wholesaling manufactured homes on land for Nice profit. Anyone else?

Question

I have been doing some deals in the last few months with great success. It involves mobile homes on land and I don't hear other investors talking about this strategy. I wanted to share it, break it down, make it better- perhaps, and hopefully by doing so others here can profit from it.

First, I have been investing in mobile homes on land now for about four years. Actually, 90% of the deals I have done have been mobiles. Back when FHA loans were still somewhat easy to qualify for we were selling homes to our retail buyers with the program. With gift funds through Ameridream(etc), lower qualifying scores, and affordable rates we had a decent system going.

It's no secret mortgages are much harder to qualify for now. But, IMHO, I think qualifying mobile homes on land is EVEN tougher. Banks are moving far away from these things for many different reasons(different disscusion).

So, for the last year I have been learning and practicing different techniques like lease/options, sub2, wraps, etc. I was able to pick up some really nice deals Subject to the mortgage with nothing down with NO competition. I am still talking about mobile homes on land.

After a direct mailing campaign of STRICTLY mobiles I was flooded with sellers who were desperate to sell. I am talking about homes on the market for 1,2, or 3 years with NO activity. I mean NICE homes. These homes typically were selling for $100-120k two years ago in my market and are now listed around $80-100k. Listed right around payoff amount.

Obviously as an investor we could NEVER buy these properties and make money on them.

With this IRS credit currently in place I have been selling a few of my rental land/home properties on wraps. I am seeeing a TON of interested buyers for seller financed deals! Not to long ago my mobile home broker was telling me has had 700+ credit score applicants denied for mobile home loans because of varying reasons. So, there are GOOD potential buyers out there.

The technique I have been using with success has been to wholesale or "wholetail" these high priced deals. I am contracting with seller to purchase their property. Then finding qualified first-time buyer with a few thousand dollars and assigning them my contract for $8-10K. The IRS credit is pretty much my fee for helping them buy the house the couldn't qualify for.

All parties have been extremly happy.

By "qualified buyer" from above I mean I am still actually doing credit, reference, employment check. Depending on the preference of the seller, I am actually presenting my potential buyer's information to them and getting their approval before we close with title company.

That is a basic outline of the process I am using. I tried to keep it as basic as possible. So, is anyone doing anything similar to this? Do you see a way to improve upon it?

I have been meaning to share this and get some feedback. Any constructive criticism would be appreciated. I hope some of you are able to profit off of this!

Cole Haynes

The

Cole Haynes · Answer

Jon,

On these deals that I posted on I am just wholesaling them to retail buyers. I dont own the home and I am out of the deal at closing. I am simply assigning my contract to purchase the home to the retail buyer.

I am working with two different types of sellers. First, sellers who are just trying to get rid of their payment and need debt relief. These are usually FHA loans with competitive rates (for mobiles) and payments are VERY affordable. All I am doing is making sure PITI is the same or less than comparable rentals in the area. So I can easily find a buyer when they are just paying rent elsewhere at the same amount or more. Second, sellers who own the property free and clear. I live in Florida and there are alot of land/home deals sitting empty. These owners live up north and are having trouble selling. With those deals we discuss what they want to get for their property in sales price and what they feel is a fair payment to them each month. I, again, make sure these figures are affordable in my market and if not, renegotiate.

Once I have found a home and seller that fits those parameters I contract the property. The seller knows from the start I will be selling my contract for an assignment fee and I will not be the end buyer.

I am then marketing to first-time home buyers who have a history of stability. Employed/residence 5+ years or so. I want them to have $3k or 4k out-of-pocket to have some "skin in the deal." I also take their IRS credit as my assignment fee for helping them purchase a home when they otherwise wouldn't be able to. I also explain to them that this money is due to the IRS the year they sell or stop paying on the home if they haven't lived there for over 36 months. Great reason for them to not skip out.

