what is a "Lonnie deal"?

22 Replies

Here's an excerpt from an article I wrote on my blog a while back...

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For those not familiar with the concept, there’s a form of real estate investing often referred to as “Lonnie Deals.” A Lonnie Deal involves purchasing a mobile home (MH) in a mobile home park, doing some minor rehab to get it into move-in condition, and then reselling it to an owner occupant looking to buy a MH to move into. The key to Lonnie Deals is that the reseller also finances the purchase of the MH. When I say “finance the property,” I mean that the reseller will actually play the role of the bank/lender, and allow the buyer to make monthly payments until the home is paid off (generally less than 5 years).

Because it can be very difficult to get bank financing on a MH, and because a lot of people who live in MHs have sub-prime credit, there is a huge demand for MH sellers who will finance the properties for their buyers. For example, while it may be difficult to sell a particular MH for $6000 in cash, it may be relatively easy to sell that exact same MH for $10,000 if it is financed. This is because very few sellers are willing to finance the sale of their MH (they want/need the cash as soon as they sell), so buyers who can’t pay cash for the MHs don’t have very many options.

A typical Lonnie Deal involves buying a MH for anywhere from $1,000-6,000, doing minor rehab (or no rehab, if it’s not needed) and then reselling for at least double the total cost, with owner financing and interest rates around 10-13%. If you run the numbers, you’ll find that Lonnie Deals provide a tremendous return on investment, with yields often over 100%!

Here’s a good example:

Let’s say you find a MH listed for sale by owner for $5000. Because the seller is unlikely to find a buyer who can get bank financing, and is even more unlikely to find a buyer who has $5K to put down on a home, you are able to negotiate him down to $2000; this is actually a very common scenario. Now, you go in and make sure the plumbing, electrical and HVAC works, you make sure there are no roof leaks or floor damage, etc. All of this minor repair may cost $500 on a typical MH. You now have an investment of $2500 into this home.

Then you list it for sale for $5500, and offer to owner finance it for $500 down, and $250 per month. At 10% interest, this works out to exactly 22 payments before the MH is paid-off. If it’s a decent home in a decent mobile home park, you will likely get a lot of interest at these prices.

So, what’s our return if we can sell this MH for $500 down, $250 per month for 22 months? According to my calculator, the yield is over 135%! I don’t know about you, but compared to the 2% I’m making off my savings account, that’s pretty darn good…

Digging a little further and you’ll notice that the original $2500 investment is paid back in 8 months ($500 down-payment and the first 8 payments of $250), and then the next 14 payments of $250 are all pure profit (minus taxes, of course).

So, what happens if the buyers stop paying on their loan or decide to just move out? Well, that’s actually a great scenario for the seller. Let’s say the buyers default on the loan or move out after one year — the seller will have collected the $500 down-payment, plus $3000 in loan payments. He’s already made a $1000 profit, and can then turn around and resell the same home to another buyer! Best case scenario is that the buyers keep defaulting on their loans, the seller can keep reselling the property…over and over and over again…

And nicest thing about Lonnie Deals is that you don’t have the headaches you have with a lot of types of real estate investing. Because you are turning around and selling the home (sometimes just hours or days after you buy it), you don’t have to deal with all the hassles of doing expensive renovations, being a landlord, etc. You are essentially playing the role of the bank, and as you can imagine, that’s a pretty easy job.

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Thanks J Scott! Good info & well written.

Definitely a consideration if we can find a good deal close by. Most deals under 15K are not advertised here. We can do some footwork and put the word out and see if we get any bites.

We got the one we have for 4K, but it needed a lot of work, and it was through a friend of a friend. Most go for 10k here in bad condition. We could sell quick for 15K cash, maybe 18K to 20K if we finance. I like that idea very much. Will have to check numbers if something comes up.

Anybody have a good sales contract? Or is asking for one a faux pas?

The Lonnie Scruggs books were the first books I ever read about real estate investing. They really opened a whole new world of ideas about buying and reselling and creating seller carryback notes.

I'm in CA and don't do Lonnie Deals. I'd do one on land, but not in a park. The challenge in most parts of CA is that the lot/space rent is $400-550/mo. I've rarely seen any under $375/mo. People who can afford that plus their note payment have more choices. There are lots of people with poor credit and low downs and they'd be happy to buy an MH on installment payments. However, their chances of qualifying with the park are slim to none. If you are considering doing any deals in an MH park, be sure to find out what the park requires before you try to sell it.

I got call just last week about a pretty nice MH in a pretty nice park. The owner bought it for 19K, improved it some and wants to move for work. She can't find a buyer at that price. She called me and asked for 18K. She wrote me a few days later saying she would take 7K. I don't know if I want it at any price as the space rent is $525.00. That being said, I'm thinking about it because it is a nice park and some people prefer a park.

