and profit sharing structure may add more paperwork and complexity when filing taxes, obtaining loans or refinancing in the future.

Here’s an example of a no money down partnership deal:

  • A mobile home park is for sale for $1,000,000
  • The buyer has good credit to qualify for a loan, but does not have the funds for a traditional down payment.
  • The buyer finds an investor who is willing to provide the $250,000 down payment in exchange for a 50% stake in the mobile home park.
  • The buyer and investor negotiate a deal where the investor provides the down payment, and the buyer finds and manages the mobile home park deal.
  • The investor receives 50% of the profits generated by the mobile home park, and the buyer receives the remaining 50%.
  • The buyer and investor also split any appreciation in the value of the mobile home park 50/50 when it is eventually sold.

Under this scenario, the investor would benefit by earning a return on their investment and sharing in the potential appreciation of the mobile home park. The buyer would benefit by having no money down and being able to operate and manage the mobile home park. Keep in mind this is just a basic example. The terms of any partnership agreement would be negotiated between the buyer and the investor and may vary depending on the specific circumstances. So be creative with it!

Master Lease Option

Next on the list of how to buy a mobile home park with no money down is the master lease option. This is a type of financing where the buyer leases the mobile home park from the seller with the option to purchase it later. This allows the buyer to control the asset, make improvements, raise rents, etc. while they save up for a down payment, often through the increased cashflow of the park itself. Therefore, you end up acquiring the park with no money out of your pocket.

The terms of the lease option would be negotiated between you and the seller, and the option to purchase the property would be exercised at a later date. This strategy can be beneficial for those who have some experience operating a mobile home park and can identify areas to add value.

Pros:

  • No money down. There is typically an option fee the buyer will pay, but this is creative finance, and the terms are all negotiable. This fee is typically a percentage of the purchase price and is usually applied to the purchase price when the option is exercised.
  • Allows the buyer to gain experience managing the property before committing to a purchase
  • Provides a way to enter into mobile home park investing

Cons:

  • The seller may require a non-refundable option fee, which is a fee paid by the buyer to secure the option to purchase the park at a set price at a later date.
  • The buyer may not be able to exercise the option to buy the park if they are unable to secure financing. Just make sure you think of your exit strategy when evaluating the deal.
how to buy a mobile home park with no money down

Subject-to Financing for Manufactured Home Parks

Okay the options I presented for how to buy a mobile home park with no money down above are all fine and dandy when the seller owns the property outright, but what if they have a mortgage? The answer is subject-to financing. This is a type of financing where the buyer takes over the existing mortgage on the property from the seller, without applying for a new loan or mortgage.

The buyer takes over the payments on the existing mortgage, and the property deed is transferred with the outstanding mortgage remaining in the seller’s name. This type of financing allows the buyer to purchase the property with little or no money down, as they are not responsible for paying off the existing mortgage in full at closing. If the buyer defaults on the mortgage payments ownership typically goes back to the seller. This is a great strategy, but it’s a good idea to use a real estate attorney to help structure these deals.

Pros:

  • No money down
  • No need to apply for a new conventional loan or mortgage
  • You already know the property fits a bank’s criteria
  • Good option for sellers who want to sell their property quickly

Cons:

  • Lenders have the right to call a loan due when the property is sold, this is uncommon but does happen. There is insurance you can purchase for the scenario.
  • The seller is assuming the risk that the buyer will make existing mortgage payments. Usually the seller will just end up with the property plus all the principal payments the buyer made in the case that the buyer defaults.

You may be wondering why a seller might agree to a subject-to deal. Well, they may be facing financial difficulties and may be unable to make the mortgage payments. They also may be motivated to sell quickly or be facing major repairs to the property that they can’t afford. Your job as the buyer is to figure out the problem and present them with options.

Mortgage Wraps

The last way I will present on how to buy a mobile home park with no money down is a hybrid of seller financing and subject-to. A mortgage wrap, also known as a “wrap-around mortgage” or “all-inclusive mortgage,” is a type of financing in which the seller finances the property to the buyer at an agreed upon price, but also continues to be responsible for the mortgage. The buyer pays the seller a higher amount than the existing mortgage payment, and the seller pays the mortgage and keeps the difference. The buyer usually gives the seller a down payment, but zero down payment can definitely be negotiated.

Pros:

  • The buyer can purchase a property with no or low down payment.
  • No need to apply for a new loan or mortgage.
  • You already know the property fits a bank’s criteria
  • Good option for buyers with poor credit, as the seller may be willing to overlook credit issues.
  • Good option for sellers who want to sell their property quickly

Cons:

  • The seller remains responsible for the mortgage, and their credit and assets may be at risk if the buyer defaults on the payments.
  • The wrap-around mortgage may be illegal in some states and may not be recognized by the lender of the existing mortgage. Again, consult with a real estate attorney.
  • The buyer may have to pay a higher interest rate on the wrap-around mortgage than they would on a traditional mortgage.

Here’s an example of a mortgage wrap:

  • A mobile home park is for sale for $1,200,000
  • The seller has a mortgage on the property for $800,000 with a 5% interest rate and 20-year term.
  • The buyer does not have the funds for a traditional down payment.
  • The buyer and seller negotiate a wrap-around mortgage where the buyer will pay the seller $1,200,000 for the property, with a $50,000 down payment, and the remaining $1,150,000 will be the wrap-around mortgage.
  • The wrap-around mortgage will have an interest rate of 5% and a 20-year term.

In this scenario, the buyer would make a down payment of $50,000. The buyer would then make monthly payments of $7589 to the seller for the $1,150,000 wrap-around mortgage. The seller would then use $5280 of that money to pay the lender on the existing mortgage and would keep the remaining $2309 as additional income. The seller would be able to sell their property quickly and at a potentially higher price. The buyer would benefit from the low down payment and favorable mortgage terms.

Final Thoughts

Purchasing a mobile home park can be a great investment opportunity. If you made it this far you already know why, but if you don’t then here is an article on why mobile home park investing is so great. At this point you have added some great strategies to your arsenal including how to buy a mobile home park for no money down. All these options come with their own set of risks and responsibilities, and it’s essential to consult with a real estate attorney, mortgage professional, and an accountant to understand all the legal and financial implications. Remember as I said in the beginning, that regardless of the kind of financing you choose, you should always keep an emergency fund in case of unexpected expenses. Happy hunting!

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