Re: John Fedro video. Seller pays lot rent??

Question

I tried to email John Fedro with my question yesterday and today, but I keep getting a BP error message saying that the problem will be fixed shortly.  In the meantime, I thought I would bring my question here...
  
I have been listening to all the John Fedro youtube videos lately and am reading his blogs.  I'm a little confused though with one part of the youtube video "What price to sell your mobile home. Part 1"... 
From the $750 cash flow/month he calculated (average apartment rent + $50), he subtracted the $400 for lot rent and this figure became the total monthly cash flow. ? Why subtract the lot rent?  Is this assuming you, as seller, are paying the lot rent until it is purchased free and clear??

John Fedro · Answer

Hi Lori,

It is so important that you have clarity when investing so I appreciate you reaching out to us for help.

I see that there are a few questions with regards to lot rent and what price to sell a mobile home for monthly. Plus an additional "who is on the hook" type of question.

1. Who pays the lot rent? There are a few reasons that I advise you, the investor, to always pay the lot rent for at least the first 2 years of any new tenant-buyer relationship. The first is that I trust myself (or you) to make the payment on-time more than the tenant-buyer, at least until I see a proven track record of incoming payments to me for 2 years or more. Second, if the lot rent is late the park manager may not tell you, at which time they can evict and your home will be included in the eviction, not just the TB. In this case you will make sure the lot rent is current, do the eviction so your home will stay and Tb will leave. And third, paying the monthly lot rent will keep you in touch with the PM monthly to build rapport and ask for other leads from PM. This why I collect payment from TBs and then I pay lot rent.

2. Depending on your market being more filled with buyers or sellers will determine whether you can charge $50-$100 more than local apartment rent OR $50-$100 less than local apartment rent when selling your MH. When buyers buy they should expect to pay a more than renting, however this is not always the case and again varies from location, condition of home, number of payments, etc.

3. Who is on the hook for making payments? Many parks will want and require you (the seller) to be on-the-hook while you receive your money for the home. If the park does not need your credit to remain while the home is being paid off to you then great, however many parks will. In all reality if the TB stopped paying you or the park, You would certainly step up and bring the lot rent current i order to protect your investment. Not stepping up to pay the lot rent would result in your investment home being evicted from the park. So either way -whether your credit is on the line or not you will (or should) still be on the line with regards to lot rent.

I hope this all makes sense and helps. Thanks everyone for all the great advice too. In the future feel free to email me at John@mobilehomeinvesting.net.

Thanks for the shoutout Sam Parkins.

Best,
John Fedro

Bill W. · Answer

I've never put the lot rental in my name.  I've had some parks ask that I do that, but I have declined and it wasn't an issue.  On the other hand, some parks would not even allow the lot to be in someone else's name other than the buyer if they only allow owner occupied homes.  I don't do it because it's additional management and paperwork for me that won't be compensated.  On top of that, if the buyer stops paying both home and lot rent, the buyer will have two entities putting pressure on them for the money instead of it falling on my shoulders alone.

In any event, whether the buyer directly pays the lot rent or the mobile home seller is responsible, the formula is the same.  In the above scenario $400 is coming from the buyer either way and is ultimately winding up in the park owner's hands.  It just sounds like John advocates the lot rent passing through the mobile home seller for additional oversight.  This may be best for you if you like to manage and it may give you a bit more control and responsibility.

Bill W. · Answer

I haven't seen the video but from what you describe, the video is taking into account the total monthly expenses a potential buyer will have (both mobile home payment and lot rent).

The potential buyer has two likely scenarios.  Rent an apartment or buy your home.  For those two options to remain competitive choices, they should cost about the same.  In the scenario where the person considers buying your home, any money that has to go to lot rent, will be less the person can pay per month towards the mobile home.  If the person has $750 a month for either option, and lot rent is $400, that leaves $350 the buyer can pay you.

I usually try and make my mobile homes plus lot rent a little less than apartment rent but it's important to test your market and see what works best for you.

Lynn Currie · Answer

I watched that video about a month ago. I think that, yes, John is paying the lot rent. My understanding (assumption?) is that until the MH is fully paid off, you as the owner, need to pay the rent because the space for the MH is rented in your name.

I'm sure John will chime in, as well.

Account Closed · Answer

Actually John does pay the lot rent initially.  After a predetermined amount of time for the tenant buyer to prove himself he lets the buyer pay.  Am I correct in this John Fedro?

John Fedro · Answer

hi Lori,

I see I forgot your other question about introducing yourself to the park manager. The #1 method I use is being direct and upfront with the PM. I do have a video and script for this however it is privatized for the investors I help train.

The 2nd method is just a good for introductions. Just remember to be sincere and keep in mind you are there to help the sellers and help the park manager and you will do great. Make sure you meet all the local PMs too.

Best,
John Fedro

John Fedro · Answer

Hi Lori,

Happy to help. I hope the answers made sense.

Good job being a self-starter and making sure to find all local parks, park managers, and sellers to market too.

Be conservative in your offer(s) and remember you can always go up in price/terms.

Also, test for local buyer before making any offers so that you not only know your competition but you know the prices you must purchase for to sell quickly and for a substantial profit.

Keep up the great effort.

Best,
John Fedro

Lori Hunter · Answer

Thanks for jumping in John Fedro.  Much appreciated advice!  Ive been driving through lots of parks lately, doing my research, and scouring the internet for motivated sellers.  Almost ready to make my first offer.  I also caught your video about your second favorite way to approach MHP managers but cant find the !st.  Any hints would be greatly appreciated!

Marc Faulkner · Answer

Don't get caught into the trap of getting stuck paying the lot rent.  It is the buyers responsibility to make timely payments on the lot rent.

Lori Hunter · Answer

Ok.  That definitely makes sense.  I was thinking lot rent + loan pmt would total hefty number for a buyer anyway.   This way it definitely makes sense for them and there is still a good cash flow.  Thanks for helping me understand.  And I also see the benefit in pricing it below comparable apartment prices.  Thanks for the advice.

Re: John Fedro video. Seller pays lot rent??

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