All Forum Posts by: Jim Johnson

So here is my 'take'. A contract for deed is a loan. Because it is a loan the person needs to be 'qualified' via the Safe Act. So this involves needing to get a lender involved. So what does that look like... Well there are people that licensed lenders in your state. They check the buyer first, and make sure they qualify. I believe if their credit and/or debt to income is not strong enough, they can still be qualified if they take a class on finances and the like. There cost for these services range- and the lowest (which is what people are really interested in right) I have found is $500 for the qualifying process, which you would tack on to the closing costs. I want to be really clear here- I am not a licensed lender, thus... I can not answer very many questions concerning this. I do however have mobile home parks, and I do carry paper- not contracts for deed, on mobile homes. I have regular security agreements, promissory notes and transfer the titles with liens attached to them. Much like the process works if you buy a car. If you do this- for further information, and the buyer defaults, you do not foreclose. That is a 'Real Property' actions. In this case you repossess just like you do with a car. Manufactured housing is personal property, not real property or 'Real Estate'. 

Just me- I would be careful taking over notes that were contracted for after the safe act and were not produced under the safe act guidelines. If you do take on such notes, and you need to remove a buyer, you should be very careful you do not somehow find yourself in court defending the removal of a buyer for something the safe act would have checked up the loan on. There are some narrow instances you can use to avoid full safe act compliance, but they exist for homeowners not businesses. You might look into the state the park is in, and see if they have guidance. 

Good luck to you- and welcome to Mobile Home Park investing... 

@Diego Lopez The price must be what a reasonable person might pay for the home at the end of the lease option. 

Say your talking about a 1980 3 bed 2 bath single-wide if good condition.

So- you can collect an option fee- say $1000, or more maybe $1,500. Then you lease the home, say for $300 per month for 4 years (14,400). Then at the end of the 4 years the final purchase price is $3,500 or $5,000. Some thing that is not nominal- like it can not be $100. So in total you have collected 1000 + 14,400 + 3,500... $15,700 between the options payment, the lease payments and the final purchase price. If you sold the same home in cash today, maybe you would charge $12,000. This is the way car lease agreements are done, you give some money up front, you pay the lease, and at the end you have the option to purchase the car for a predetermined price. If you only charge like $100... well then the IRS, and any regular person would see that as financing not a lease option. Then you need to figure our the interest your going to claim on your taxes, and because it is a loan, you must comply with the safe act. 

I have noted for a long time now that many Tiny Homes are not legal to live in full time. HUD made that somewhat clear in the past, but is making it more clear now. Regardless if your a fan of tiny homes, or not, these new rules will have impact. I live in Denver and the City has been building a 'Tiny Home Village' for the homeless. To be clear- not all Tiny Homes are created equal. Some are built to HUD specifications and they will not be impacted. Others though... The cool homes we see built out of shipping containers- are they HUD approved? I am not here to provide lots of facts but to open a discussion- Who does this help? Who does it hurt? Why does it matter? Should it matter? If the Federal Government says it can not be lived in full time, who reports on this stuff? Will zoning and regulations need to be adjusted to assure compliance? Who is held liable? Can I bounce between a RV and a tiny house legally? Can I live full time on my Boat that is not HUD approved? Geesh- my mind goes WILD with questions...

https://offgridsurvival.com/federalgovernment-outlaw-tiny-homes/

Rodger,

In most states there is a record of who set each home. There is a state inspection process and sort of like the way a building permit works, you can track things back to who performed the work. 

That said- not all homes are set up with 'permits'. Also, the set up rules have changed over the years so you would need to go back to the standards used when the home was originally set to see if there was something that was done wrong. 

A bad set can do damage to the inside or the outside of the home, but again, there are other factors. After a home is set the new homeowner must follow rules as well. If something was added to the home and was not to the manufacturers standards or not added correctly, or the grounds were not maintained to provide drainage or if something was added to the outside of the home to change how the grounds are sloped or in some way affects the set up, the installer is off the hook. 

