Mobile home investors can protect deals from rate hikes by building 3 percentage-point buffers into interest rates and cap rates, doubling construction timelines, and adding large reserves. Operators using minimal buffers of 0.25-0.5% risk missing their five-year return targets when markets shift.
Chapters
Who is Catherine Bell? We have a very large margin so that we can increase interest rates up to— interest rates could increase up to 3% between our acquisition and either the refinance or the exit. Same thing with cap rates. We've had up to a 3-point spread, a 3% spread on that, meaning if cap rates went up 3%, we've still got that padding in there. And when you look at— and we can— we double our construction timelines and we add in a big buffer of property taxes and insurance. And so someone looking at our investment, if they didn't understand what we in this industry call conservative underwriting metrics, then they would actually think both of those deals are the same. But if I'm projecting the same returns as another operator over here, and we've got a 3-point spread on our cap rate and our interest rate, and these guys over here have a quarter a quarter of a percent, which is what a lot of operators have, they have a quarter of a percent or a half a percent, they're not going to be able to handle much volatility in the market. And if they did, it would definitely throw off their numbers. And so that's something to really look, to look a little bit behind the curtains on how much wiggle room do you have on your operating expenses, your interest rates, your cap rates, your construction timelines, and all of the things. Because if you think any of those things could happen in the timeline of these investments, and usually these investments are 5-year holds, then if you think that's gonna happen in the next 5 years and that's not built into the numbers, then it's gonna be really difficult, if not impossible, for that operator to actually hit those numbers. So then you can look at that and you can feel more confident about the operator over here versus that guy.
