When looking for equity partners in the mobile home park space, there are a few questions to ask. First, you have to decide how much control you’re willing to relinquish. Is the person an MHP operator or investor already? Or are they more of a quiet, silent partner that furnishes the capital for your deals? These are the kinds of questions you should be asking yourself to know just what the process will need.
Of course, with a silent partner you’ll take on more operational duties. Likewise, if they are active in the MHP space, they may be a bit more hands on. They may be more inclined to offer more instruction. This may also lead to them being entitled to a higher percentage of profits as well. Once you’ve determined your preference, you’ll have a better idea of which deals suit you best.
Working with equity partners and brokers
After picking a path, the next question to ask is if your equity sponsor can close a deal. Can they endure the rigmarole of due diligence and still give the needed funds? Because if not, it’s likely they’ll spoil the deal as a result of inexperience and cold feet. This would no doubt leave you in a financial bind and damage your reputation as an operator. This is especially the case if you’re partnering with a broker.
Speaking of brokers, be prepared if you are indeed using one. A good broker will definitely want to interview your equity partners. If they don’t request this, you may want to re-evaluate using them. This reeks of inexperience. An incapable broker can cause just as many problems as a poor equity investor. Always exercise your best judgment when picking any partners as a park owner. It will save you a lot of wasted time and money.
Managing equity and debt
Every deal has two pieces: equity, and debt. Debt is a reference to the property’s mortgage. Equity, on the other hand, refers to the piece between its mortgage and purchase price. As such, you’ll also need to know whether your equity partner is willing and able to sign for the debt. If they can’t account for the debt function of the deal, your momentum very well may be dead in its tracks. This is especially the case if you’re using a CMBS or a Fannie Mae loan.
Lets’ recap. If I were to bring in an equity partner, they’d need to meet the following guidelines:
- I retain full autonomy
- They are able and willing to sign on the debt
- They have legitimate, lengthy experience and success as an equity partner
- A clear understanding of how much control they want in the deal, as well as the return they’re looking for.
The MHP Expert’s Take
This is only the baseline for our suggestions. I’ll level with you, partnering on a deal especially with newcomers, can be challenging to say the least. It’s a process of trial and error, and it all depends on what your bandwidth can handle.
Have any more questions regarding the Mobile Home Park space? You’re in the right place! Head on over to our contact page to schedule a quick consultation with me. I look forward to hearing from you!