LT Cash Flow : Renting vs. Owner Financing (mobile in Park)

19 Replies

Hey guys,

What we had originally planned to do was buy-hold-rent mobiles in parks; however it seems near impossible to find parks that allow this. It seems the popular way of avoidance is by technically selling the home w/ seller financing. 


My question is- is it worth it to try to find a few parks that will let me rent or should I just take a straight seller financing sale approach?

Example:

Trailer  Cost= $5,000

Lot rents here= $500 ish

Reasonable rent for trailer in park= $1,000

Takes 1 year to recoup the trailer investment. Then after 1 year we are just bringing in $500 a month clear. 

Time to make $5k Profit= 1 year and 10 months 

If we Seller Finance....

Lot rent is $500

Trailer cost= $5,000

Trailer re-sale value= $10,000

So we make $5,000 profit in the deal plus interest 

However- if we still price it to where we're bringing in $500 a month from it...The income only lasts for 2 years. Then no more residual income. 

Is there a way to make owner financing more profitable? 

Kinda looks like your read Deals on Wheels.

Question, what did you do to that MH to bring the value up to 10K, or is that what you can get for it in a financed deal?

Ever hear of the Dodd-Frank Act?

I would think there would be other ways to put some one in joint title with you to solve the owner occupancy and take them off later on. :)

As Bill mentioned you need to read up on Dodd-Frank Act, this killed the ability for owner financing on mobile homes without the involvement of a MLO.

I have not read Deals on Wheels....haha should I? Or does it seem like I know the information in the book already?

I have heard of the Dodd-Frank act...I've seen it come up a few times relating to investing so I need to look further into it.

Ideally I'm doing close to nothing to improve the value of the mobile. It's more situation. If someone needs to sell a mobile, moving, inherited it, ect....often times they would rather just sell it for less than pay lot rent for a few months while they sit on it and try to get what they would like. 

@Omar C.  


I see mobile homes for sale often with owner financing being an option? I was under the impression that as long as the interest rates weren't predatory in nature that it was still acceptable? 

@Natalie Kolodij  

You can't do any type of owner financing even if you do it at 0%.  Dodd Frank killed any possibility of doing so.  The only option is to sell it outright or via a lease option to buy.

Omar C. is correct. You want expert assistance in owner financing.

I don't see how you can achieve the margins you describe. Mobile home rents of $1,000 are rare. You can rent a nice condo or apartment for $1,000.

You should read Lonnie Scruggs' book: "Deals on Wheels". Much is now out of date, because of Dodd Frank.

@Joseph Ball  I'm in the Seattle area. Our rents are astronomical. 2 bedroom apartments in the area I work/ am looking are $1500+ a month 

Average rent based on mobiles for rent over the past few months on CL averaged out to right about $1,000. 

It must depend on where your market is. I would be sad if all I was getting was $1000 with a $500 lot rent. Luckily, we get more than that. Denver has a strong rental market right now.

Wow!

Amazable! If I were you, I would actually look at some of those $1,000 rentals. They might come with hot and cold running water. Then, I might understand. LOL

@Natalie Kolodij It is interesting that 2 bedroom apartments are renting for around $1500 and mobile homes are so low at around $1000. Are you comparing 2 bed to 2 bed? We price our mobile homes between what a house and an apartment would rent at. There are many reasons why some people choose to live in mobile homes rather than an apartment. Have you driven around the mobile home parks to see what they are like? Have you been inside a mobile home for rent for $1000 to see what they look like? i

Hello @Rachel Townsend  

I've only been looking at mobiles for a week now so I haven't gotten to go into many yet. My $1,000 assessment is based on the few that were for rent in parks here. I averaged about 15 that were listed on CL this week. Based on pictures all are "updated" meaning they are all older trailers that they put new floors in paint in and call it a day. So the $1,000 rental estimate is based on mid grade turn-key units. 

I am definitely doing more investigating this weekend- There is a park a couple miles from my work (I work a block from Microsoft) I am sure the rents there can easily be higher. Housing any where near Microsoft is insanely high. 

@Natalie Kolodij   Great idea. That will give you a much better feel for what you are dealing with. You'll also want to find out how much a Property Manager would charge and how much property taxes are. Be sure to talk to the park manager, if they are available to get a feel for how they deal with investors and what the lot rent is. Find out what the lot rent covers.

Remember, you have more than lot rent as expenses. Even if you don't use a Property Management company you will have taxes and insurance (we have insurance on all our mobile homes). Vacancy and maintenance also have to be accounted for.

Using your example:

Rent $1000
Lot -$500
PM-$50
Insurance-$35
Taxes-$5 ($60 annual)

That leaves you with $410 a month, from that you'll need to factor your maintenance and vacancy percentage.

@Rachel Townsend  

That's an awesome break down! That you very much for the insight. I'm calling on a mobile this evening and I'm hoping to be able to work something out. 

Originally posted by @Omar C. :

@Natalie Kolodij  

You can't do any type of owner financing even if you do it at 0%.  Dodd Frank killed any possibility of doing so.  The only option is to sell it outright or via a lease option to buy.

