point of diminishing returns ?

Question

Hi, I'm new to the MH world, but have worked on many  stick builts. I am a little lost on MHs as to how to evaluate an improvement and the return that can be expected from it.

I just bought my 1st MH and am in the planning process with it. I only paid 1500 for it, so its basically a guinea pig to practice and learn.  But as I investigate the various problems it has, it has become clear that if I were to address all of the issues, I'd end up rebuilding the entire thing.

Most of the remodels Ive seen so far has been just putting lip stick on a pig. I havent seen any yet that have had real structural deficiencies addressed, like the one Im working on now, everything is just patched to last 2 or 3 years.

There is termite damage on the sill plate down one side that was pretty obvious, but no one bothered to fix it. Thats an easy fix, but Im starting to wonder where the cut off point is.

My goal is to sell them, not rent them. I understand I'm working in the bottom end of the market with this one, and probably cant expect to sell for anything above 10K when im done.

So I can probably summarize the question by:

When to Patch and When to Replace/Fix.

Setting aside any of the real structural issues ( I will fix them regardless)

What amenities should one focus on ??

Siding, More Space, Curb Appeal Etc ...

Which ones bring the best return on investment?  Coming from the stick built world, I see all of them as tear downs, so Im having a hard time evaluating them.

It seems that the way to make money with MHs is to patch everything and fix only what really has to be fixed.

Any suggestions for a newbie ?

PS. Sorry if i am rambling :D

Kevin

Rachel H. · Answer

It really depends on your end buyer and how much work they are willing to do. There are some who sell "as-is" and target folks who are looking to do the work but pay a lower price. With that being said, it may require more negotiating on the selling end since it is being sold "as-is."

Generally, I know Lonnie's rule of thumb is to double his money. I know of an investor who specializes in these kinds of homes - never touches them. If they could double their money, that would be all that mattered. For example, one home was bought for $1000 and sold for $2000 (cash sale) in one weekend. The key is not to get too greedy. As Lonnie has said in the past, "Hogs get slaughtered, pigs get fed."

Yes, time is money. It's best to figure out how much time and money it will take to fix-up a home to it's fullest potential versus selling "as-is" and/or getting it to an acceptable standard from a buyer's point of view.

All in all, I really think it's important to know your market and who you're end buyer will be. This does take a bit of research and time but in the end having this knowledge will lead to your success.

Hope this helps!

John Fedro · Answer

Hi @Kevin Ellis

Good to see you taking interest in mobile homes. Congratulations on your past investing and welcome to BP as I see this if your first post. 
	
	My first thought is that the exit strategy and rehab strategy should have idealy been understood prior to you purchasing the home. With that said well done pulling the trigger to take action on this deal.

The advice I have for you is based on me selling mobile homes to end-users for payments, cash, and bank financing. The amount you plan to fix the home up should be determined by how you plan to resell the home and the amount of your greed. 
	
	What do I mean by "how you plan to sell the home"? If you sell for payments you will be able to sell to happy tenant-buyers willing to pay you money monthly to own a home that may need heavy cosmetic and light structural repair work. The condition of the home at the time of the sale will determine the Move-In fee you can expect. Selling homes this way will create the most amount of value and profit.       
	
	If you sell for cash you are competing with everyone else in the market place selling their mobile home. You home needs to be 10% nicer than the others and 10% less expensive. My advice here is to fix what is broken but do not upgrade. 
	
	If you plan to resell for bank financing than a nice remodel can be done with the expectation of a return on the work. This scenario is usually only the case with mobile homes attached to land.
	
	Long story short is that you should fix the holes in the floors, holes in the walls, holes in the roof, fix the electric and plumbing if broken. Do not worry about landscaping. Pressure wash the outside if covered with heavy algae or dirt. Repair what is broken but do not upgrade. Start marketing the home to buyers the day you buy it for $XX,XXX price as-is, however for just $XX,XXX (a higher price) the home will be cleaned and move-in ready.
	
	What I mean by greed above is the final price you decide to sell the home for. While I don't mean anything negative by the word I simply mean to place a variable on your willingness to sell for a 300% profit one day or waiting for a 350% profit. 
	
	Hope this helps and makes sense. If not let me know.
	
	Thanks for the shout out Joel. 
	
	Talk soon,

John Fedro

Kevin Ellis · Answer

Well as an update, Im in the process of gutting this one. Fastest way to get to know the strong and weak points of the construction aspect of these things.. Ill make money on it, probably 100%, it's the time frame that has changed. But now I know what to look for when looking for MHes., and the amount of work that would be required to get it to a reasonable state. Not that interested in selling to other investors just yet. Rather sell to retail customers and carry paper for now. The monthly income has always been the problem with SB homes, and I dont want to carry paper for 250K on a house.

Still in the learning process, and expect to be for at least a year. This is a very different game than SB homes :D

Kevin

Kevin Ellis · Answer

Yea, Ive been trying to look at it from a perspective buyers point of view.

Upon further investigation, this thing is looking like its gonna be a gut job. Just got done ripping out the kitchen, and the floors are half gone. So I have my answer as how far to take it. I was looking at this one to be a learning experience anyway. Nothing like diving right into the thick of it :D. Probably 2 or 3K in materials, rest is labor, which I can handle on my own for the most part.

Next thing is to get used to crawling around under these things, pretty scarey down there, and being in FLA, lots of nasty critters :D

kevin

Bill Gulley · Answer

Kevin, what would you expect if you were buying or leasing, what level of repair would you expect as a minimum and would a better standard be something you'd be willing to pay more for? :)

Kevin Ellis · Answer

Hi thx for the response, helped clear a few things up in my head. I do plan on carrying paper on them or lease to own. If they have cash great, but not expecting it. My interest in MHs is for more cash flow. I have alot of money tied up in 3 stick builts for sale. I see MHs as a way to invest smaller amounts and get a good cash flow from it. How I view them is a bit skewed by my previous experience. Each MH is of course an entity to itself and each will be unique. I would think that the quality of the park it resides in will also play heavy in these decisions.

Thx Again

Kevin

Joel Owens · Answer

Look up John Fedro on this one.

point of diminishing returns ?

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