Can Zero Down Really Cure All?

There’s one unique type of deal that is only perhaps found in the mobile home park sector: the “zero down”. We’ve done 12 of these over the past 25 years, but have also done deals with 2.5%, 5%, 10% as well as other low-down payment amounts. In fact, there’s a general assumption that “zero down” and other “low down” constructions can cure all ills with any mobile home park purchases. But is that really true? Let’s examine the facts.

What it CAN cure

A “zero” down or low down-payment deal indeed fix a lot of issues in any mobile home park transaction including:

  • Reduction or elimination of most risk. Since risk avoidance is a major goal of all investors, it makes complete sense that buyers would follow the path to lowest risk – and having virtually no capital tied up in a deal effectively removes risk altogether.
    1. Heavy lift turn-around issues. Some mobile home park deals require a “leap of faith” in which the buyer is taking over a property with significant operational issues and potentially even a day-one negative cash flow. Nobody knows in these type of parks if the property can truly be brought back to life or not. With little capital in it, the buyer can simply give the property back to the seller if their bet was wrong.
    2. Risk from flooding and other weather events. While all properties have exposure to Mother Nature, some have much more risk that others. A mobile home park on the eastern coast has hurricane risk while one in the middle of America does not. And a property with floodplain is significantly more at risk than one that has no such zoning designation. On properties with unusually high risk of weather events, low down deals offer that risk escape which makes those concerns tolerable.
    3. Market risk. Some markets have only one large private employer, as opposed to a balanced number of employers. If that one large employer were to close or downsize, it could be devastating to the mobile home park’s tenant base. So once again, having little capital into the deal means that you can hedge that risk and simply give the property back if your market goes down the drain. 
  • Funding for needed capital repairs. Some parks require significant capital needs in the form of infrastructure repair or renovation of park-owned homes. With a low down deal you can instead put your capital to work fixing these items as opposed to going to the seller at closing. By reducing the amount of money you have in the deal it both reduces your risk as well as increases your cash-on-cash return.
  • Elimination of conventional banking concerns. All lending is inherently risky as you have to find a replacement bank each time the note comes due (unless you have a rare 30-year mortgage). By having less capital in the deal, it means that you have less exposure if the loan can’t be renewed.
  • Concern about seller’s honesty. This is a big issue in many properties in which the mom and pop sellers have such poor books and records that you have to simply take a leap of faith regarding their accounting. With a low down deal, the implication is that the seller must be telling the truth because they know that you have little “skin in the game” and will simply walk the deal if they lied to you.

Considering the fact that Sam Zell (the #1 owner of mobile home parks in the U.S.) holds his rule of risk vs. reward as paramount to success [“only buy deals with high reward and low risk and never buy deals with low reward and high risk”] then zero down and low down deals are very attractive to the buyer.

What it CAN’T cure

Zero down and low down deals still do not have the power to cure all ills and concerns. Here are two items that they can’t fix.

  • Illegal use. Mobile home parks come in one of three categories: 1) legal conforming 2) legal non-conforming “grandfathered” and 3) illegal. If a park is illegal and has no right to exist or operate, then the low down strategy still does not work because there is no happy ending if you hang in there and fix the park up and avoid all other issues. Illegal parks cannot be financed or sold, and there may be extreme financial penalties to the owner in litigation from residents.
  • Environmental contamination. Every mobile home park must have a Phase I environmental report produced on it to guarantee that it holds no environmental pollution risk. If you buy a mobile home park with environmental contamination then you may have significant financial problems that cannot be discharged simply by giving the park back and losing your zero or small down-payment.

But it has risks, too

Zero down and low down-payment deals originate with only one source: mom and pop sellers. You cannot make initial purchases of mobile home parks with such an arrangement (although you can refinance mobile home parks with conduit or agency debt and still obtain zero or low down deals once you have operated them successfully for years). And these seller financed deals have some risks in their construction for you to be aware of.

  • Your risk is only mitigated if the loan is non-recourse. In all of the above examples, we talked about the option of walking your low down payment and handing the deal back to the seller. That will not do you any good unless the loan is “non-recourse”. If the loan is “recourse” then that risk hedge is out the window and you have not actually mitigated your risk very well.
  • How will you replace it when the seller debt ends? One alarming issue with a zero or low down deal is what your plan is when the initial loan ends, since real banks will be seeking 20% to 30% down payment. How will you come up with that money? For most buyers on these deals, the goal is to sell the property before the loan ends, or to increase the net income so extremely that the appraisal allows a new loan without much additional capital out of pocket.
  • Will circumventing traditional financing actually lead to missed diligence issues? Some buyers become so excited about zero or low down deals that they are distracted from the standard due diligence issues that must be examined. Don’t let your excitement get the better of you. A good deal with zero or low down is one thing, but low down payment will not make an unprofitable deal still work.


Zero down or low down deals are a fantastic construction that can give you stellar returns and risk mitigation like no other. That being said, there are things that can and can’t be cured by this radical arrangement and make sure you have thought through all of these angles.

Frank Rolfe
Frank Rolfe has been an investor in mobile home parks for almost 30 years, and has owned and operated hundreds of mobile home parks during that time. He is currently ranked, with his partner Dave Reynolds, as the 5th largest mobile home park owner in the U.S., with around 20,000 lots spread out over 25 states. Along the way, Frank began writing about the industry, and his books, coupled with those of his partner Dave Reynolds, evolved into a course and boot camp on mobile home park investing that has become the leader in this niche of commercial real estate.