Many people think, like with a stick built house that once the home is set your free to do whatever- and that is just not true. If you add a deck or porch wrong, or attach an awning, walkway or re-slope for different landscaping you could void the warranty. Manufactured housing is very particular to the set up and maintenance of the set up. The homes will shift most of the time, and if you do not really stay on top of keeping that set up perfect, it can really shift for the worse. 

Jason,

I use several sites for offsite due diligence. In this case, frankly I do not remember. It could have been some Wikipedia, some City Data, I think I looked up crime stats, also looked up some economic data for the city, county and state. I use the chamber of commerce sites also.

I look at historical population, I am looking for growth or at least a level population. If I see there are fewer residents now than in the past- there is almost always a housing issue of some sort.

I look at the rental market and homes for sale data. Average prices in both, and historical days on market for the housing as well as average sales and new build info.

I look at income averages, and the distribution of income. What percent is below the poverty line, and in that area, what is the poverty line. What is the mix of population.

The answer to that goes back to the installer. If anyone was responsible it would be the person who signed off on the setup. That said, a lot depends on how much time has passed since the set up and other factors like natural disasters, drainage etc. For instance, if the home was set right, but the owners changed something around the house that did not allow the water to drain, it is probably the fault of the owner of the home. While the installer needs to make sure all is done right at the time of the set, the homeowner must maintain the grounds after the set.

It will also be important to know when the home was set. The rules have changed over time, and in some cases you might not even be able to go back to see who did the original set. 

All that said- homes can be reset and repairs done inside to fix problems. It is not uncommon for homes to settle. If the home is fairly new, there could be a warranty. A word of caution- warranties, like insurance, have exact timelines for the process of filing a claim. If you do not do so in the stated timeline, you might only have a very small portion of your claim covered. Or maybe- none of it at all.  

I am not sure I understand your use of the term 'underwriting'. 

I am guessing your talking about the onsite and offsite due diligence, the breakdown of the finances and the projections to establish value. Not from a lenders perspective, which is where I find the typical use of the term, underwriter. So I am going to reply as if your looking for due diligence and the analysis of the overall park to establish value and any pitfalls or golden nuggets that can be found. 

For anyone- the biggest mistake you can make is buying the wrong property. So as you hire people to assist you you need to understand 'why' they are helping you. What motivates them. Your looking for someone independent to help you. They will take the data from others and filter it like they are you. You need someone that points out the problems not the easy finds, like the view or how nice the streets are. You need someone that looks at infrastructure and understands its lifespan and what you will need to do when issues arise. You need someone that looks at the local area ( neighborhood, city, county and state) and they evaluate the strengths and weaknesses of the area. It is not as easy of saying your in a big metro area. Or even 30 minutes from a big metro area. Things like that are data points but they mean nothing without knowing exact details on location and fully understanding all of the rest of the data points. 

There are companies and individuals that provide these services. I know there is a spot on 'mobile home park store' for consultants that do this type of work. Call them, interview them. If you really want someone top to bottom they must do an onsite visit and the offsite research. 

I would STRONGLY recommend you shadow that person or team of people. You should ask them what they are looking at as they walk through, they are there to educate you- so make them educate you. If you just get the report, you have no real idea how they came to the conclusions they did. Some of these people or companies will offer contract negotiating and even help you with task lists and the things you need to do once you have purchased the property. 

Your not looking for a cheerleader- your looking for an advocate.  

links

consultants- https://www.mobilehomeparkstore.com/attorneys_consultants.htm

other resources- go here and click the resources tab https://www.mobilehomeparkstore.com/

So- "rent to own" is really financing- so if your selling on a rent to own basis you bust be lender and follow the safe act, Dodd Frank etc... 

Even though there is not a 'security' agreement, it is considered a disguised mortgage. In fact, you would need to designate a part of your payments as interest per the IRS guidelines and that becomes a separate part of the income you must report.

The closest thing is a lease / option. You really should have two separate documents. One would be the options agreement- it says your leasing the home for x number of months. Then it says, at that point you can continue leasing or you have the option to purchase the home. You would probably have that amount pre set. 

This is KEY. The amount can not be 'nominal'. So it must represent what you think a reasonable average person might purchase the property for at the end of the lease term. If you give the house away, or charge some tiny amount, you are back to being a lender and need to follow The Safe Act, Dodd Frank and the IRS rules for lending.

