10 Abandoned Mobile Home Units Inside An Arizona Park

[Jeff Petsche]

Investment Info:

Mobile home note investment investment in Scottsdale.

Purchase price: $1
Cash invested: $25,000

In negotiations with a mobile home park owner (friend of mine) who has a park in Arizona with 110 pads. He has 10 abandoned units, which he does not want to mess with fixing them up and selling them, so he is willing to give them to me for FREE, if I agree to REHAB and sell to an end user, so he can get butts in the seats @ $350/month park rent per pad ($3,500 in vacant rent right now)

REHAB at $2,500/unit
SELL for $8,500
Move-In Down Payment: $1,000
36 Month Note @ $250/month
ROI: 53.26%/Yr

What made you interested in investing in this type of deal?

Friends and mentors in the space.
Barrier to entry is much less than traditional real estate.
Affordable housing (mobile homes) is not sexy to most investors, so less competition
Affordable housing (mobile homes) is more appealing to many than apartment living because they have a sense of ownership with a mobile home
Mailbox money with great ROI for little upfront capital
No headaches of being a landlord because I'm the bank the end user is responsible for maintenance, utilities, etc.

How did you find this deal and how did you negotiate it?

Through a friend who owns the park.
I looked at a solution to help him solve a problem with 10 abandoned units that he did not want to mess with fixing up and selling, or putting renters in them. Sitting abandoned was losing him $3,550/month in rent space, so I suggested he give them to me for FREE and I would take on the responsibility of fixing them up and getting them sold, so he can increase his occupancy rate and collect more rent.

How did you finance this deal?

Cash

How did you add value to the deal?

REHAB abandoned units to increase a sales price
Offered seller financing to those who could not buy for cash. No traditional financing on a used mobile home (outside of private money).

What was the outcome?

Still in the process of finalizing the deal and getting REHAB bids.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

No. I'm a real estate Broker, as is my friend who owns the park.

[DeAndrea D.]

Wow! That’s an awesome deal. Can you update once you have official rehab numbers and what you sell the finished homes for?

[Doug McVinua]

@Jeff Petsche Congratulations on the deal, that's an exciting venture with a great upside!

Have you considered holding any of the units? The $350 lot rent isn't too bad, yes it cuts in but could still be cash positive!

[Jeff Petsche]

@DeAndrea D. yes that's the plan once I get a few going. The plan is to REHAB 2 at a time, maybe 3. 

[Jeff Petsche]

@DeAndrea D. I am planning on holding the units with seller financing for the term of the note. Most mobile home parks don't allow rentals, so this is not a rent/hold business model. It's a note business model and/or FLIP to a cash buyer if that makes more sense. 

[DeAndrea D.]

@Jeff Petsche Thanks and that makes perfect sense. I’m just getting started and the park mangers I’ve spoken to will not allow rentals in their communities. I don’t think I would want to have a mobile home for rent. I’d rather do as you are and fix & flip or carry a note. I’m interested to see how this turn out for you especially getting the homes fixed up.

[Matt Bonestroo]

@Jeff Petsche Hey Jeff - I am a mobile home investor in the Phoenix market... would love to hear more about the project that you have going on. Is the owner going to help you sell the properties? Are you in California or Phoenix? I am curious to hear your experience managing a rehab project from a distance... What years are the mobile homes? 

[Jerry Lucker]

@Matt Bonestroo

Awesome!

[Alex G.]

Originally posted by @Jeff Petsche:

Move-In Down Payment: $1,000 
36 Month Note @ $250/month
ROI: 53.26%/Yr

I am not an attorney but your business plan appears to violate "XI. Anti-Predatory Lending: Title XIV of the Dodd-Frank Act".

[Jeff Petsche]

@Matt Bonestroo sending you a private message. 

[Jeff Petsche]

[Jeff Petsche]

@Alex G. through my research and conversations with those in the business, your reference to Anti-Predatory Lending: Title XIV of the Dodd Frank Act applies to MORTGAGE ORIGINATION an addresses Mortgage Originators (Definition of “Mortgage Originator”
The Mortgage Reform Act defines a “mortgage originator”
as “any person who, for direct or indirect compensation or gain, or in
the expectation of direct or indirect compensation or gain: (i) takes a
residential mortgage application; (ii) assists a consumer in obtaining
or applying to obtain a residential mortgage loan; or, (iii) offers or
negotiates terms of a residential mortgage loan.”

Mobile homes are PERSONAL PROPERTY, not REAL PROPERTY, thus we do not create a mortgage note. This is a BILL OF SALE transaction and title is transferred like owning a car through DMV.

I do however stay within the USURY LAW of not charging MORE than 10% interest.

I've yet to hear from anybody in the mobile home space that references DODD FRANK because we are not dealing with REAL PROPERTY.

[Alex G.]

Originally posted by @Jeff Petsche:

"Mobile homes are PERSONAL PROPERTY, not REAL PROPERTY."  

