Doing Lonnie deals with traditionalhomes?

Question

The Lonnie deal concept seems interesting to me, but couldn't it be applied to a traditional home?

I mean, let's say you bought a home wholesale, or bought a fixer upper home at a good price. Then you rehab it.

But when you sell it, what if you offered financing? The same concept applies as the Lonnie deals: find people who want to buy a home and tell them you're more flexible than a bank and offer financing.

Let's say you bought a home for $65000, then put $20000 into rehabbing it. So let's say that's $85000 invested in the home.

Let's say you want to sell it for $120000
You could put an offer of 10% down, and the rest financed at 3% interest across 240 months

So you get the $12K down, and then the rest would go as follows

They finance $108,000 at 3% interest across 240 months (20 years)

That's $108,000 * 0.03 * 20

Or $64,800 interest, so a total of $172,800 in payments across 240 months at $720 per month for the buyer.

The pros would be that this is $720 of pure cash flow (since you aren't a landlord), and you'd make a very nice profit in total

So is this a feasible idea?

And what about regular Lonnie deals on mobiles? I've been reading alot about them, and they seem like the right thing to get into for a starting investor (I did want to get into SFH's a while ago but I'm still not sure where to begin); the most confusing thing in all of this is the processes of going through everything.

I'm not sure how the whole process goes for buying a home, since I don't own my own home (I rent a townhouse at a gated community); what happens when you want to buy a home?

Thanks for the help!

Richard Warren · Answer

What you suggest is not a new concept at all. One major flaw with the example you gave â€“ you invested more in the house than you received in a down payment.  If you continuously do deals like this you will eventually run out of money.

Another point: if you offer to finance the deal you can command a much higher interest rate. I have done deals as you describe but with an interest rate near 10%. People are eager to do this when they are unable to obtain financing. The interest rate is high enough that they have an incentive to refinance if they can.

:cool:

Account Closed · Answer

i was going to saw something similar to richard....with lonnie deals, you usually get your original investment back from the buyer's downpayment, or most of your cash at least..that's just not possible with a 100,000 house.  however, you can try to develop a great relationship with a small, local bank who will refinance for you after the rehab. then you pull the cash out to rinse and repeat.  this is a new strategy i've been working on.

Rachel H. · Answer

Yes, that's actually how Lonnie started selling using owner financing - with residential homes. It was only afterwards that he applied it to mobiles. It's possible. Only thing, it usually involves more out of pocket expenses than the mobiles. Hope that helps!

Loc R. · Answer

The biggest difference with mobile homes and SFRs with Lonnie type deals is this:

When you buy a mobile home from a seller, because there is no institutional financing, you having cash is critical to achieving a bottom dollar price.

Also, the payment terms are typically shorter with mobile home deals.  You are seeing more of your principal each month.

Marilyn A. · Answer

TxEagle,

There is a book called "How to Build a Real Estate Money Machine" by Wade Cook that covers basically the same concept as Lonnie, but with SFHs.  He would buy homes with low down payments (by seller financing or assuming loans), rehab them modestly (a couple thousand), then get his down payment and rehab costs back in the down payment from the buyer and the difference in equity he carried on a note.

But like others have already said, the huge cash flow and low investment is the appeal with Lonnie deals.  Also, not having to go through title companies and formal closings is another benefit of Lonnie Deals.

You can also do similar deals with land.  There's a developer in my town who buys large tracts of land, divides them, put wells and septics on them, and sells an acre lot for $38,000 with no credit check.  The terms are $1,000 down and 500 or so dollars a month.

Brian Levredge · Answer

The thing that makes Lonnie deals attractive, imo, is the much shorter repayment timeline (3-5years), plus the fact that you generally recoup your initial investment in the first year.  Your scenario does neither.  You also carry the added risks of foreclosure (money out) and having to repair the property upon repossession (money out again).  In addition, as the note holder you don't really have much in the way of write offs that will offset the taxes as you do when you control the property itself.

Lastly, you have to discount the end return using a FVM model since your return would take place over 20 years presumably.  I would rather take the money now from flipping to an end buyer and put that to work to increase the velocity.

Uwe S. · Answer

@TX_Eagle: Please do not post this topic 6 times. One is more than enough.

-Uwe

Doing Lonnie deals with traditionalhomes?

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