 From my understanding you can do owner financing for an Owner Occupant (is doesn't apply to none owner Occupants) but the Buyer need to under written by a licensed loan officer.  This only applies to real property and personal property. I think mobile homes are personal property? 

Which that being said, are people doing owner financing deals without a licensed loan officer? Yes!  

No matter what State you are in, once the occupant takes possession of the property  through Seller financing and something go wrong, the burden of proof is on the lender to show that they did not lie and manipulate the Buyer into the financing. This is why we sign so many documents at the closing for normal institutional financing. 

@Michael Henry  @Omar C.  

I spent some time researching the Frank Dodd act and it seems as though there are exceptions in place as long as you maintain owner financing on 3 or less properties in a  year. 

As long as you are the owner of the property and the property is the securing factor of the loan, and you do not present  variation to loans based on credit rating, income ect... as a personal seller (< 3 loans) you should be except. 

http://www.frascona.com/resource/mas0114_owner_financing_seller_Dodd-Frank_loan_colorado.htm

@Natalie Kolodij  

It was hard for me to follow what you were saying, but your exemption may not apply to those deemed to be "dealers", I'd suggest you do more research specifically to your state exemptions.

The DF Act isn't the only issue, financial laws are intertwined among at least 50 laws, rulings, regulations, tax code and predatory dealing areas.

You can skip the Deals on Wheels book, it's along predatory dealing and financing, once allowed but now such is really something to avoid as the federal laws have teeth now.

As Michael mentioned, you're dealing in chattel liens with personal property unless the home has been converted to RE, not in your case if your homes are in parks.

The applicable laws describe properties as single family dwellings, 1-4 attached units as defined by HUD, it's irrelevant if the home is a MH or a stick built dwelling.

The occupancy is to defining the loan type, being a consumer loan for those owner occupied or commercial loans being non-owner occupied. The Act mentioned covers consumer loans, however other laws pertain to all loans.

The ability to pay is now a requirement pretty much in all lending, otherwise it can become predatory, what is considered predatory is not always logical and assumptions should not be made. Commercial lending does have less regulatory restrictions, but dealing at the small end of a commercial spectrum, between individual or small investors, the scrutiny is much greater too. It's not the wild west anymore where you can get away with anything one might dream up.

The SAFE Act was the first federal law passed concerning seller financed deals, I've been through tons of financial laws and I've never seen a specific investor type deal identified as they did mentioning "Lonnie Deals" as being predatory and the subject of specific legislation outlawing a transaction as explained in the Deals on Wheels book. The SAFE Act was later incorporated into the Dodd-Frank Act, so it's alive and well requiring compliance.

The guy you need to speak to, IMO, about MH financing is @Ken Rishel  

who has a compliance operation specifically for MH dealers. There are differences for chattel liens and exceptions for dealers.

Yes, one of the keys to the DF Act being applicable is that the security for the loan is a lien on the property, that can be a bit misleading if you take a security interest in other personal property to secure a loan that facilitates a home purchase that would otherwise be covered. Language in the DF/SAFE Act specifically includes any method or system used  to circumvent the intent of the Act. So, taking a security interest in someone's car or boat or fur coat, which is still a consumer loan arrangement may be seen through quickly and see the ploy as a means to circumvent the intent applicable to a home purchase transaction. It's simply best to comply, use a RMLO and keep everything above board.

On another note, if you get a heck of a deal on a MH and you sell it at it's near true market value, (MHs having a book value) then you'll be fine doubling your money. The rub comes in as predatory dealing id the price is over its market value and is then seen as a premium paid for the financing arrangement, that can be predatory lending.

Lease-options are also included if credits from payments made reduce the sale price, you're still financing the sale, regardless of what stripes the agreement has.

Frankly, you're in a heck of a rental market, I'd probably not consider selling. I do understand the issues of maintenance with a MH and that may not be passed off the a tenant in any residential lease, so I understand the benefits of selling.

As to your park owners requiring the occupant being an owner, why not sell a small % of ownership, have a repurchase agreement allowing you to credit that agreement and file for a new title? That can put someone's name on the title, show that to the park manager, they can't argue with being in title for occupancy requirements. No financing is necessary. In fact, if your % of ownership is reasonable, then you could assign or split maintenance issues, your tax accountant might pull their hair out dividing depreciation, but if they have an ownership interest, they can pay for repairs. IMO

I believe Ken R has a newsletter too for MH dealers, might be a good idea to take that to keep up with the regulatory issues dealing in MHs, I would if I did.

Good luck. :) 

@Bill Gulley

"So, taking a security interest in someone's car or boat or fur coat, which is still a consumer loan arrangement may be seen through quickly and see the ploy as a means to circumvent the intent applicable to a home purchase transaction. It's simply best to comply, use a RMLO and keep everything above board."

If she does unsecured promissory note, will it trigger DF or Safe Act?

Unsecured would be fine, no collateral? Not so fine, you'd have to sue for a judgment to get paid, could be wiped out in bankruptcy and you can't evict as they would own the home! :)

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