First Real Estate Deal Emotions: Part 2 of 2
Over the past 6 weeks I have been helping a new investor who has recently jumped head first into real estate investing and purchased her first property without testing her local resale market. Soon after purchasing this home, our story’s newbie investor “Karen” admits she might have bit off more than she could chew and was getting worried she had dug her own financial grave. This is when Karen contacted me.
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In Part 1 of First Real Estate Deal Emotions: Part 1 of 2 I confessed that immediately after negotiating and purchasing my first mobile home in a park for less than $500 out of pocket, I went home, sat down, and balled my eyes out in shame and fear of what I “felt” I just did. I felt as though I figuratively “beat” my seller lower and lower in price and felt I basically stole her most valuable possession for peanuts.
As it turns out I purchased the home in a great position. If I had not purchased my seller’s home and every other mobile home since then so conservatively, I likely would not be here today, and certainly would not be in a position to help anyone else out of their mobile home sorrows.
Back to Karen’s deal…
The home was a 1981 2/2 mobile home in a “Senior’s Only” mobile home park–this means that the home can only be resold to a senior citizen as the park does not allow anyone under 55 years old to live there. Karen had roughly $1,500 to her name when she started and thought she did well when she purchased the single-wide from the park for only $700. If she was able to sell this one fast, the park manager promised there would be more deals just like this one to come! At this time Karen was elated, excited, and handed over almost half of her life savings to invest in this home.
Karen’s excitement quickly turned to frustration and buyer’s remorse when she began advertising for buyers.
The original goal was a fast “flip” to a senior “cash” buyer, who would easily see the value in this older, used, blemish-filled, inexpensive 2/2 mobile home. The truth is, Seniors looking for a used mobile home in her town are mainly looking for mobile homes that do not need repairs, are ten years old or newer, and are located within the East side of town. Karen’s new home met none of these conditions.
After 2.5 weeks since Karen purchased her first investment, she was running multiple newspaper and online advertisements, visiting the home daily to clear and clean it, and frantically searching for additional real estate guidance to help her sell this unwanted home before the next monthly lot rent payment of $405 was due — which was 10 days away. The next $405 monthly lot rent fee, the $700 Karen paid for the entire home and the marketing expenses will have soon demolished her entire life savings.
What was Karen to do?
This story has a good ending but before I tell you that, here is the lesson learned. Your local mobile home market is drastically different from your local traditional housing market. This article is not about Karen’s purchase being wrong — simply hasty and without due diligence.
How could purchasing a semi-clean mobile home for $700 be a bad deal?
Without any prior mobile home investing experience Karen thought she could resell the property to a buyer for an easy profit. Karen over-estimated the demand for senior mobile home buyers in her local market.
How to prevent this from happening to you?
Research your local mobile home market and make certain there is a demand for the exact mobile home you plan to purchase and resell. Karen should have tested the demand for senior buyers on the West-side of town looking to buy (with all cash or via payments) a 1981 2/2 single-wide needing light cosmetic repairs. If this research was done, Karen would have found that $700 was still too risky to pay or perhaps Karen could have negotiated a few months free lot rent in order to have ample time to repair, market, and sell the home without distress of additional holding costs.
So what was the outcome for Karen?
Karen could not successfully locate a senior citizen “cash” buyer to purchase the home for even $1,000 in time. Why? Senior buyers in her area looking to purchase a used mobile home needing lite-repairs on the West-side of town are very few and far between. Even Senior buyers looking to make payments for their next mobile home are sparse. For a first transaction Karen really picked a home that is in an unpopular location and park.
Karen actually ended up selling the home with seller financing for a profit greater than that if she would have sold the home for all cash.
Now, let us take Karen’s first deal example and apply it to my first deal emotions story. The deal Karen purchased was much lower in price than mine, but I was able to sell my property overnight and Karen’s home sat on the market for weeks before any buyers were interested. There is no cookie-cutter approach to purchasing mobile homes but the one constant is that based on your financial situation you must make smart buying decisions and purchasing offers based on your local economy and real-world data.
Moral: Have a clear and realistic profit goal, repair cost list, marketing and holding cost figures in mind for every home before you make any offers to purchase. To find these numbers it is critical to perform market research before you make any purchase offers.
Invest in your future daily,