Notes on (trailer park) mobile homes?

Question

This is an academic question for me but it was prompted by a discussion with another investor. That investor was trying to value a portfolio of 30 notes on mobile homes. Trailers only - land belongs to the park. Assume they are performing. All notes are seller financed by the seller (no underwriting), low value ($10 - 20k UPB), $200 - 300/mo P&I, 5 - 20 years left.

Is there a secondary market for this kind of paper? Have you met other investors that buy in this space?

As a buyer of ‘traditional’ notes, what kind of discount from UPB (or market value) would you expect this kind of note to require in a secondary market?

Chris Seveney · Answer

@Bryan Hartlen

These are personal property and I would compare them similar to car debt

For me I would discount them to around 50% of UPB if they are performing as if they go non performing you will get wiped clean since the land rents are huge and you would have to deal with all the BS of moving them etc and they are such a low balance it’s a big headache for someone to take on.

Dave Van Horn · Answer

To my knowledge, there's not much of a secondary market for these types of assets. At least not much of a public or institutional one. In the past, the company I worked for had originated notes on newly purchased mobile homes but the key here was we serviced the note, managed the parks, and would assist with renovations, any turnovers, etc. so the note owner could resell the mobile home again more easily (thus keeping the lots full and increasing the value of our parks). So the big question here is, what kind of servicing, if any, is provided by the owner of the parks?

Depending on that, I'm not sure what the discount would be in this instance but it may be comparable to a junior lien on a residential property, if not more favorable.

Also something to keep in mind, these assets depreciate much more rapidly than a residential property, almost like a car would (since these are motor vehicle titles) which would effect the terms of the note.

Tom Scott · Answer

Even though unaffixed mobile homes are personal property, they still qualify as "dwellings" and are subject to the rules of Dodd-Frank and the SAFE Act.  I'm definitely not an expert in what happens when you violate these regulations but I believe some of the penalties can include fines and/or a recession of the financing contract but I don't know if this liability is transferrable to someone who owns the note vs the originator.  The reason I say this is you said "no underwriting" was performed which makes me think they also did not follow the rules for seller financing to an owner-occupant.

Another problem with mobile home paper is the low value of the notes.  At $10,000-$20,000 in UPB, the mobile homes probably aren't worth a ton or are fairly old.  A well-maintained mobile home can last as long as a single-family home but a poorly maintained mobile home can easily be a teardown.  For this reason, getting eyes on the exterior of the property and while unlikely, the inside of the property is really important...tough to buy a mobile home sight unseen.

As other people have mentioned, the discount to UPB would be significant even for performing loans but that can all change depending on the condition of the home.  The small number of mobile home financing companies (home only, no land) out there tend not to sell the performing paper as whole loans and securitize instead.  When they have an NPL, replevin is so quick and cheap they tend to sell the repo'd homes vs selling the actual loan.

Paul Moore · Answer

@Bryan Hartlen I would not want to be involved in these notes myself, but I guess I’m more risk-averse than most. I would guess 50% discount or so.  You may want to ask @Dave Van Horn, BP’s resident note expert.

Marco Bario · Answer

@Bryan Hartlen - Andy Teasley is the go-to expert in my world when it comes to mobile home investing. Also, look up books and whatever else you can find by Lonnie Scruggs.

Good luck.

Michael Plante · Answer

Instead of a new thread

how much for a mobile home mortgage not where the land is owned by the buyer as well as the mobile home

Titles have been retired

Bryan Hartlen · Answer

@Rick Pozos thanks for the input.  I’ll check but I think these notes we’re all in the mid west somewhere.

Rick Pozos · Answer

Hey @Bryan Hartlen I would think about 50% discount sounds about right. If you find a few of them in San Antonio or surrounding area, let me know. I will take what you got. All of my notes are exclusively in SA. I know the area and what is happening in and around the city. I have created a few mobile notes, but kept them to completion. I am not opposed to buying some notes for mobiles in parks or on land, either way.

But I have not heard of a big secondary market for them. I would rather keep them. The ones that go bad can be rehabbed and sold again for more down payment.

Bryan Hartlen · Answer

@Chris Seveney thanks for chiming in. The trailer park segment has been getting a lot of investor attention over the last year so this has been an interesting thought exercise.  I don’t know that I’d value them that high - one of my concerns would be how to perform due diligence.  Without recorded titles what do you do?  It would also seem that exiting the investment would be more difficult as there doesn’t appear to be a secondary market. It would require finding the right investor (maybe the park owner?).  On the positive side, from what I’ve heard, the eviction/repossession process is much faster and cheaper than an ejectment or foreclosure.

Assuming you could buy it right, I could see investing the a portion of one’s high risk / high reward portfolio in this type of note, but couldn’t see it being the primary staple / strategy.

Notes on (trailer park) mobile homes?

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