I mentioned in yesterday’s post that we were planning to try our hand at investing in some mobile homes (MH) via “Lonnie Deals”…
Well, it appears we’ve done our first deal already! One of our partners found a MH listed for sale on the website of a local bank. The MH was a foreclosure and the bank was asking $5000. My partner looked at it, and while we still have very little idea of what constitutes a good deal, his gut told him that we could probably resell it for more than we could buy it for.
We made an offer to the bank for $1700 in cash. The bank let us know that they had multiple offers already, but that we were the only one’s to offer cash (the rest needed financing). Given that, they were willing to settle for $2500. My partner kept negotiating, and ultimately we were able to get them to agree to a $2000 purchase price if we brought them a check within 48 hours.
Unlike typical real estate, MHs don’t generally sell with the underlying land, so a typical MH sale is more like buying/selling a car than it is like buying/selling a house. In fact, it’s almost exactly like buying/selling a car — you sign a Bill of Sale, exchange money for the Title, and then register the Title at the DMV or local courthouse (depending on your state).
As soon as the bank told us they had accepted our offer, I threw an ad up on Craigslist to see if I could get some interest. The home needed some work, so we decided to try to sell it as-is (to someone with some handyman skills) at a relatively low price; if that didn’t work, we’d do some rehab and list it a little bit higher. I offered the home in AS-IS condition for $4600, with $500 down and $250 per month.
Within a few hours we received several calls from interested buyers. We sent them to the property (there was no lock on the door), and told them to take a look and let us know if they were interested. Just in case it was necessary, we called a few handymen and had them meet us at the property to give us bids on the rehab work (some plumbing, roof repair, subfloor repair, etc). The estimates on the rehab were in the $400-600 range, and likely could have been done in a day or two. Luckily, that wasn’t necessary.
By the next morning, we had three seriously interested buyers. One was out of state, and the logistics of getting him approved by the park manager and getting the paperwork signed would have been difficult. The next buyer offered full price, but needed to get his wife to agree to the purchase before he would commit to moving forward. And the third buyer offered $4100, with a $500 down-payment ($200 today and the other $300 next week when we signed the papers). And they were perfectly okay with the condition of the property, as they were willing to put in the work to fix it up themselves.
Since we didn’t yet own the MH (we hadn’t wired the funds yet), we were perfectly happy to hold off on the second half of the deposit, as we couldn’t let them move in yet anyway. So, we collected the $200, had them fill out an application with the mobile home park, and signed some preliminary agreements. We’ll meet next week (after we have the Title) to collect the rest of the down-payment, sign the contracts, and let them move in.
If the deal goes through as expected, we will have purchased the home for $2000, sold it for $4100 with $500 down and financing the other $3600 @ $250 per month for 16 months. This will give us our principle back in 6 months, a total profit of about $2500 and a yield of over 175%.
Not bad for a first deal that took about 2 hours worth of work…
Are you ever going to post any pictures? f
Amazing results. I am very glad for you guys.
One of the big questions I’ve ever had was related to eviction/repossession/foreclosure (or whatever applies in this case) process and costs when the buyer (and now owner) stops paying.
Have you found out how is that handled and what costs are involved in something like this?
Congrats again.
Alex –
Yup, at some point I’ll create a page specifically for pics of the mobile homes…wasn’t sure if anyone really cared about that, as we take credit for any rehab… 🙂
Awesome! That is a text book Lonnie deal. 🙂
Thanks for sharing! It adds to my motivation.
Nice work. You just added another revenue stream, must be a nice feeling
I read Lonnie’s stuff about a year ago. looked like a person could easily yield over 100% a year
on working capital. makes real property look pale by comparison
Scott – this concept is creative, but I have a question:
The ROI is great 122%, but if you look at real numbers… you have $2,500 in profit if no labor costs is involved. Over the 16 months, how much labor is involved? That profit can get eaten pretty fast if it becomes management intensive.
If they do not pay their park fees do you have to make them current after eviction? How much does the eviction cost?
Seems like an intriguing model, especially for people who are looking to build some sweat equity. If you bring partners to take care of the labor for a piece of the equity it makes sense all day long.
Hey Steve –
The ROI (yield since it is an amortized loan) is actually closer to 175%, so it’s a really good deal.
As for the labor intensive, the only issue that we face is repossession if the buyer stops paying. If that’s the case, it’s a simple process of filing, waiting a couple days, and then having the sheriff remove them from the home. It costs nothing, though as you said, if they don’t pay the lot fees, we could incur that cost. Generally, though, the park managers really want us to keep the home on their land, and have already said that their happy to provide us a couple weeks of free lot rent here and there if we need to do rehab or find a buyer. They are very cooperative (at least at this park).
Other than that, the only labor would be doing rehab if the buyer destroys the place and then leaves. But, just like with our house rehabs, we wouldn’t do any work. We’d send a contractor in for a day or two, get it into inhabitable condition again, and resell.
And the nice thing is, any money that the first buyer had paid before they left would be pure profit in our pockets, as we’re able to resell under the exact same terms. So, our ROI actually increases if a tenant leaves (assuming he doesn’t do more damage than what he paid in downpayment and rent).
I don’t imagine there is any “sweat equity” at all…but I guess we’ll see!
J Scott,
Great strategy! Seems like easy money! I do have a question around the typical clientel associated with the mobile homes. Obviously these people aren’t the most professional people so how do you feel about working with these types. I hope I don’t sound to snobby but your dealing with people that have serious issues most of the time. I know how you like systems so do you have one in place here? If so could you please share?