Does that explain it well? To recap, I am not purchasing these properties and I do not own them. Just selling contracts and helping buyer and seller close the deal.

Cole

Joe Pitrolo · Answer

Cole,

Have you considered subdividing the land and making extra mobile home lots? maximizing the roi?
    I can see Scott's point because MH's typically do not gain value like SFH. I know a permanent foundation is important in some states as far as Loaning dollars.

Jon Klaus · Answer

Cole, what does your retail financing typically look like?

Sales price?
Down payment?
Interest rate?
Monthly payment?
Term? 
Balloon?

What is your exit plan for these new notes?

How much would these properties sell for now for cash?

Sounds like you are really on to something.

Jon

Cole Haynes · Answer

Scott,

Thanks for the reply. I have read Nick's e-book on doing subject 2's. I have learned ALOT from Jason Hanson as well. Just curious, what about the technique is new? I disagree.

I think the purpose of my post and the idea might not have been explained as well as it should have been.

Your exactly right about current property values and what homes have sold for in the past. It doesn't matter in the least what something WAS worth. I was trying to explain the typical seller I am getting calls from when using this strategy.

This is not my main investing strategy. When I personally buy a mobile home on land it is at the value of the land or less. I am working block homes also with L/O and Sub2.

You posted-
I  think your success is basically with the fact that these mobile homes arent selling, you quote 3 years some have had no action and the sellers are super despirate, but this method also works with SFR.

I think that is the reason for 99% of my success and any other investor is dealing with motivated sellers.

The point you brought up about an owner with a mobile home being able to move their home off of the land is true. But when a home on land is financed, title to home is held by bank and mobile is considered RP for tax purposes. You can not get a permit to move these homes and it's not a 60's tin can that you can hook up to your pickup.

Like I said in the post, these high priced deals I am JUST wholesaling. I do not own them.

I am not having much trouble at all finding buyers for these properties. I think it has a lot to do with my marketing and understanding the particular buyer. They buy based on montly payment.

Basically, in my area these properties are all over. And like you mentioned not many investors would even consider them. But, right now with the IRS credit in place there is some money to be made if you get a lead like this. When I am getting leads I want to be able to work with as many as possible.

I hope that was a decent response and I answered all of your questions. I need coffee! lol

Scott R. · Answer

First off, Congrats on your Success!, As well as Congrats on finding Bigger Pockets! I'd suggest intoducing yourself in the new members section. 
Subject 2 is a newer tecnique being used by some on this board, and talked about more and more each day.. Currently Nick Johnson (motiv8ted ??) from Phoenix is the KING of Subject 2's and I'd highly suggest obtaining his e-book if your interested in these type of deals.

No, not trying to be rude, but what the property sold for 2 years ago has absolutely NO relationship with anything going on today, you mention $120,000 properties now listed for $100,000. In some of the tougher markets (again Nick's Phoenix area) there are $120,000 properties 2 years ago for $25,000 today, it just doesnt matter what it was worth, matters what its currently worth. 
There will ALWAYS be TONS of interest in Seller financed properties, people will always have bad credit, people will always need somewhere to live, and therefor seller financing is key. Problem being there are reasons they need financing and they often default on the loan, which could be a good thing for the seller (if they recieved a big down payment)
Now you talk about just assigning the contract, which doesnt effect you much in this fact, but my worry is that these properties ARENT actually worth what they're selling for, and if you personally were providing the owner financing you could end up getting stuck with a mobile not worth what you have into it, Owner financed houses ALWAYS being PREMIUM sales prices and interest rates, because they can. 
I think your success is basically with the fact that these mobile homes arent selling, you quote 3 years some have had no action and the sellers are super despirate, but this method also works with SFR. 
Most investors arent interested in mobile homes, with the excpetion of a few (shout out to Rachel Aka Mobile Home Gurl) and I know Jon from Dallas recently picked up a HUD mobile, but mobile homes dont appriciate like normal houses do, therefor dont interest as many investors as SFR's do, Plus they are obviously not attached to the land and can be moved, which I would assume is the reason banks are tightening there lending standards on such. Although you CAN move a house, its very costly and not often done, mobiles are moved all over, and if the bank has a $100,000 loan on a mobile and the land, but the lands only worth $5k and they go to refinance and the mobile is gone, they now have a whole different problem on there hands. 
Not trying to knock your ways at all, if your making money thats all that matters, just think theres a little niche for your area, maybe no one else interested in your area. Also finding buyers for mobiles is generally alot harder then SFR's.

