5 lessons from My mobile home flop

One of my first mobile home investments was a flop.

It seemed like a good idea. But I did all the rookie mistakes. In fact, I remember telling myself when I purchased it, “what’s the worst that can happen..? I lose $20,000? Big deal. It’s only money”.

Fortunately, I didn’t lose $20K. I only lost $1,000. Probably the best $1,000 education I can buy. So, the flop wasn’t a total disaster, although the feeling sucks when you can’t sell a home.

So, if you’re wondering what happen? I’ll explain below, 5 rookie mistakes I made with my investment.

But, first, here’s the story:

A year ago, I transitioned from flipping single family homes to mobiles homes in a park (Lonnie deals with some rehab). My first deal I bought directly from the park. The park had 30 out of 150 units vacant and needed those fixed up and sold. So they were slowly selling them to investors.

I was one of them.

I purchased one for $10,000, put another $11,000 into the repairs, and listed it for $39,000 with the intention of selling on a note for the cash flow of $400 a month for over ten years. But, after rehab (which took about 2-3 months… way too long), it sat for another 6 months before selling. And my final selling price after 3 price drops…?

$25,000!

I went from $40,000 to $25,000.

There were many things that went wrong with this project, but here are 5 things that I learned from this experience:

1. Never trust 3rd-party “here-say”

You shouldn’t let park managers or other investors tell you what you should list the house for without doing your own diligence. That’s a no-brainer right? But like any new investor, I got excited about it, and I just wanted to purchase my first one quickly.

Everyone, told me that the house should sell for $40,000. But here’s what they didn’t see: those comps that they were looking at, were much bigger than mine. I couldn’t justify selling it for $40,000 being that it was too small. I should of verified this, but went ahead and pulled the trigger.

2. Read the writing on the wall

Here’s something else that should raise eyebrows… the park was selling off their vacant mobile homes to other investors, not just me. That means increased inventory in the future. And that’s exactly the problem I ran into. There were at least 3-4 reconditioned houses selling at the same time as mine. However mine was in better shape and reconditioned with much better quality, but it was priced at $15,000-$20,000 more than the others.

In fact, because of the price difference, I actually helped sell the other homes.

So here’s the tip: look for clues of future market conditions in the area. It was obvious that I was going to deal with competition. I just didn’t realize it. If I did realize the fierce competition, I would have demanded a better discount at purchase and put less into rehab costs.

Which leads to another mistake of mine:

3. Don’t over rehab a house

I realized that I overspent when I walked through the other reconditioned houses. Sure, everyone was telling me that my mobile home was the best one out of the other reconditioned homes. However, funny thing is those that were “uglier” than mine, were selling faster.

It doesn’t matter what people say about how great the house is when the material and labor doesn’t pay for itself.

Here’s the tip for this lesson: Keep in mind what type of buyers you’re dealing with. These aren’t buyers with an unlimited amount of budget. They all had a max budget and couldn’t surpass that.

At my initial sales price of $40,000, the homes that I was competing with were ones that were 400 square feet bigger than mine and newer. I couldn’t compete with that no matter how well I fixed it up. A 1970 home with one 900 square feet will never be a 1999 at 1300 square feet.

The size and year of the home was in a different bracket of buyers. Theses buyers were ones looking to spend $20-$25k. If they can spend $40k then they’ll just purchase the bigger home. If I would have looked at the type of homes that are comparable to mine in size and year, I would have seen that there’s not much “rehab” going on. I could have saved at least $7,000 or more.

4. Stick with the formulas

If I would have stuck with math in evaluating these I would have been fine. Lonnie deals don’t necessarily use comps to estimate a sales price. You can use the average rents in the area to come up with a max sales price. And, when you do it that way, the rule of thumb is you can’t sell on a note for more than 25% of the cash comps. The cash comps were $25K. $40K (my initial listing price) is much more that 25%.

5. Leverage local help

The last and final point I want to make is that if you’re trying to manage a project that’s far, Leverage pro’s around the area. This project was 50 miles from my house. What I should have done is use the local Realtor who’s experienced in mobile homes in that park right from the beginning. She not only would have warned me about the sales price, but possibly pop in on my contractors here and there. I ended up using her anyway to sell when I finally realized I needed help.

It wasn’t a total bust

In hindsight, the failed project wasn’t a total bust. I learned some valuable lessons, and this first purchase was the start of my mobile home investing career. After this purchase, it was a domino effect of one purchase after the other. So, it wasn’t a disaster by any means, and if I look back, the stress was probably worth the learning experience. So, take it from me, be cautious when pulling your first trigger, but at the same time don’t get too conservative were you let good deals pass.