Lonnie Scruggs - Deals on Wheels

18 Replies

I am reading the book now and it is lots of fun. I have no experience in mobile homes whatsoever and really wonder:
- Are there still Lonnie deals out there?
- when he talks about buying single wides for $2,000-3,000 - are we taking modern era or it was 20 years ago???:). Are these deals realistic now?
- is sellers financing on mobile homes dead because of new regulation? SAFE act/Dodd Frank.

Not sure why you would want to spend 2-3k on old PRE HUD singlewides or any wides for that matter. PRE HUD or not. What would you do with them? Where would you put them? If they're in a MH rent/lease park community you most likely wouldn't be able to sub lease them because most MHP owners don't allow sub letting.

In answer to your other question re: owner financing? You're absolutely right Dodd Frank would slap your knuckles pretty hard for that unless it was a one time deal and it was your own home and you agreed to take a down payment and let the buyer pay you over a period of time. But even that can be sticky. 

As one holding the paper you could also end up being the one holding the bag should the buyer just simply decide that they didn't want to make anymore payments to you. In fact I know of a person who got deliberately scammed by a couple of pretty shrewd operators who knew about the SAFE/DF law and played the seller to the max on it and actually ended up with the home and it wasn't a MH.

Personally after 3 decades in this biz doing just about everything there is to do in it I see very little value spending any money on old beaters. Besides they blight the landscape and are ready for the boneyard. Think new my friend and I'd be thinking multi wides not singlewides. 

 I did two "Lonnie" deals last year here in Idaho.  Bought one for $1500, put $700 into fixing it up and sold it on short term contract for $5500. They made their final payment four months after we signed.

The other I bought for $3000, put $150 into it and sold it on contract-$1500 down and $220/mo for 7years. Payments going good so far.

The deals are out there but take a little searching and buddying up with some park managers.

@John Arendsen brings up an interesting preference for multi-section mobile homes versus singlewides.  There are more singlewides to be found and can get them for a lower initial price point, but doublewides on their own land are considered very desirable.

I would start with a singlewide in good condition year 2000 or newer just to get comfortable with the process.  Then you can take that and decide if you want to make an incremental financial commitment with a doublewide.

Now if we're talking circa 2000 that's a little bit different albeit I'm still not keen on SW's. Probably because in SoCal there just isn't that much of a market for them unless they're going into a MHP with very small spaces.

That stated, most MHP owner/manages won't allow anything over 10 years old and for the most part the ones I deal with only want new ones. Now if you purchase an old beater and completely re do it from the ground up that might work. Especially in or around the coast as once again spaces are quite small and if you purchase from a tenant/owner very few MHP owner/managers can legally not force you to replace it unless they already have a pre existing stipulation requiring that the old MH be removed and a new one replace which a lot of MHP owners are requiring nowadays.

But for the most part MHC's are really trying to gentrify in MHP'd that are in the path of progress so there is a value added there. However, if the park is blighted or not in the path of progress then the values diminish considerably thereby dissipating the desirability and incentive to want to invest there.

@Demjan Van Der Kach yes, it is possible to find newer and older mobile home for up to 5-10k. We did it for 3 years and flipped around 32 properties. However, we moved to mobile home park investing since it is less intensive for us. 

Originally posted by @Demjan Van Der Kach :

I am reading the book now and it is lots of fun. I have no experience in mobile homes whatsoever and really wonder:
- Are there still Lonnie deals out there?
- when he talks about buying single wides for $2,000-3,000 - are we taking modern era or it was 20 years ago???:). Are these deals realistic now?
- is sellers financing on mobile homes dead because of new regulation? SAFE act/Dodd Frank.

 There are many Lonnie Dealers now doing deals legally through a modified process. While much of what Lonnie taught is timeless, unfortunately the SAFE Act and Dodd Frank made the financing methods illegal.

It can still be done. Email me if you want.

When you read ANYTHING, you have to adapt it somewhat to your area and your expertise. 10+ years ago I read Deals on Wheels. I did some of those deals. Made some cash flow for some years. I am still looking for 5k to even 20k mobiles that I can sell for 2x, 3x or even 4x the purchase price because they are owner financed to the buyer. I clean them up some and make sure everything is working. Everybody needs to live somewhere and if you can give them a modestly priced home that is in decent shape, why not?? Believe it or not, some people can not get financing but they also want to own a home. There is a void that needs filling, step in the real estate investor.

If you take the same concept to site built homes, you purchase something that maybe needs a little work but at a significant discount, owner finance it for 20k or 30k more you can have a decent return on your money. This works best with properties under 100k.

ps You can do an owner finance every year without all the Governmental regulations. Everybody wants to say why you CANT do something. I like to find out how I CAN do it.

