I've been in SFH's for 15 years and am wanting to add mobile homes to my portfolio. I found a deal and the owner is motivated. She is asking $9000 for a 98 model 3/2 in a nicer family park. She informed me that she was negotiable but she still owes $6000. The home needs about $5000 in repairs. Paint, carpet, and hvac. I am thinking of offering $1000 and take over her payments/lease option deal until paid for. Lot rent is $286 mth and her payment is $210 mth. The home should rent for $650 mth. My plan would be to rent it until it was paid off and then sell/ carry a note. She has purchased a home and wants a little money to buy furniture. She is moving this month and wants to sell asap. Park manager will let me manage and rent the home. Deal or no deal? What am I missing?
The Lonnie Deal as they where called has run into several problems. If you attempt to sell that home to an occupant you'll be afoul of Dodd Frank that selling of mobile homes to occupants was now a licensed activity. Renting has a problem in that your whole business model is dependent on the approval and continued support of the park manager. A change in manager or change of heart of the park owner and your asset has just now blown up. You owing lot rent but the office refusing to approve your renters. This happens.
This deal completely depends on your trusting the park manager keeping his word that he will quickly approve your qualified renters. Plus you are paying too much for the home. Lonnie deals need to be a cash purchase of older homes without debt. So how much will you have left over after: lot rent + debt service + paydown of rehab + set aside for the certain damage and eviction costs?
Most investors who do this math find they are net positive $100/mo if that. And good SFRs is not a good back ground for managing trailer park rentals is my view. I moved from B class SFRs to rent to own double wides on their own land (out side parks). At least the rent to own aspect gets me top applicants. But plain rental of homes in parks,,, the quality is pretty low, high maintenance and hardly any profit especially if you have debt service and paying down rehab costs.
So when do you think you will you be cash positive?
One tactic for renting homes is parks is this:
- "bring your own", cheap rent.
- don't replace or fix the AC and don't put appliances in the home. They just steal the appliances.
- fix to be bullet proof. Wood like vinyl everywhere no carpet.
- no appliances
- renter provided window ac units.
You actually REDUCE turn over because the effort to move all that stuff that the renter now owns is high. This model is REAL different than nicer SFR. :) :) :)
@Curt Smith , I guess my view is being in a nice double-wide for $11,000-$12,000 vs drawing the same cash flow as a $40,000 SFR. I am familiar with Dodd Frank. How is rent to own any different than owner finance and how are you structuring the paperwork on the rent to own? I too feel the price of the home is a little high but being able to get in without a ton of money offsets that in my opinion by being able to use their financing that is already in place. Maybe not a perfect deal. I'm more curious how rent to own is not in essence owner financing?
I moved from near buy SFRs in good high school districts that require near zero effort to distant double wides on their own land bought from banks as forclosures. $18k to $25k plus some fix up on their own land. Because of distance and my knowing that renting anything called a mobile home is high effort, high turn over and doesn't make that much cash that you actually keep, I decided on rent to own for 12 months, Dodd Frank did away with rent credits, just $1500 option fee up front, another $1500 at closing in 12 months (long term cap gains) and financing the sale using a Licensed Mortgage Loan Originator, qualifying to 43% DTI, 9.5% interest rate and typically a 13-14yr fixed rate amortizing note. I never sell notes I want to income without maintenance.
Rent to own has nothing to do with financing, a closing xfering the warrantee deed and placing a 1st lien is financing, renting during rent to own period with an option fee is .... just renting. I tell the renters is: dating before marriage. Several reasons to rent to own prior to financing: 1 tax code, you can only take installment sale tax treatment of seller financed sale if the property was an investment (rental), 2nd is long term cap gains, 3rd is check out the tenant for reliable payer... Then finance the tenant after steps 1-3.
My point is to: reverse the deal, think about what your end goal is: cash flow, low effort, low turn over, keep all the income. If you jump into some deal types without thinking it through, you may find you have turn over, it's high effort and in the end you haven't kept much of the income (for various reasons: IRS, high expenses, debt service, pay down of rehab).
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