Thanks
Gary
Hey Gary –
That’s a great, great point. It’s the reason why I was so apprehensive about getting into this area, and also why I think there is so little competition in this area (a lot of people feel this way).
Let me start by saying that I very well may change my mind a few months down the road if/when we have to do repossessions and kicking people out. But…
In terms of just reselling with owner financing, all I’m really doing is playing the bank. My job is to find a buyer, get them approved by the park management (there’s an quick application process), get their down-payment, have them sign the contracts and promissory note, verify they got insurance and then hand them the keys. In theory, after that, they just send me payments each month and then I send them the Title when they’re paid off. Because I don’t own the house, I’m not responsible for maintenance, dealing with tenant issues, etc. I’m not different than the mortgage company who holds the note on the house you might own. I don’t care what goes on at the place, as long as the mortgage is paid on time.
Now, of course, there’s the issues associated with the mortgage not being paid on time. If this is a chronic problem, I might find this business to be horrible. But, I’m hoping that if it does happen, I can mostly handle the repossession without dealing with the buyer face-to-face. I file the papers at the courthouse, I put a note on the door, and then I let the county cops handle kicking them out. At least that’s my hope… 🙂
So, as of now, there doesn’t seem to be much issue with dealing with this segment of the buyer’s market; but ask me again in a couple months, and we’ll see if that’s still my story…
All I’m going to say is Mobile Homes have gallons of tears associated with them. At one point in my life my heart was hard enough to deal with it, but not any longer. It’s a good thing you are young and full of energy! I wish you luck and an extra ordinary return on your investment.
Jingle
Jingle –
I’d love to get more details on what you mean! If you can save me tears, I’m all for it!
I’ve had an in and out interest in trying to invest in mobile homes. Keep us updated. And did you just follow the details of lonie’s book?
J Scott, It’s nothing that hasn’t been alluded to some of the comments above. In the recession of 1985-86 I used to do some insane three way deals that involved selling a Mobile Homes owner into a Condo-Townhome, and the TH owner into a new Single family house. More often than not, part or all of my commission ended up being the stupid mobile home. It was hard enough to find a mobile home owner that was credit worthy enough to buy a Condo, and to get the Condo owner into the House was difficult as well. Interest was around 11%-12% for a house and 18% for a trailer at the time. All of this was in pursuit of the 9.9% the builder was paying to get people into the house……..If any leg failed, the entire deal generally tanked, or you took a mobile home as the commission to get the deal to go. And it was ALWAYS the mobile home that was the problem, somehow, someway. That wasn’t the bad part. The bad part was dealing with the mobile home, the parks, and the buyers of the trailer, and trying to get the buyer financed. This is where I learned about “Credit Worthiness” Oh the humanity of it all……. I got to the point where I became quite the hard hearted person that I didn’t want to be. I found with M/H’s the best buyer were seniors……..until they died…..and then you start over most of the time. Believe it or not, I have one mobile home that I have repo-ed or taken back nicely 8 times. I still carry it and am taking payments. Around here you can’t just rent them, almost all parks require owner occupants. I never thought that a trailer would even last 30 years. And most of all I don’t ever want to put a 68 year old bingo addict out on the street again. Like I said, it involves lots of tears…. Not a business for the compassionate, as you will be asked for lots of it. I did pretty well with them, but it was all……well, unsavory. That’s all.
Jingle
Jingle
I think some of your problems/hearache w/ mobile homes were caused by a few unsavory management practacies. Never tell a tenant that you are the owner of the note or the owner of the home. Tell them that you work for an angry and mean landlord that won’t allow them to stay. This makes you the messenger rather than the decision maker, thus a much less painfull situation in the event of an eviction.
Although it’s necessary to evict people that don’t pay their note. It is a compassionate business in my opinion because it gives you the opportunity to sell a home to somebody at a very affordable price. Mobile home investing provides sheltor for the bottom barrell of society.
Matt, We look at the world very differently. I won’t touch a MH these days, and I wouldn’t lie to make life easier on myself. Good luck with your MH endeavors, its a tough sector.
Jingle
Ive flipped a few cars here and theres so im familiar with the titles and the mvd and how that title stuff works. I found a mobile home with 2 bedroom 1 back from like the 1978 and hes willing to take $2000 cash clean and clear title hes asking $3000 Im really planning on buying it from him. Im worried about the lot rent though like I dont really want to pay rent right now the 1st of December im thinking of just waiting a week into December than buy it from him if he still has it. The other concern is if I will sell this home for more how do I value this home ? Do you think it can go for $6,000 ? will people be interested ? where will I post it to get lots of people to see it? I just dont want to buy it and pay rent for a 2 months or 4 because it doesnt sell then sell it for what I bought it for and even end up loosing money? I would really appreciate if you gave me an advice as soon as you have time so I can take action whether to take it off his hands or not
oh and the lot rent is around $330 including water
If you’re concerned about paying lot rent for December, then either:
1. Negotiate the purchase price $330 lower; or
2. Talk to the park manager, explain the seller is unable to pay and that you want to help him in his situation by buying the MH and reselling it, but that you’d like a month break in rent. Fran –
In my experience, if the manager thinks he won’t be getting paid by the current owner, he’ll be happy to give you a free month in return for a promise to get it sold.
To sell, what I’ve found works the best:
– Put up flyers in the park (lots of park residents will have friends/family looking for a place);
– Put an ad on Craigslist;
– Put an ad in a local pennysaver or small-town paper.
If you look in those places for other MHs that might be for sale, you should be able to get an idea of how much it will sell for.
The other possibility is to get an option on the MH and try to sell it for a profit. If you find a buyer, execute your option; if you don’t, let the option expire.