Originally posted by @Rick Pozos :

ps You can do an owner finance every year without all the Governmental regulations. Everybody wants to say why you CANT do something. I like to find out how I CAN do it.

 I agreed with everything you wrote until your last statement that you can do owner financing without government regulations. Every major community operation in the country would like to know how you believe you can do that legally. On your profile page you state you are looking for money to do deals with. If you have figured out what hundreds of highly paid attorneys don't believe possible, and that I don't believe possible, I believe I can help you with the money issue.

I agree that there are many people writing about why you can't do seller finance utilizing the methods of the past and still be legal. It is easier for those who know to simple say, "You can't do it that way, so go hire the help you need to set up a legal operation." I believe many of the cautionary posters are trying to help, but it is not their job to show someone what to do. That doesn't mean it can't be done but it does mean paying someone to help which many people who read and post here often can't afford, or believe they can't afford.

I should not have said it quite that way. You always want to be ethical and legal. Follow the laws of your city, state and all federal guidelines. Make sure that the person CAN pay the mortgage. Escrow the taxes and insurance for the buyer of your property. You want to make sure that the property is affordable for the buyer. You dont want to create a business model that you foreclose on your buyers every couple of years and get a new buyer in there only to foreclose on him down the road.

With all that said, you can do 1 owner finance to an owner occupant without needing an RMLO and follow all the Dodd/Frank and other newer legislation that has to be followed by people or businesses who do more than 1 per year. Everything I do is through a title company and they will also help make sure that you follow every guideline that you should. 

When you do more than 1 owner finance to an owner occupant it is NOT illegal, you just have to follow more and stricter regulations and guidelines.

Sorry if you thought I was a renegade who does not follow ANY rules. 

Ken Rishel I am new and looking into MH and selling them through Owner Finance. I am in Florida and need to do it right and legal. How can I reach out to you?

@Gustavo Ouvina it's a big difference selling a mobile home by itself and selling one with land, especially if the buyer is living in the MH.  Florida is a deadbeat friendly state -  I foreclosed on a place and it took me nearly two years with no income, paying an attorney and court costs and ending up paying the back taxes and then rehabbing the house.  Another investor told me he does lease to own (two contracts - one lease and one option to buy) and then he could evict them if they got behind and kept the option payment.  The buyer has to find his own financing at the end of the option period or buy another option,

Originally posted by @Gustavo Ouvina :

Ken Rishel I am new and looking into MH and selling them through Owner Finance. I am in Florida and need to do it right and legal. How can I reach out to you?

 You have a message

Originally posted by @Jeffrey H. :

@John Arendsen brings up an interesting preference for multi-section mobile homes versus singlewides.  There are more singlewides to be found and can get them for a lower initial price point, but doublewides on their own land are considered very desirable.

I would start with a singlewide in good condition year 2000 or newer just to get comfortable with the process.  Then you can take that and decide if you want to make an incremental financial commitment with a doublewide.

 One of the things every poster of advice must consider and remember is that we are all from different parts of the country, and the second issue is that we all have different circumstances. Example:

  • As a lender, I prefer multi section homes because my repossession rate will be lower;
  • As a lender, I want no part of land-home, or real estate deals. The licensing may be more difficult and more expensive and the recovery is always much more expensive both in terms of attorney fees, length of time to recapture the assets, the difficultly of protecting the collateral, and many other issues. I never loan outside of a land lease community, nor do I loan on real estate on a HUD Code home.
  • I do not believe Lonnie Dealers should venture outside of land lease communities to do business. For others who are well capitalized and highly experienced in states where land keeps inflating (like California) there well may be a real opportunity as it would allow one to spread risk over more properties for the same amount of available capital than they could with site built housing. For these deals, I would only consider new or almost new multi sections that have full drywall and a number of upgrades that relate to the durability of the home.
  • As a land lease community owner, my preference is for multi sectional homes for a buy and hold strategy. I would never buy a community that I could not put at least 16 wide single sections in, and that would only be in smaller parks I wanted to rehab and fill for resale.
  • As a Lonnie Dealer, I would not be enamored by multi section homes. There is too much expense in tear down, moving, and set up should I feel the need to move the home. I would also be dealing with a larger purchase price and a larger amount to finance for the customer which, without owning the land lease community creates too great a risk in my opinion. It further makes little sense as the types of communities where multi section homes are the right choice are normally owned and operated by people (or entities) that do not like or welcome Lonnie Dealers.

Some of the things that work in many states, do not work well in others. California is a world unto itself with all of its regulations and attitudes as well as its much higher costs. Even within a state, things change. What works in the Rio Grande Valley of Texas does not work in Dallas, and the same is true in most other states. In the Chicago area, there is a community of 16'x47' high end homes that is always owner occupied full because it is on the North side of O'Hare Airport with lot rents over $500. Try that in Peoria, Illinois and watch the community fail.

