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Updated almost 15 years ago, 02/13/2010
Cashflow opinion
I'm currently working on a deal for a mobile home on land (real property).
I was anticipating about $250-300/month cash flow. (financed through the bank, 10yr terms). Well due to the appraisal (bank being ultra conservative) I was going to walk away from the deal for the fact that I would have to come to the closing table with too much money which would shoot my ROI all to hell.
I told the sellers agent that the only way I can move forward with this deal is if they are willing to owner finance it. Here are the terms and details.
Property :
1971 Single wide mobile
2 bedroom + 1 office/den area
1.5 bath
12ft x 56
no repairs needed
family park in desirable area
Original contract price : 15k
Appraised @ 12k
I offered 14k if they were willing to hold the paper. They came back with the terms of
14k selling price, 3k down leaves a balance of 11k.
11k over 5yrs will cash flow about $175/month after PITI and after 10% of gross rent for Misc.
Obviously that is well below the numbers I was hoping for. I don't want to jump into a bad deal, but at the same time I don't want to walk away from a good one. Especially if I'm being hoggish about it.
Would you guys be happy with 150-175 CF/month or is it not worth the headache? I try to shoot for $200/month. Especially with an older property that can have appliances or other problems at anytime.
What are your thoughts/opinions on this deal?
Terry... you greatly underestimated your "misc" expenses. They should be at least 25% of the gross rent... and if the furnance or lot rent or anything else is old or out of the ordinary your expenses will only go up.
You are probably looking at cash flow of less then $100.00 per month.
The key here is just because the seller will carry the financing doesn't mean it is a good deal. In fact it may be a terrible deal hidden the in the excitement of seller financing.
Best of luck!
#2 Off Topic Contributor
- Real Estate Investor
- the villages, FL
Terry,
You couldn't get a better answer than Peter gave you! Bravo to Peter, again. Terry, lets' go to lunch sometime. I've relocated to SWFL. Rich
Thank you both for your input!
I just wanted to mention a few things that might help..
One thing I wanted to mention that this mobile is not on leased land. It is on real estate and on the tax rolls as real property. I agree 14k is a horrible deal on leased land! :D
The second thing I should throw out there that in this area, run down, vacant mobile homes that need 5-10k of fix up cost are selling between 10-15k (value of the land). After fix up you're lookin at 20-25k total invested. So basically I would be buying this mobile for the cost of the land, needs no repairs, and is ready to rent AS IS.
My thinking is that this is about as low as the market is going to get in this area. No where to go but up and I want to snap up a few income producing properties before prices do start to climb. Of course, more cash flow, the better!
FWIW I countered with these terms to the seller:
A.) 11k over 8 years @ 8
B.) 11k over 7 years
C.) Amortize 11k over 8 yrs with a balloon in 6yrs.
With those terms it puts my CF back up around 225-250 instead of the 175 that I was looking at with their terms.
Terry,
Are you renting the land and the mobile to your tenant? If you own the land, are there fee's that you pay since it's in a park, or just utilities? Personally I would be a little apprehensive to rent out an older mobile, seems like too many potential problems.
I'm VERY new to mobiles so take this for what it's worth: Have you thought about creating a note for the mobile and leasing the land?
Jeff
Originally posted by Jeff And Cheray Warner:
Are you renting the land and the mobile to your tenant? If you own the land, are there fee's that you pay since it's in a park, or just utilities? Personally I would be a little apprehensive to rent out an older mobile, seems like too many potential problems.
I'm VERY new to mobiles so take this for what it's worth: Have you thought about creating a note for the mobile and leasing the land?
Jeff
I have considered both. Renting the mobile/land together for $525-550. There are no park fees, only property taxes which are included in the PITI. Tenant pays utilities but the water is on well so he/she is only looking at electric.
-or-
Creating a note on the mobile and rent the land. I was thinking $325 or $350/month for lot rent with an 8yr note that would be about 182/month.
Originally posted by Terry Drake:
-or-
Creating a note on the mobile and rent the land. I was thinking $325 or $350/month for lot rent with an 8yr note that would be about 182/month.