Not necessarily.  However, if the previous owner paid annual fees to the DMV, it must be personal property.

[Jeff Petsche]

@Alex G. let me clarify my statement. Mobile homes NOT on a permanent foundation are PERSONAL PROPERTY. Mobile homes on a permanent foundation are REAL PROPERTY. 

As a real estate Broker in CA, I can sell mobile homes on permanent foundations or attached to land because it is now classified as REAL PROPERTY. I can not however, in CA, sell any mobile homes that fall under PERSONAL PROPERTY without a dealers or retailers license. 

My project is in AZ, which allows a person to sell 3 per year without any license. So, I can sell 3, my girlfriend can sell 3, my daughter can sell 3, etc. 

As for the notes, I still personally feel that DODD FRANK applies to mortgage notes, which a personal property note is not a mortgage. However, for purposes of discussion, if a mobile home is identified as a residence under DODD FRANK and the SAFE ACT, there is the 1 FREE PASS and 3 DEAL RULE that could apply, before having to use a licensed mortgage loan originator to create the note and pay for that service. 

Here is a great video on YouTube where an attorney explains DODD FRANK and the SAFE ACT in a way that's simple to understand. 
https://www.youtube.com/watch?v=wBSdQRd_Pu8

If/When I get beyond the 1 Free Pass and 3 Deal Rule, then I'll use a licensed mortgage originator to create the note and negotiate the terms, which I have, and pay for that service. OR if my business grows to a point where it makes sense, I'll go get my NMLS mortgage license and create the notes myself. 

[Matt Bonestroo]

@Jeff Petsche @Alex G. There are a couple informative forum threads that discuss mobile home notes... I recommend reading through @Ken Rishel , @John Fedro , and @Rachel H. posts. As for the dealer license, I have heard mixed #s for the amount of homes that can be sold prior to needing a D-8 dealer license - 0 to 3. I am sure the guy you are purchasing the homes from would have a D-8 license.... you might be able to workout a deal where the property ownership never transfers. 

[Jeff Petsche]

@Matt Bonestroo yes every state has their own rules regarding how many units you can sell without a license under the SAFE ACT. Arizona is 3 every 12 months w/o a license. And if I'm not mistaken, that's 3 per person or entity. Where I live in California it's ZERO, as are most states, and I believe there are a handful of states that are unlimited.

As for the notes: This is a great video to watch by an attorney who explains the BASICS pretty good surrounding the SAFE ACT and DODD FRANK. https://www.youtube.com/watch?

[Ken Rishel]

Originally posted by @Jeff Petsche:

@Alex G. let me clarify my statement. Mobile homes NOT on a permanent foundation are PERSONAL PROPERTY. Mobile homes on a permanent foundation are REAL PROPERTY. 

As a real estate Broker in CA, I can sell mobile homes on permanent foundations or attached to land because it is now classified as REAL PROPERTY. I can not however, in CA, sell any mobile homes that fall under PERSONAL PROPERTY without a dealers or retailers license. 

My project is in AZ, which allows a person to sell 3 per year without any license. So, I can sell 3, my girlfriend can sell 3, my daughter can sell 3, etc. 

As for the notes, I still personally feel that DODD FRANK applies to mortgage notes, which a personal property note is not a mortgage. However, for purposes of discussion, if a mobile home is identified as a residence under DODD FRANK and the SAFE ACT, there is the 1 FREE PASS and 3 DEAL RULE that could apply, before having to use a licensed mortgage loan originator to create the note and pay for that service. 

Here is a great video on YouTube where an attorney explains DODD FRANK and the SAFE ACT in a way that's simple to understand. 
https://www.youtube.com/watch?v=wBSdQRd_Pu8

If/When I get beyond the 1 Free Pass and 3 Deal Rule, then I'll use a licensed mortgage originator to create the note and negotiate the terms, which I have, and pay for that service. OR if my business grows to a point where it makes sense, I'll go get my NMLS mortgage license and create the notes myself. 

My firm, The Rishel Group, is not accepting any new clients. We have however helped over 500 community groups form their own finance companies and we have had thousands of customers seeking legal ways to do business. We also had our own chattel finance company operating in a number of states with a high loan volume of about a half a billion dollars. I and Tim Williams, of 21st Mortgage, formed a Dodd-Frank Task Force to deal with all the new regulations and the CFPB which every other major manufactured home chattel lender joined and helped to fund.

Not all attorneys are experienced at regulatory law or even qualified to address these issues even though some of them act like they are. While I'm not an attorney, my firm spent considerable money retaining and using several top Washington D.C. law firms when the SAFE Act was introduced and to deal with all the changes in chattel lending regulations that resulted from that change.

As another poster suggested, you should go back and read what my people and others have posted here on the subject. You are 100% wrong in what you are suggesting as a method of finance conveyance. While I cannot predict the likelihood of your getting caught, I can predict what will happen if you are caught and it won't be pleasant.

I was going to just ignore this thread until my name was used. We are unavailable to help you, but there are at least 10-12 highly qualified law firms who can. Seek them out.