There are other rules in Texas- you really should head to Austin and get your dealers licence. You will also need a bond and to keep up on the continuing education. 

You might try to find a park owner to partner with- you help the park owner by fixing up older homes in their park and in turn they support you in doing your lease options in their park. Win- Win

On the Lonnie Scruggs books. My advise is to be selective on what you implement from his books.  While there is some really good negotiating info, and info on what to look for you must really take out the financing part. 'Lonnie Deals' as a legal way to finance mobile homes as a business died with the Safe Act. So your exit strategy must be something different- Lease Option is the closest. I would advise, a lease and option are two different things. Once someone leases a home for a certain amount of time they have the option to purchase it.  This is exactly what the car dealerships do. The keys here are no part of the lease payment can be used to reduce the purchase price of the home. The purchase price can not be nominal or- your really a lender and thus subject to the safe act. 

So- how would that look-

You purchase a home for $5,000 and then spend $3,000 fixing it up. You then lease it to someone for 48 months on payments of $350 per month. ( $16,800 in lease payments ). Then, they have the option of buying the home from you for $4,000 Cash NOT financed. (Total $20,800 - $8,000= $12,800) The assumption is- they stay in the house for the 4 years and at the end they have the $4,000 in cash to pay off the home. 

If everything worked just like that- you have about a 40% yearly return.

Here is the problem- in my experience a bit less than 50% of the buyers finish the lease and pay the options. Depending on the state, and local market  it can be as low as 25% or for me- as high as 75%. The nicer the product the higher the probability the buyer will stick.

Anyway- hope that insight helps... 

I was investing in mobile homes 15 - 20 ish years ago when you could still owner finance them. That was prior to me owning parks. So I can really only speak to how I lease option in my parks, or lease in my parks. I do have some individuals that I have allowed to have investment homes in my parks and they lease the homes, and just pay me space rent. 

If I were going to get into the mobile home leasing business I would present myself to park owners as a solver of problems for them. most park owners, myself included, really do not want to mess with renting homes, we just want to collect our space rent. Home rentals and park ownership are really two businesses, and they require differing skill sets and different employee tracts. This is how I got pretty big in buying and selling mobile homes, the park owners would give me the abandoned homes and I would fix them up and sell them. At one point I had 50 homes I was financing in one park alone. In short, parks would give me like one home, and a few weeks later I would have it fixed up and ready to sell. Within a few days it would be sold, and then the park would give me a list of all of the abandoned homes and tell me which one I wanted next. So- how does that math work. If I was the person doing the fix and leasing, I would make an agreement with the owner you owe no space rent for a reasonable amount of time to renovate the home. Call that- 60 days. I would also have an agreement the owners manager could show your home, and maybe you 'spiff' the manager once it sells. Also- no space rent while the home is on the market- but only if the home is really marketed. Also- an agreement for reduced or no space rent for a reasonable amount of time if the home rental goes bad. A deal like this is win - win. The park owner needs to approve the renter, and so do you as the mobile home owner. A home will probably average in fix up costs a few thousand - 4 or 5 thousand to fix up. Some will be more if they are really trashed. If you get the home free and have no or very low carrying costs, you should at the very least be in a 50% cash on and in some cases more like 100%. Overall though, if the homes go bad every few years and you have to fix them up again, you will have another outlay of cash. Call it on average $2,000. So your returns lower to 25 - 75% depending on the market, labor costs etc... 

This only works if you are very efficient. I ran a full time crew (3 people) and had months of work in the pipeline. Once a established home went bad I had it back ready right away, maybe a week tops. We used the same stuff in every home so there was never a discussion on what carpet to buy or fixtures to use. If you are going to play this game you must know material costs and what a job is worth. I can walk through a home and know the amount of time within maybe 4-8 hours and the material costs off the top of my head. 

Here are the warnings-

you MUST have a win win deal with the park owners

you MUST have the managers on board, showing your homes

you MUST understand the rehab side- if you leave it too contractors you will loose your shirt

you MUST be true to your word, if you say something to a park owner- follow through