Just read carefully and post carefully with all of that in mind. Original posters looking for advice should take the time to post carefully and in detail if they want good advice.

Good to see you in the forums Ken!

I'm probably the biggest nay sayer on BP when it comes to financing, the "just don't do it" but I always (I believe) have said without professional assistance, usually. see your attorney. * 

It's not that seller financing can't be accomplished, but that it can't be done in compliance following the most popular deal structures of the past, "Lonnie Deals" were specifically mentioned in the original Dodd-Frank Act in the context of predatory dealing. 

While the original path of buy, fix, lease and or sell and finance may be accomplished, how things are done must be modified, some cases requires drastic modification. I've been working a bit on the old contract for deed, it was the very popular in the Midwest but now has so many flaws from financing, foreclosure and title matters that even if they are allowed, it's not worth the effort, cost or profit wise. The concept of the installment sale is still a good one, we just need to overcome the newly created flaws to be compliant.

Defining the type of loan made can be more complicated than most investor types believe. A financing contract, even if made for a business purpose, may be classified as a residential loan by the nature of the collateral, the intended outcome or initial intent, and in some questions it comes down to is this more like a donkey or a zebra, it may go either way. It also depends on who is examining the contract, the IRS, the FTC, the CFPB, HUD, your State Attorney General or some Circuit Court Judge, all determinations may not be the same.

These types of assessments really should not be attempted by untrained or inexperienced finance types, "investors" are often influenced by misinformation, folklore by those doing something and as Ken pointed out, all real estate is local and that holds true, to some extent, in financing. Holding any license as a lender, mortgage broker or originator doesn't mean they have financial examination or compliance experience much less experience in administrative law and oversight. Most attorneys don't even go there, unless they specialize in finance and/or institutional type lending. 

So, is seller financing really dead? No, it isn't, but it is much more complicated for investor/operators being in the business and especially for those who perform work on a residential property prior to financing. 

The biggest pill to swallow is the "ability to pay" issue. Investors doing deals need to go much further than ensuring their buyer can fog a mirror. 

Another issue is the intent, Lonnie was well known for capitalizing on the failure of the buyer, take a big down, finance something that cannot be easily financed, take it back, rinse and repeat. This attitude today is predatory dealing and financing, just because some nit wit has a chunk of money doesn't mean they are qualified to own real estate. I suspect Ken has cured this issue with the new arrangements.

The ability of a lender to terminate an installment contract and not release title goes to circumventing foreclosure laws, any equitable interest as set by state law needs to be foreclosed upon, not simply terminated and deeded back the the seller. Another requirement for financing is the collateral, the security interest held in the property, if the lender has the ability to terminate a financing contract and not convey title, that is considered a security interest.  Avoid any security interest and you may not have a mortgage/financing contract.    

Know too, that now we have attorneys advertising to rent to own type buyers, buyers who got seller financing. There can be more money in crushing an illegal seller than in a car accident! As mentioned above, screw up and you can lose the property, be fined and have court costs.....if you really screwed up and have been doing it on several deals, you might get an orange jump suit!

IMO, even if you are exempt under the DF Act, still follow the intent of that law, because the predatory dealing and financing issues are not just conceived by the DF Act/SAFE Act as adopted. 

Next point, getting creative beyond what is acceptable locally or nationally can be a mine field for an investor. Financing options with maintenance requirements is an absolute "no go" in any state, for a residential property. Again, this is where a financial compliance team comes in, not really your local real estate attorney. 

 So, enough on don't do it and why, how to do it.

As Ken mentioned, every deal is different, every loan is different, the collateral and contract will be different and local attitudes will play on how deals are done. 

If you have underwriting experience, are familiar with prudent lending practices, have ensured that your compliance requirements are adequately met, can actually process the origination with verifications under prudent audit standards and you have determined the servicing requirements, you may good to go. And, with seller financing don't forget you're lending equity based on a sale price, not cash, it's an installment deal even with a note and deed of trust. 

Not all borrowers must be able to qualify as if they were going with Fannie Mae, but it's certainly best if they can (some actually can), but the trick is to access the ability to meet future loan requirements. This will most likely take you to a broader scope of personal finance issues, credit, job history, past foreclosures/bankruptcy, the reasonable likelihood such matters will be overcome and accomplished well before any performance required by your buyer. How is your crystal ball?