I think your second option is the best in my opinion. I would be worried about being a landlord on an older mobile but that's just me. Personally, I think you've got a great opportunity here Terry. The ability to have a note that cash flows, without being a landlord as well as getting lot rent is like the gift that keeps giving. Good find.
Jeff
Terry,
Any progress on that deal? I know it's only been a couple days but I thought you might have got your offer accepted.
Jeff
Originally posted by Jeff And Cheray Warner:
Any progress on that deal? I know it's only been a couple days but I thought you might have got your offer accepted.
Jeff
Not yet. I think the holidays are slowing things down a bit. As soon as I hear something, I will update for those interested. :)
That makes sense. Keep us posted, I'd love to hear the details. Happy New Year.
Jeff
I must admit that I don't know much about Mobile Homes, but my instinct is telling me that there are better deals in similar money investmented with "real" homes. There are areas in the country, where you can buy houses for similar price with better appreciation perspective and better cash flow.
BTW, I would jump on Rich's offer for lunch if I were you. I bet that lunch would weigh in gold considering the wealth of information you can get out of it... :wink:
Originally posted by Eddie Ziv:
BTW, I would jump on Rich's offer for lunch if I were you. I bet that lunch would weigh in gold considering the wealth of information you can get out of it... :wink:
Eddie,
I guess I always assumed these 10-15k properties were in war zones. Do you mind me asking where your buying?
Jeff
Jeff,
I buy in Birmingham, AL. Those are in low income areas but definitely not war zones. Send me an e-mail, I'll show some examples.
you can check some of my houses under my photos here on BP.
http://www.biggerpockets.com/galleries/show/5420
http://www.biggerpockets.com/galleries/show/5415
#2 Off Topic Contributor
- Real Estate Investor
- the villages, FL
Thanks for the compliment, Eddie. We actually had a nice lunch yesterday! Rich
Originally posted by Eddie Ziv:
I buy in Birmingham, AL. Those are in low income areas but definitely not war zones. Send me an e-mail, I'll show some examples.
you can check some of my houses under my photos here on BP.
http://www.biggerpockets.com/galleries/show/5420
http://www.biggerpockets.com/galleries/show/5415
Thanks for the info Eddie. Those are some nice looking homes, they look big too. I'll send you an email.
Jeff
Originally posted by Rich Weese:
Yes we did. Thank you for the information and making time to meet!
Update:
Like I said in the OP, I offered 11k over 10 years.
They countered 11k over 5 years.
I countered 11k amortized 8 years, small balloon after 6yrs.
Sellers agreed and closing is set for the 19th.
PI = 155/month
TI = $50/month
Rent in this area = $500-575
#2 Off Topic Contributor
- Real Estate Investor
- the villages, FL
Congrats Terry! Now, do it again and again and.........Rich
Good Job Terry.
Jeff
#3 Guru, Book, & Course Reviews Contributor
- Investor, Entrepreneur, Educator
- Springfield, MO
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#3 Guru, Book, & Course Reviews Contributor
- Investor, Entrepreneur, Educator
- Springfield, MO
WAY TO GO!
FYI, I know a guy who has tons of MHs and he swears he does better than conventional housing, he says the key is maintenance, converting mobile appliances (HW Heater, tubs, kitchen) over to conventional units and skirt them, the take care of maintenance yourself. I wouldn't do it, but he's not hurt'n either. Bill
Nice work. I like option number 2 of renting the dirt and selling the home. I would advertise the home for sale by owner/easy terms/no banks. When you quote payments quote both the home payment and the lot rent as one so as not to make things to confusing for your buyer. You can give a more detailed explaination of how things work once you have qualified them and they are interested. This is a small old tin can and they do not make good rentals. You might get lucky and find a cash buyer for the home that will rent the space! Looks like a good deal to me.
Just wondering how this one turned out. Did you rent it? Sounds like you got a great buy here.
Originally posted by Marilyn A.:
A friend of mine is renting for now ($500/month). Since he is a handy man we agreed to the lower rent and he takes care of the little things while he's there. I know it's not usually the best idea to rent to a friend but he is dependable, was in a tight spot where he was, and it was nice to have a good tenant move in right after closing.
When he leaves I will owner finance the mobile, and charge lot rent to who ever buys the unit. Probably around $150-200/month for the note and $325 for the lot rent.