Just out of curiousity have you tried applying this technique to SFR's? seems to me like Florida is a HOT SPOT right now (ask Rich Weese, also would advise contacting/meeting him hes recently moved to SWFL) and it seems to me like your limiting your possibilities to just mobiles.
 -Scott

Cole Haynes · Answer

Joe,

Yes I just thought about financing a portion of my fee recently. I am willing to do that as long as the mortgage on the property is at an affordable payment so I can add in my payment until the fee is paid.

I would only finance the fee under two conditions: They gave me a decent amount cash upfront, AND they have a valuable car paid off with title in hand. I would take title and put lein on car. with them also PERSONALLY liable if they don't pay me.

I would definitely prefer the cash though. I am creating some template posts for Craigslist to try and generate buyers with cash and no credit.

I find the FSBO mobile homes on land listed on FSBO sites. Buyowners.com, Craigslist, etc.

PM me for more details if you would like.

Joe Pitrolo · Answer

Cole,
  I follow you now. Where do you find lists of mobile home owners? Can you buy these or do you go to the court house?
  When the credit runs out, have you considered collecting 10k with 2 down and financing the rest for a monthly income stream?

Cole Haynes · Answer

Terry, the tax credit will be over May 1st. I am trying to get as many deals done as I can before then. As long as there is a legal contract in place before that date you have until July 1st to close. So, I am under the impression as long as I have the contract in place with the seller and with the title company I can still assign the contract to a first-time buyer for their fee between May and July 1st. I need to look into this more though so I make sure I am not wasting my time.

A lot of buyers I am working with have 3-5k in their pocket. For these deals they don't need the 700+ credit scores. The L/H deals are just like regular houses with their own private land. So there is no park qualifying, bank qualifying, actually no real qualifying in most cases.

It depends on how desperate of a situation the seller is in when I start working with them. If they can no longer make payments and are facing a short sale or foreclosure we do less qualifying with the buyer.

Now, with the credit in place I am just taking the $8k or $6,500 as my assignment fee. The way I am collecting this now is with an accountant who gets POA over my buyers 2009 tax returns, files the ammendment for their credit, and has the check mailed to his office. The check is then mailed to me. We also have the buyer sign a lot of documents saying this is OUR money and not his, etc.

Now that the credit is running out I am going to start targeting potential buyers with large down payments $10k, 20k, or more. They would in theory have a lot of cash, stable income, but can't qualify for a home loan. I will just start wholesaling the retail sub2 deals to them.

I have also been working with block homes the same exact way.

Let me know if that answers your question.

Terry Drake · Answer

Cole, thanks for not keeping a great idea like that a secret!  How have your assignment fees changed since the tax credit isn't what it once was?  Do many people have a few thousand dollars in their pocket and credit of 700+ in that area?  Buyers can barely pass the park applications around here!

Would you be willing to discuss in more detail?

Tod R. · Answer

Hi Cole.  This sounds like you have a great system in place.  I know this is a dumb question, but your buyer buys subject 2?  I'm not up to speed on the IRS credit, but how does that work?  How are you able to get your fee paid? Is the 1st time homebuyer allowed to receive the credit at closing or are you asking the buyer to put the $8K in at closing then get it back on their tax return?

wholesaling manufactured homes on land for Nice profit. Anyone else?

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