Pre-Hud Mobile Home Strategy

[Logan B.]

Hello everyone,

First post here. I want to thank everyone in advance for any assistance. I've always wanted to get into real estate investing but I haven't acquired my first property yet. I've come across the following opportunity...

My father has owned and rented a 2 bedroom mobile home since the 1980's. The mobile home is located on a street with other (permanent) residential homes. It's not in a mobile home park and he owns the land underneath the mobile home. The mobile home was built in 1968 (Pre-HUD). He has maintained it pretty well over the years and makes repairs after each tenant moves out. My father is near retirement and is thinking about selling the mobile home.

The property enjoys very low taxes and insurance, resulting in pretty solid cash flow. The property brings in about $7,000 in annual gross rent with a net operating income of about $3,000. 

My father's asking price is $30,000 and he's fairly firm on price. I doubt any bank would be willing to finance a Pre-HUD mobile home purchase. If he doesn't get that price he will just continue harvesting cash from the property and postpone selling. I am considering buying the mobile home with 100% seller financing. I do not want to pay the $30,000 asking price because by the time I pay off the seller note, I would own a mobile home worth far less than what I have invested. It doesn't make sense to spend years paying off a seller note on a mobile home.

Question 1: Can a Pre-HUD mobile home be moved? I am interested in moving the home to a new site, selling the mobile home, and using the proceeds to build a permanent home on the land where the mobile home currently sits. I would then use the cash flow from the new built home to pay off my dad's seller note.

Question 2: How should I value a mobile home of this age? He believes it should be valued based on its income. I think valuation methods using cap rates and net operating income is not appropriate because the mobile home is so old that I think it's risky to assume the income will continue indefinitely into the future. Mobile homes depreciate and the mobile home itself may only be worth scrap value. Is the property only worth the value of the underlying land? I feel like there should be some credit given to the income it's currently producing.

Question 3: What if I buy the mobile with an  Unsecured promissory note? That way, I could demolish the mobile home before paying off the note. Then I could go to the bank for a construction loan. From their point of view, I would own the land free and clear of any liens. I could invest some cash for a down payment and borrow against the land to build a duplex. I would then use the cash flows from the new duplex to pay off my dad's seller note.