[Jeff Petsche]

@Ken Rishel thank you for your post and information, and your transparency. Love these forums for this reason and as someone who has a real estate Borkers license in CA, and operates a successful residential real estate business, I for one DO NOT want to violate any compliance related matters regarding any investment strategy. 

With that said, I intend to dive deeper into the NOTE STRATEGY around mobile homes and if necessary to operate that business model ABOVE BOARD, I will solicit the help from a loan originator to create the notes for a fee and/or go get my NMLS license and become a mortgage lender/broker myself. 

I still standby my PERSONAL OPINION that a note on MOBILE HOMES should not fall within Dood Frank guidelines because it's a personal property note, not a MORTGAGE NOTE, and hopefully one day it will be changed. 

In an effort to hold the industry to a higher standard, I would recommend you re-post this response on MULTIPLE OTHER FORUMS and/or comments on YouTube videos to those operating this business because you and I both know that the majority are not following these rules, do not have a license to buy/sell mobile homes in their respective states, etc.

Thanks again for the information and the post to clarify some MIS-INFORMATION I've been given. 

Good thing I have not yet created a note huh and my deal in AZ may take a different turn..WAIT, no it won't because I'll be looking for a SOLUTION, not walk away from a deal. 

[Ken Rishel]

Originally posted by @Jeff Petsche:

@Ken Rishel thank you for your post and information, and your transparency. Love these forums for this reason and as someone who has a real estate Borkers license in CA, and operates a successful residential real estate business, I for one DO NOT want to violate any compliance related matters regarding any investment strategy. 

With that said, I intend to dive deeper into the NOTE STRATEGY around mobile homes and if necessary to operate that business model ABOVE BOARD, I will solicit the help from a loan originator to create the notes for a fee and/or go get my NMLS license and become a mortgage lender/broker myself. 

I still standby my PERSONAL OPINION that a note on MOBILE HOMES should not fall within Dood Frank guidelines because it's a personal property note, not a MORTGAGE NOTE, and hopefully one day it will be changed. 

In an effort to hold the industry to a higher standard, I would recommend you re-post this response on MULTIPLE OTHER FORUMS and/or comments on YouTube videos to those operating this business because you and I both know that the majority are not following these rules, do not have a license to buy/sell mobile homes in their respective states, etc.

Thanks again for the information and the post to clarify some MIS-INFORMATION I've been given. 

Good thing I have not yet created a note huh and my deal in AZ may take a different turn..WAIT, no it won't because I'll be looking for a SOLUTION, not walk away from a deal. 

Regarding if manufactured homes should have been included in the SAFE Act, I agree with you - they should not have been, but they were. There is also considerable mis-information out there about state exemptions for low number transactions. Federal rules prevail and they only allow it for some very limited and very specific transactions. This is contained in rule interpretations of the Final Rules, not in the statutes themselves. (The Final Rules were issued by HUD but the interpretations by the CFPB.)

We rarely post to BP or other MH forums anymore, but there is considerable information on here authored by both myself and my staff going back to 2006. We had no interest in any other type of real estate transactions and never posted on anything that was not MH specific.

[Jeff Petsche]

@Ken Rishel so a question because of something that came up today in a conversation with another investor. It was mentioned that the Dodd Frank guidelines were passed down to the individual state level to oversee and mange. I don't recall that being the case and that DF guidelines remain Federal and apply to every state. 

True or not? 

[Ken Rishel]

Originally posted by @Jeff Petsche:

@Ken Rishel so a question because of something that came up today in a conversation with another investor. It was mentioned that the Dodd Frank guidelines were passed down to the individual state level to oversee and mange. I don't recall that being the case and that DF guidelines remain Federal and apply to every state. 

True or not? 

Dodd Frank is federal. 

I think where this "information" came from was the SAFE Act. The original SAFE Act was the brainchild of the Conference of State Bank Supervisors and, on the federal level, considered model legislation which every state legislature was required to pass as state law. Some states originally included exemptions for chattel financed residences, but were reprimanded for doing so, and changed their laws to conform with the original model legislation. (So much for model legislation and state's rights.)

The SAFE Act also authorized the U.S. Department of Housing and Urban Development (HUD) to monitor and enforce states' compliance with the statute's requirements for state licensing and registration, and HUD issued rules setting minimum standards for state licensing and registration. 76 Fed. Reg. 38464 (June 30, 2011). The Dodd-Frank Act transferred that authority from HUD to the CFPB. The CFPB thereafter published Regulation H, SAFE Mortgage Licensing Act – State Compliance and Bureau Registration System, 12 CFR Part 1008, based on HUD's regulation. 76 Fed. Reg. 78483, Dec. 19, 2011. These examination procedures do not cover the state registration requirements.

What is confusing is that CSBS and NMLS are not federal agencies, but they were the source of this model legislation.

I hope that answers your question. I know the answer is somewhat confusing to people not used to thinking like a DC bureaucrat.