Is This Plan Too Good To Be True?

Question

I've been wanting to get into real estate investing for a couple of years now, trying to learn all that I can. Over the last couple of weeks I've been seriously trying to come up with a plan, and here is what I have. Unfortunately, it seems almost too easy/good to be realistic, so any input would be incredibly appreciated!

Side note before I begin: I am a 24 year old teacher making roughly $45k/year between teaching and my other jobs, own my own 3 bedroom home and collect $1050/month in rent from two people on my $1250/month mortgage, along with 2/3 of monthly utilities.

I live in a college town with crazy high rent prices (at least they seem crazy to me) in Arizona. Most studio apartments are going for $1000/month or more. I could purchase a single wide 2 bed/1 bath mobile home outright for under $15 - $20k cash, including repairs, just 5 minutes from the college campus and downtown in a multi-aged trailer park. Lot rent is $525/month there. I am confident I could rent that out for $1,025/month, netting $500/month before upkeep expenses. $500 x 12 months = $6,000/year, paying for itself in just over 3 years, call it 5 years with expenses. Sell it after I have made my money back, even if it sells for a conservative $10k, I am still making pretty good money starting with not much, right?

I haven't done a ton of mobile home investing research, as I just got this idea a few weeks ago. Additionally, I plan on purchasing the house I grew up in from my widowed mom who will give me a killer deal, and turning that into a rental (possibly vacation rental) in Ocean Shores, WA - a tiny beach town that blows up in population during the summer, near where Mr. Turner now resides I do believe. That is several years down the road, though, the mobile home idea seems to make the most sense to me without a ton of capital to begin with.

Thank you for taking the time to read!

PS - Not sure if this counts as asking for a mentor or not, I know that is against the rules. If this breaks any forum rules please remove, and please do accept my apology.

Account Closed · Answer

@Dylan Hearn You have more to work with than it seems based on what you've stated. I enjoy Ocean Shores and played at Kalaloch many a weekend. I have lots of ideas you might like.

Chad McMahan · Answer

Hi Dylan. From my experience- there is no such thing as too good to be true. The important part is your due diligence. It sounds like you might have stumbled upon a "cash cow". I would recommend you run it by a local management company, to confirm rent. $1025 sounds like it might be a bit high, but close. Also, repairs might be higher than you expect- I recommend you have a contractor or handyman come out and walk it with you(Should be free or cheap to get a bid). Also, make sure you pay for a home inspection and pest inspection, if you get it into contract. Inspections should be a total of about $300-$400.Bring a Flagstaff realtor into the deal and get a 2nd opinion.If it checks out, I recommend keeping it as a rental and maintaining the home so it doesn't fall into disrepair.Make sure your tenant is financially qualified and I recommend no criminal background.A few things about mobiles/manufactured:They need a bit more maintenance than site-built.Qualifying for financing can be tricky if they are older than the late 1970's. This is important, even if you are a cash buyer, as one day you will sell it and might need a cash buyer (This is fine, if the price is right and it's in good shape)Go light on the upgrades. Keep it modern-ish, but it's tough to get your money back out.Jump on it and Good luck! Fortune favors the bold.

Dylan Hearn · Answer

I did not know that, thanks for the heads up!

John Dirgo Deweese · Answer

FYI, vacation rentals are essentially forbidden in Ocean Shores, WA. So, until the law gets changed, don't factor that into your thinking.

Garrick Oconnell · Answer

Hello Dylan,It has been my experience that manufactured homes place a very strict limit on the amount of units that can be rentals. Usually a percentage. You usually cannot get a standard loan on a manufactured home older than 1980 that is not affixed to the land (meaning you do not own it along with the actual type of foundation.) Usually the community has the over all say on who you can rent to- they can turn down applicant after applicant. They usually limit the amount of non family members in one home, highly regulate visitors and length of visit, then after all that they can dictate who you can sell the home to when you want to exit. This is not a list to scare you but to inform you.Can you rent the manufactured homewhat is the rental processwhat is the sale processis there a rental limit for the communitydo they restrict lease terms and visitorscan you finance the manufactured home (usually not on single wides and park models) this is important because most people do not have the $20,000 cash to buy your home when it is time to sell and most investors do not want a manufactured home with out the land unless its a steal. etc...You should also know that a manufactured home community owner is not a HOA manager or compares to a rental management company and can kick you or your tenants out for various reasons that do not apply to normal landlord tenant law. We own and manage 3 manufactured homes in flagstaff BUT we own the land they are on on the west side of flag.

MIchael Rickerd · Answer

@Dylan HearnSend me a PM if you want to connect. I am a relatively new Flagstaff Buy and Hold investor. I think you're on the right track, with the right attitude, but your current analysis seems a bit minimal to me.This place is definitely highly profitable due to NAU.

Dylan Hearn · Answer

@Alexander Felice I think I will be able to get around $1000/month for rent fairly easily. As far as reproducing this over and over, I am not sure that is something I would really want to do. This is definitely intended to be a low-level first-time investment to see how things go. Thank you for the heads up with underestimating things, I will definitely take that into consideration!@Corby Goade Yeah that's primarily what I am looking for, is some decent cash flow on the side. Especially for my first investment property. Also, I do have my current roommates on a lease. Thanks for the heads up, though!

Corby Goade · Answer

Sounds like you've found a possible way for some nice cash flow, that's great. Something to consider: land and permanent structures inherently increase in value, but in your scenario, you have neither. At the end of 20 or 30 years, you'll likely have a manufactured home that needs to be hauled off to the dump and have no value. That said, if you are only in it for the cash flow, which is really okay, then I'd explore it a bit further. One thought- if you don't have your rommates on formal leases, I'd do that as your future banker who is loaning you money to buy a manufactured home will require those. Good luck!

Alexander Felice · Answer

The idea/plan always sounds great, because in real estate, the devil is in the details.Will you be able to get the rent you want?Will you be able to reproduce that deal over and over?Are you underestimating costs?Will the market change and render your projections obsolete? Will you be able to use ANY leverage on such an inexpensive mobile home or are you doomed to be a cash business? Yes, your plan sounds great, but continue to do your due diligence because small variations in figures add up. Don't guess on what things cost, you need to know. $500 on 20K might be a good ROI, but at 50% expenses this leaves very little room for error, what if you have 60% expenses, or high turnover, etc, etc. Also think about the long game, one deal won't make anyone rich, You need a method that is repeatable and has contingencies. You're on the right path though, keep making progress.

Dylan Hearn · Answer

Thanks, Chad! That's helpful advice. I think college kids (or college kids parents) would be more than willing to split $1000 two ways to be only 5 minutes from NAU especially during the winter. But I get what you're saying. I also have a buddy that has also shown interest in real estate investing and I discussed this with and he offered to go in it with me, if I wanted. Is this a good idea? Seems like it would be for me, as it would minimize risk. We are both teachers and this year (as well as the next few school years in the foreseeable future) budget has been cut dramatically. I don't think jobs are on the chopping block yet, but you never know...