Trying to get started, could use guidance :) Is this a good deal?

Question

Okay so I am seriously interested in getting my feet wet in real estate investing. It seems like MHI is the way to go because of the low cost of entry and if things go bad, you're not out more than a few thousand and if done properly, a great way to generate a couple hundred bucks a month and get the process rolling.

I've been reading and studying everything I can for free. I am interested in buying, rehabing (if it needs it), then selling it via seller-financing.

The main questions I have are as follows:

Here is the listing: http://appleton.craigslist.org/reo/4305444560.html

1) SAFE Act & Frank-Dodd laws. I have done research but it's not clear. I CAN buy and re-sell this house via seller-financing but I need to make sure and use a MLO, perform proper credit checks and make sure they can properly afford the property, and I am not allowed to use a balloon system. Is this correct?

2) This mobile home is listed at $4,000. I am sure they'll go lower. How do I tell what to pay for this and what should I offer them? I was thinking ideally I would pay $2000 for it, not a penny more.

3) Lot rent is $285, seems reasonable. It's not a shithole area of town so it seemed like a good start.

4) Is this home too old? According to the listing they have done repairs and it's not a run-down shithole.

5) Lets say they take $2,000 and you guys agree it seems like a good deal at $2,000..... and lets pretend I have to put $1,500 into it so I have $3,500 invested. How much realistically could I sell this for and how much would I charge for down payment and how long of a structure/interest rates/payments and is it legal to do seller financing or ?

Sorry for all the questions... just really need clarification. I am having trouble figuring out what is a good deal and what is not... how much to pay, how much its worth, etc.... and also if I can do seller financing on this.

Thanks in advance, I really appreciate everyones time.

Belinda Lopez · Answer

Mobile Home investing is one of the best low cost entry level deals around. You need to search and read everything by John Fedro on this site and his site. Personally I'm not a fan of rentals in this segment; the repairs and turnaround can be very costly. The model many, including myself follow is to buy low and owner finance out.

Dodd-Frank only applies if you originate more than five mortgages in a rolling year but if you use a MLO for the first one, then you have to use them for all. The rules are still being written but just doing one or two right now and you should be fine. Once you start to scale up, you will want a good attorney on your team to review your documents.

Be sure to check your state regulations on how many mobile homes you're allowed to sell in a year as well. In Texas, if you sell more than three you need to have a dealer's license and the fines are really stiff if you don't.

The home you linked to looks like a good deal but keep in mind that it can probably never be moved out of the park because it is a 1973. Homes older than 1976 do not have HUD labels and many parks and cities have restrictions on the age of homes they allow to be moved in. That is perfectly fine as long as you're comfortable with the park history and management. I know one investor who has owner-financed over 300 homes and all of them were in parks. He takes $2k down and owner finances the rest so that the lot rent and his payment are lower than the median 2bdr apt in the area. He has also become very good at identifying good buyers and well managed parks.

Good luck!

Matt B. · Answer

I would see what the park would allow you to do. With Dodd-Frank, you will be seeing more parks allowing investors to do things they wouldn't have allowed just a couple years ago. I will say though, most of us are getting out of the seller finance business.

In our parks, we used to allow investors to seller finance, but not rent them. Now we are cultivating relationships with responsible investors that would like to do rentals, just so we don't have to own the homes.

As for value, I don't know your area, but $2,000 would be plenty for it.

Richard C. · Answer

Most parks in this area do not allow rentals (except by the park owners.) So that is one reason to do the seller-finance instead. Make sure you know what the rules are at the park this is in.

Tim King · Answer

@David Kauzlaric , I have been buying and selling mobile homes "Lonnie Deals" just like this for many years in Southern California. The first thing I would do is read the book deals on wheels by Lonnie Scruggs if you have not already done so. The challenging thing about selling mobile homes like this is value is incredibly subjective. Also, the manager of the Park is ultimately the gatekeeper of your transaction so you need to make sure they are okay with what you are doing. I personally sell them and carry the paper and do not rent them because older mobile homes tend to break and I prefer the minor inconveniences that come holding the paper over the major inconveniences that can come with this type of tenant. One of the first things I would do would be to run a test ad in that market offering this rehabbed mobile home for sale with X amount of dollars down and Y amount of dollars monthly payment. See what kind of response you get before you start investing your money.

Hope my $.02 helps - Tim

Ben Reese · Answer

David,

I doubt anyone here can give you a good idea of it's value as there are simply too many unknowns as to the demand for this product in its specific market. On the plus side you'll be offering someone very affordable housing. On the downside, it's an older MH.

But in almost any event you have to assume your customer is the end user, not another investor. This means, whether you rent or "sell", you'll likely be receiving a stream of monthly payments. So keep this in mind: A sale is going to look a lot like rent, and the value of a stream of payments is determined by time and interest rate assumptions.

From others in the business I've heard that the many if not most "rent-to-own" or "contract-for deed" MH rent-own deals are structured with a down payment of whatever they can get, 7-10 year terms and, rates north of 9%...and that most ultimately default. Those investors are generally OK with this as they soon take another small down payment and repeat the process.

Ben

James Wise · Answer

On another note I avoid investments where I am not in complete control.

Mobile Home Park someone else owns the land.

Condo's someone else owns the building.

I'd want to be the guy who owns the land and/or the building.

James Wise · Answer

Well,

As a long term rental it seems ok. Making cash flow on a very tiny investment.

If you can flip it and sell it for cash quick you double your money in a short amount of time.

The owner finance deal seems to slim to deal with the risk involved. a $500 down payment is not going to keep someone from walking away after trashing the place.

James Wise · Answer

I would Rent it out or ask for $3,500 down payment.

David Kauzlaric · Answer

Thanks in advance for taking the time to respond :)

I thought about renting, but from what I have been reading it seems the best route is to do seller-financing because the tenants are long-term and naturally are vested because they're buying the property and will take better care of it.

Lets assume I get it for 2,000 and it's worth 6500 and I put 1500 into it. I have 3500 invested. I would sell it for 6500-7000. Charge a $500 downpayment and then charge $200 / mo for 36 months. I would end up making $7700 total and recouping initial investment in the first 14 months. Is this good, bad, too much, too cheap, etc? Is 14 months too long? I am just really trying to narrow this down so I know how to look for properties.

I am trying to figure out mostly how to evaluate what its worth if I paid cash, what I can get out of it, and what is the best route... rent or seller financing?

The mobile home market is average in my area. There are always people looking for cheap housing alternatives.

Trying to get started, could use guidance :) Is this a good deal?

Trying to get started, could use guidance :) Is this a good deal?

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