Now, if you feel you may not plug every hole mentioned properly, the way to do seller financing is by getting a compliance type on board, not just an originator but you should go there as well. As to RMLOs, those who believe they can do a seller financed deal probably can't, they are misinformed. It's a third party origination so there are compliance issues in their charter and licensing requirements. Another point is that you probably won't find an institutional insured lender getting involved as they won't be insured, advice by your originator may be fine but don't expect them to squeeze the note for you.

Now then, since most on BP can't jump through those hoops, Ken was correct, it's much easier to say don't do it and get professional assistance, otherwise I'd have to write a book, actually volumes of books! Good luck :) 

     

Originally posted by @Bill Gulley :

Good to see you in the forums Ken!

Another issue is the intent, Lonnie was well known for capitalizing on the failure of the buyer, take a big down, finance something that cannot be easily financed, take it back, rinse and repeat. This attitude today is predatory dealing and financing, just because some nit wit has a chunk of money doesn't mean they are qualified to own real estate. I suspect Ken has cured this issue with the new arrangements.

Now then, since most on BP can't jump through those hoops, Ken was correct, it's much easier to say don't do it and get professional assistance, otherwise I'd have to write a book, actually volumes of books! Good luck :) 

Bill and interested others: We have found a solution for Lonnie Dealers that even Lonnie's daughter is using. We have taught over 400 Lonnie Dealers how to modify their programs to achieve legal operations in the last two years.

Regarding the comment about books: The laws change so quickly, any book would be out of date by the time it was published. Even with our experienced clients we issue updates on one thing or another every single month that need some kind of change. Some of those client alerts run 20 pages long by the time we have explained what needs to change and how to make those changes. Books just will not cut it for detailed specific information, and, to even try would be expensive. We retain three law firms on licensing and compliance issues and one of them has a book for sale in paperback with a sale price of $295.00 on Amazon that is aimed at attorneys that will be replaced in January with a new edition for a similar price. The truth is these books are almost out of date when published and almost impossible to understand by anyone other than an attorney and even those not trained in regulatory law as opposed to contract law would have difficulties correctly interpreting it. Books are not the answer any more than Google is. Our customers rely on our monthly emailed newsletters and our clients rely on both the newsletter and the client alerts we send out also via email, just as we rely on two very pricy daily feeds intended for regulatory attorneys to help us stay on top of the issues.

Bill is correct that seller finance is not the same beast it was 20 years ago or even the same as it was three years ago. Everything has changed and continues to change. If you do not have a qualified law firm or specialty consulting firm helping you, whatever you are doing is probably illegal. Anyone who tells you different either wants your money to teach a get rich quick scheme, or they are trying to make you as guilty as they are to make themselves feel better. 

@Ken Rishel

Which is why I don't have a book on seller financing. I did begin one about 3 years ago, it took months and as you said, as I progressed something changed! Trying to get 50 states in there is impossible for one person, don't care who they are.

While we may comply legally, we still have the perceived ethical issues in seller financing, that can fall under predatory issues. As they say, the road to hell is paved with good intentions, it may not be how we try to see ourselves "helping" buyers but how a judge may weigh the overall flavor of the day. 

Something I used back when in the non-profit world, we'd lease with a savings requirement along with other classes if the home buyer needed them. If they failed to save the lease would terminate, pretty simple. It wasn't our money, it belonged to the tenant. If they defaulted then they paid for the expenses of classes, but that wasn't always charged. Upon completion of classes and 6 months of timely rents, they got an option. The option was never tied to anything but was only good for 1 year. If savings fell off, they terminated the lease, not the option. Another family could move in, by the time they completed their lease period, that old option expired. There were more successes than failures, that was pretty good considering the non-profit side deals more often with distressed and stressed buyers, and initial underwriting did get tougher over time, about 85% actually bought. 

On the private side, my seller financed deals had the same persistency ratio has our conventional loans, over 90%, so it all boils down to underwriting and the commitment to close. Also had better luck with contracts less than 18 months as the longer some stayed, it simply gave them more time to walk into some other self made disaster, there is a lot of hand holding and parental advice needed with marginal buyers. And that isn't for newbies, give the wrong advice and you can still get hammered. It's best to employ other groups in the non-profit world, seems they have the time to teach someone how to reconcile a checkbook. 

While the basics of seller financing, underwriting, notes, security interests, servicing remain rather constant, the fine details change faster than a book can be written. Financing is a fast pace evolving process, another reason the one or two deal makers need to turn it over to the pros, I don't know where the break even point would be for the average transaction, guessing about 25 deals annually or 1.5 M, even at that it falls below the minimum servicing portfolio, but I'm speaking to profitability in compliance. Now, Ken probably has more accurate numbers as I don't know what his services run, but I'm sure 2 average deals a year wouldn't cut it. 

So, decide to go bigger or stay very small.      

And Ken, you can put me on that mailing list, just an email would be great!  :)

  

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