My First Deal, not what i expected. Is this a good idea?

Question

I've been "lurking" for a while here on BP. Learning while I save up some cash.

Anyway, a deal has presented itself and I would like to know if I should pull the trigger.

Details:

Single wide mobile home on my street. A friend of my girlfriend wants to buy it but conventional financing is not possible because of down payment requirements and it's below the $20k minimum.

Purchase price is $15k.

I would take a loan from my 401(k) for $10.5k at 3.5% and use $4.5k cash to fund the deal.

I would write a note to the buyer for $20k at 7% for 8 years.

No down payment. This has me concerned the most. But she just doesn't have it. No brainer if she could do $5k down.

Her payments to me (escrow) would equal my 401(k) loan. Approx $200.

The term on the 401(k) loan is 56 months.

I would not see any cash flow or profit until then. But she would continue to make payments for another ~3.5 years for a total profit of ~$8k.

Obviously this would be a real contract with recourse but its still loaning money to a friend.

The title would be in her name with me in first position. And she would be responsible for all maintenance, repairs and lot rent.

What do you think?

Curt Smith · Answer

I just saw "lot rent". No way, don't buy a MH in a park. Remember the park manager has 100% control over your buyer getting approved and can kick anyone out for "reason" meaning your deal can blow up any time. I looked into "lonnie deals" once and too many risks especially for a beginner. Old timers like John Fedro knows the issues and can make a business of working parks. I can't recommend MHs in parks for a beginner.

Join a local REIA and ask around for who's doing deals and partner with them for you to put your 401k money to use on flip or SFR deal.

Curt Smith · Answer

There's  mobile home forum where folks expert in mobile home deals will see your deal.

#1 single sides (presumably on there own land and NOT in a park) are worth no more than $10k.  I'd give $15k for an old doublee wide and $20k for a 2000 or newer on 1 acre.  MHs are cheap in GA.

#1 check that the seller has good tile for both the home and the land and has at least the home title in hand and can show it to you.  MHs are title like cars.  To many sellers don't have legal title to the home or there's back taxes.  Look for the tax sticker in the window must be a 2016.

#2 down needs to be 20%.  Home buyers walk too frequently.  Folks got this one above.

#3 since you'll have a high likelihood you'll take back this home what is the rental market for single wides?  Use craigslist or put up a test ad mentionng no address but the area.  I do test ads all the time to test the viability of a deal before I buy it.

I would not pay $15k unless this is 2000 or newer single wide and 3 bed 2 bath.  If an older 1995 or older 2 bed / 1 bath, its worth $10k max.  Selling MHs without seller financing is very difficult so the seller will eventually take $10k.

Jacob Pereira · Answer

If you're satisfied with only earning 7% on your cash, why not just leave it in your 401k? Just make sure you're in an ETF with a low management fee and that's approximately what you'll make (historically speaking; no one knows the future) , just without any of the work.

Jay Hinrichs · Answer

@Curt Smith  best to own the park  instead of just a few MH in the park... buy the whole thing so you can control it all and have all your marbles in one nice spot. stead of spread all over creation.  plenty of low end parks in the southeast

John Fedro · Answer

Hi Kevin,

Great advice from everyone thus far. So awesome that everyone here has your back and is willing to help out in your business. I am regularly surprised by the givingness here on BP. The only thing I'll add that hasn't been added is the fact that there are likely better deals around you that are more lucrative and more affordable. It is great you have this 401k, that you're interested in REI, and that you are located in ABQ, this is a good area for MH investing. You may want to consider passing on this "deal" and looking to help other sellers nearby instead. Hope this helps. Keep us posted.

Talk soon,John Fedro

Wayne Brooks · Answer

Also, your "profit" isn't $8k, you put $4500 cash into it.  Bad, bad idea.

Rich Ferradino · Answer

on single wides I make the payment around $250/mo and on doubles $350/mo.  That way it makes it affordable and nobody from the state or federal government can say you were taking advantage because the payments are really low. Lower than any rental they could find.

Rich Ferradino · Answer

Down payment is a must. She could walk from the house and not lose any money. Bad idea. I'd ask for $5k down and finance the balance at 12% interest. Dodd Frank doesn't apply if you do under 3 loans a year. I'd make the house habitable though. No leaks, broken windows, working hott water, stove.

Mark Gruetzmacher · Answer

Yeah like others have stated, so sort of down payment is needed.  But what you should also consider it that selling financing is an issue with Dodd Frank and the Safe act.  Read up on that subject here on BP.  Sure there are way to be complaint and sure people sell on payments all day long still but I would not want to be on the wrong end of the deal with those regulations.  At the end of the day is it that great of a deal if it takes over 8 years just to make the little bit you talking about?  Sounds like it is not worth even looking at.  I would look for a deal on a mobile you can buy, clean it up some and sell for cash.  Just my thoughts.

John Duffy · Answer

Walk away...for all the reasons the others have clearly pointed out.

My First Deal, not what i expected. Is this a good idea?

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