All Forum Posts by: John Lowe

The Illinois Department of Financial and Professional Regulation maintains a list of Mortgage Banking Licensees (originators, servicers, brokers). I would think that Indiana would have a similar list. On the off chance that it might be useful, I've included the link for IL as there may be some on the list who are also licensed in IN.

http://www.idfpr.com/Banks/MBLookup/mblist.htm

Doing comps for a MH in a park is really simple. 

1) Drive the park and call on every For Sale sign you see

2) Talk to the park owner/manager and ask them what homes sale for (and if they know of any others for sale)

3) If selling on a note, make the payment + lot rent < area apt rentals

If challenged, your Dodd Frank avoidance strategy probably won't hold up in court. But don't worry about it. Do the first few deals under your state exemption, write plain vanilla loans and make sure your homebuyer can afford the payments. If you decide you like the business, just use a LMO going forward. Complying with DF should be very easy for MH investors.

I will contact a local bank about hypothecation. I'm not hopeful, but it certainly won't hurt to ask. I wouldn't think of doing this on my own. A RE attorney will draw up the contracts and the mortgage (or contract for deed) will be processed by a LMO.

There are great minds at work here. I'm a little intimidated...

Thanks for the great advice!

I disagree. The problem is the same, the solution is the same. Just requires a little more paperwork. See my post here:

http://www.biggerpockets.com/forums/30/topics/165487-buy-here-pay-here-mobile-home

Despite cries to the contrary, the sky is not falling. The SAFE Act and Dodd Frank do not prohibit seller financing or lease options, it merely regulates the activity. I think there are two issues that seem to concern RE investors:

Restrictions in underwriting/loan terms- DF discourages abusive loan terms (neg amortizing, balloon payments, 40 year schedules, etc). DF encourages responsible underwriting practices (verification, documentation, reasonable DTI etc.). The impact on MH investors is minimal, most of us never did that kind of junk, and we've always assessed the buyers ability to pay. Even meeting DTI requirements shouldn't be a problem. Lot rent and other bills are not included in the calculation, and many folks' credit is so bad they don't have any debt (beyond their car payment) to be included in the calculation. The only modification in practice that most MH investors need to comply with DF are along the lines of documentation.

Who can make loans- the SAFE Act mandated licensing. It sucks, but its just a matter of complying. Those doing multiple deals will need to get licensed or use a LMO. Its inconvenient, but ultimately not that big of a deal. In one of the states (Florida) I invest in, the MH Dealer license requirements are more onerous than the Mortgage Originator requirements.

Properly constructed lease options aren't effected at all. Just make a true lease with a term  of not more than 1 or 2 years and no rent credits. Create an option contract that either doesn't include financing or is a compliant mortgage.

I think DF will be good for MH investors because it discourages park owners from being in the financing business. There should be more opportunity and less competition in 2015. Jason, don't be discouraged, go for it!

Thanks Bill and Dion! 

You've raised issues that I hadn't considered. In my specific case, risk and most other parameters are already determined. I have a long time tenant who wants to buy the house and can't qualify for a mortgage. They have 5k for a downpayment. Their rent is 1300 but as the homeowner they will be taking over taxes, insurance, maintenance, so we've set the mortgage at 1000. Their PITI will be ~1400. I bought the property during the meltdown from a bank for 30k, Zillow says its now worth 90k. I could hold onto the note, but was thinking about selling a partial to recoup my initial investment and buy a replacement property.

I'm trying to figure out how to structure the note so that the partial is as marketable as it can be (I want 30k but want to give up as few payments as possible).

The value of property is dependent on the availablity of financing. If there is a dearth of financing, values will be low then when there is an abundance of financing. During the crash, there were thousands of REOs sold at an artificially low price because banks wanted cash and there were relatively few cash buyers. When lending came back, prices rose. The properties didn't change, the financing changed. 

There are still some places where banks are reluctant to lend so prices remain artificially low. Investors who can buy for cash and sell with financing are adding value, to the property, homebuyer, and neighborhood.

I understand that the value of a note is a function of the collateral, borrower profile, seasoning, etc. My question is about the structuring of the loan variables affecting the price. Specifically, a note made with a higher present value and lower interest rate vs a lower present value and higher interest rate. For example:

pv = 99k i = 4% n = 120 pmt = 1000

vs

pv = 79k i = 9% n = 120 pmt = 1000

If a note's value is reflected in the computed yield, then pv and i should not affect price. Is my thinking about this correct or am I off base? 

Some folks would argue there are no A areas on the southside of Chicago. If their definition of an A area is something like Lincoln Park, then they're right, there's nothing like that on the southside. I don't know anything about buying, flipping or renting $300k houses. That's not my world. 

The first thing to know is that the southside is overwhelmingly African American. There are a few exceptions, the very high end areas are diverse, and there are pockets that are hispanic. But the bottom line is, culturally the southside is black so that's the tenant base.

My definition of an A area means it has undergone gentrification or there was never any disinvestment. Hyde Park, Kenwood, the areas around Universities of Illinois and Chicago, Bronzeville (some parts are A the rest is B). The residents are upper middle class. Rehabbers have been working the areas that fell into disrepair for years. A good place to live, but there's nothing here for pig farmers.

There are a couple of different types of B areas. Some are areas where revitalization started but abruptly halted with the RE bust. Here there are vacant lots scattered amongst homes (recently built or restored old mansions). There are other areas that are established, very stable neighborhoods with low turnover. Here, houses just don't come on the market very often. One of my rentals is located on a block where there's only been one sale in the past 10 years. Beverly, Jackson Park Highlands, South Shore (within a few blocks of Lake Michigan), Garfield Blvd (but not neighboring streets), Pullman (the immediate surrounding area is C). One characteristic you may see driving around some of the older B neighborhoods is an active block club. All the yards will be well maintained, there will be no board ups. The residents are older, there won't be a lot of young kids running around.

The majority of the southside I'd classify as C areas. There are also D areas, where the defining characteristic is the prevalence of board ups. I won't  buy a house on a block where there is a board up.

I find that Rentometer and Zillow rents are fairly accurate. Almost all detached SFHs within city limits are above $1200/mo. Homes in C areas that are 3/1 rent for $1200. Other things being equal, a 4th bedroom is worth $100 more per month, a 5th bedroom is worth an additional $100 to folks that need it, mostly Section 8 renters. A 2nd bath in area that has mostly 3/1s is worth $150/mo. 

Ok, so the $85k house in a B neighborhood. This price would be below market value, probably ~60 cents on the dollar. They aren't a needle in a haystack, but you're not going to go online and see dozens of listings. 

I don't know anything about this house other than what's online, but here's an example: http://www.realtor.com/realestateandhomes-detail/4207-S-Prairie-Ave_Chicago_IL_60653_M78054-91369?row=2