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Buying a Mobile Home and Land Property as a Personal Residence

by Aaron Kinney on May 9, 2014 · 12 comments

  
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Background

My wife and I live in the suburbs in a 20+ year old, stick-built starter home in a great area and have lived there for nearly two years.

We’ve both grown up in the suburbs but have both imagined moving out to a more rural area where we could have more land and fewer neighbors.

With each mobile home and land property that I’ve bought as an investment, I’ve asked my wife if she would consider living there. The answer every time has been “no” as either the home or the land/location has always turned out to be less than ideal.

Honestly I can’t blame her.  From a financial standpoint, it would be awesome to eliminate or reduce our mortgage payment, but I’m not sure that we would enjoy living in any of our investments more than our current home.

With the homes that she has searched for I’ve found major issues with each one, things such as to high of an asking price, poor location or too much repair work.

Without being obligated to move it’s been important that we’re both happy with the next home we choose.

The Deal

The home we eventually decided on came across my desk in February 2014 as an investment property.  The seller had filled out one of my seller forms from my website.

Here are the details of the home:

  • ‘98 doublewide
  • 4 bedrooms and 2 bathrooms
  • 2100+ sq ft
  • 4 acre lot in a rural area but with excellent schools
  • Asking price:  $50,000 but would take $45,000 for a cash deal

This looked to be a nice home, but it didn’t fit our business model and I responded to the seller by email that we would pass.

However, the emails kept bouncing back.  I was going to call her when the thought about this home as a potential personal residence crept into my mind.  After talking it over with my wife, we decided to check the home out.

Inspection

It was going to take a really nice mobile home to convince my wife to move into one, but this one definitely met the criteria. I’d never seen a mobile home this well cared for.  Even the carpets looked to be in great condition for being 16 years old.

Related: Which Mobile Homes Are The Best For Investing, Reselling, And Profiting?

The lot sold me as the home sits at the end of a long private driveway and has a secluded back yard.  Also, even if we bought the home at their asking price our housing expenses would be cut in half.  We talked it over for a day or so and then decided to make an offer.

Negotiation

I made an offer at $42,000 that included all the appliances, costing costs, and repairing of the driveway.  (The home had a few driveways but only one was usable due to rain washing away the steep sandy driveways.)

The seller couldn’t go lower than $45,000.  We eventually settled at $45,000 that included the appliances and repairing of the driveway as well as splitting closing costs.

I probably could have done better negotiating, but we wanted the home and the property still appeared to be undervalued (around $65,000 according to my comps).

Related: 6 Rules for Negotiating your Next Real Estate Deal like Frank Underwood

Financing

The financing of this home blindsided me.  I figured this would be an easy decision for any bank.

Here’s why:

  • My yearly W-2 income (not including investment income) exceeded the contract price of this home.
  • We had more in personal liquid savings than the contract price of this home.
  • The principal balance left on the mortgage of our current home was more than twice the contract price of this home.
  • Good credit score (low 700’s)

(Before I get into the meat of it, let me tell a quick story.  The underwriter of the local credit union could not believe that my wife and I would move into a mobile home after living in a site-built home.  We had to sign a statement that stated why we wanted to move into a mobile home: more land and lower cost-of-living.  The negative stigma of mobile homes doesn’t appear to be going away anytime soon.)

Back to the main point, banks are much more restricted now to federal regulations regarding lending decisions than they used to be.  The red flag that came up to the credit union and national bank I had applied to was my debt-to-income ratio.

With taking out quite a bit personal debt that is used (and paid back) by my investing business, I was showing a considerable amount of debt obligations.  With the banks heavily discounting our rental income that was obviously used to meet these obligations (as well as provide us a profit), our requests were rejected and I was at a crucial pivot point.

We could walk away or we could get creative.

We chose to get creative by assuming the seller’s mortgage on the land (principal balance around $23,000) and pay cash for the mobile home.  This strategy allowed us to buy time so that we could eventually refinance the property with a bank once we had paid down my personal debt or found a private lender who could assess our situation like a person instead of a robot.  As you can see, I’m still holding a grudge on those rejections.

I’ll keep you updated with how we’re enjoying country living in our double wide.

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{ 12 comments… read them below or add one }

James Pratt May 9, 2014 at 11:26 am

Aaron, I went through the same problems when I wanted to invest in mobiles. Absolutely no problem in getting the money (FICO 820) but, my bankers kept talking me out of buying them. I like everything about the newer ones: open design, lots of room, very efficient and greatly reduce expenses. As a rental, good cash flow, lousy appreciation, usually can only sell for all cash or on a contract.

By having the home married to the land, living in it, banks will listen and treat you better. The only problem I can see is the age- over 10 years old.

Reply

Richard May 9, 2014 at 11:36 am

You’re credit score is way better then mine (FICO 545) but I am wondering, how does one get a loan through a private lender on owner occupied property?

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Aaron Kinney May 9, 2014 at 12:14 pm

Hey Richard, a private lender can be any private individual (friend, family, co-worker, etc…) who agrees to loan money at a rate and term that are agreed upon between the two parties. From what I’ve seen, credit scores don’t come into play too often with private individuals.

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Lisa Phillips May 9, 2014 at 2:00 pm

Lovely article! I love the frugality yet upscale nature (beautiful 2100 sq ft home with 4 acres, full upgraded and comfortable, mostly all paid for!! Yes!

As i am someone who loves stigma (because it leaves so much on the table when the avg investor wont capitalize on it), there is a reason that you are doing investing full time and your income cover’s your rent: Choices like this. You can get your stickbuilt in about 10 years, in a great financial position. (That is, if you feel the need to purchase or, or take all that money and take yearly vacations with the family instead).

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Aaron Kinney May 9, 2014 at 3:16 pm

Hey Lisa, I really appreciate the kind words. I really believe that living frugally, especially minimizing your housing and auto expenses, makes life so much less stressful and allows you to focus your resources on other more important parts of your life (church, family, investing business, etc…).

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Jean Bolger May 9, 2014 at 3:43 pm

Good for you! Most people are just crazy about their living situations, choosing to pay huge amounts for very little actual benefit in terms of quality of life. This will be a huge boost to your financial well being for years to come. That you should have to sign a “statement” to explain that to a bank is just… well, that’s crazy too!

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Aaron Kinney May 10, 2014 at 5:41 am

Thanks Jean. We’re looking at the new home as a fun adventure, but if it turns out that we don’t enjoy living “out in the country”, we can always move back to our house in the suburbs that we have converted into a rental and then rent out our rural home. That’s the great thing about having plenty of exit strategies.

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Thai Foo May 9, 2014 at 11:48 pm

Congrats on your success Aaron. I enjoy reading your articles.

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Aaron Kinney May 10, 2014 at 5:27 am

Thanks Thai

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Jimmy May 11, 2014 at 8:45 pm

Good to see you back on BP!

Great post!

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Aaron Kinney May 12, 2014 at 6:56 pm

Thanks Jimmy!

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Richard May 13, 2014 at 2:03 am

Great advice Aaron but for one key problem for me that is lol, one, all my family is deceased except my kids and they’re in no better shape then I am, two In the area I live in (which is not the best area to be raising a kid) the only friends you have are the ones that thinks you have money or sell drugs, if you don’t have neither then you have no friends, my only option is either a Hard Money Lender or a Private Lender which I am trying to build a list of and as far as I have seen neither one lends on Owner Occupied Property only on rehab type properties that you intend to fix and flip, the only other option I can think of without going through a bank is find a seller that is willing to do Owner Financing with No Down with a subject to clause (Subject to getting a ReFi at a later date after equity is built up).

Reply

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