I don't have a resource for an installment sales contract for MHs.

K. Marie Poe, Thanks.

OOPS and Yep. We just did the numbers and unless we find a killer deal it doesn't seem worth it to us at this point. The mid priced mobiles don't seem to be selling very fast at all up here and like you say... problems with lower priced. The main problem is we'd like to buy an REO and if we do this our $ is tied up. And the $ from interest on a lower priced unit isn't worth it. It would have to be 6 of them. Not likely to find 6 great deals in our low population area...

We also figure 2K for evictions if things don't go well.

$525 is a bit much. If you find one in a park with lower rents you may want to talk to the owner about buyer qualifications- you might be surprised. I see a lot of people moving into parks who can't have good credit. The one we're in only requires a social security #.

J Scott, great post; have you done any Lonnie Deals? I am considering doing so (I'm in the Austin, TX area). I'm thinking it may just work but I'm a little skeptical. What are your thoughts?

Originally posted by Dennis Stout:
J Scott, great post; have you done any Lonnie Deals? I am considering doing so (I'm in the Austin, TX area). I'm thinking it may just work but I'm a little skeptical. What are your thoughts?

I did 5 of them over the course of a few months back in 2009-2010. They are a great way to get started in real estate (little cash required and great returns), but because they tend to be lower-priced deals (at least in my area), you need to do a lot of them to make a business out of it.

As Loc (and others) have said, just go for it. You'll find a new appreciation for high yielding transactions, even if the overall numbers are relatively small.

What J. Scott failed to mention on these old methods are the new legal issues as a business selling and financing residential non-owner occupied units. MHs are specifically targeted under new legsilation.

The sell, take back and sell again idea is now a preditory lending issue. Pretty much the purpose of the SAFE Act, thanks for that Lonnie and all that attempt to do business in that manner!

If Lonnie is still doing these boot camps I'd be interested in knowing how he addresses this, he probably doesn't and can't.

Make sure you have plenty of money for fines and legal costs now as you move in this business strategy......

Bill, a few of the attorneys that I have spoke to about this all have different opinions, and see to think that this could still be done because there is so much to this SAFE Act that the legislation really does not know whats going on with it yet, or how to handle it. I hope others will chime in about this and share their thoughts....

From what I gather it doesn't make sense to use the Lonnie strategy in Ca because of high space rent, has anyone found creative solutions to make it worthwhile, or is it best to buy outside Ca?

As regards the SAFE Act and MH's being included in it, I had read that in some states MH classified as motor vehicles and not residences/real property? Thus, could one interpretation be that the Lonnie deal still holds as long as the "home" is classified as a motor vehicle and not real property, thus one would not be in violation of it? In other words how can a MH be both a car and home? Would seem we have a contradiction or a chane to get taxed twice..once as real property and once as a vehicle.   Also, it would seem that the act of providing seller financing would make one a "mortgage loan orginator". Mortgage loan originators are apparently required to be registered/licensed under the SAFE Act.

http://files.consumerfinance.gov/f/201203_cfpb_upd...

Originally posted by @Bill G.:

What J. Scott failed to mention on these old methods are the new legal issues as a business selling and financing residential non-owner occupied units. MHs are specifically targeted under new legsilation.

The sell, take back and sell again idea is now a preditory lending issue. Pretty much the purpose of the SAFE Act, thanks for that Lonnie and all that attempt to do business in that manner!

If Lonnie is still doing these boot camps I'd be interested in knowing how he addresses this, he probably doesn't and can't.

Make sure you have plenty of money for fines and legal costs now as you move in this business strategy......

 I'm pretty sure Lonnie is dead.  In which case, unfortunate for his family, and good for the world of real estate investment.

Actually, I now understand more fully the predatory lending deals which led to new laws and personally I find it  distasteful. There are several landowners here who have sold at high prices with high interest and a large down payment. Then foreclosed on the same properties up to 4 times in 10 years keeping the deposits each time. We are talking double and triple digit down payments and 10% interest.

Just want to clarify that was not my intention. I was interested in a profit, not highway robbery. On any scale.

Jackie lange just posted this on the marketplace same scenario she will provide the book and other info... its just retreading old ideas... with dodd frank these would be pretty hard to do and meet the metrix needed to be compliant.....Of course many parks also don't allow the homes to be rented out.. one needs to check that as well.

Originally posted by @Sabrina Laplante :

Bill, a few of the attorneys that I have spoke to about this all have different opinions, and see to think that this could still be done because there is so much to this SAFE Act that the legislation really does not know whats going on with it yet, or how to handle it. I hope others will chime in about this and share their thoughts....

 The challenge lies in the fact that there is little or no case law YET to help interpret the intent of the law completely.  As a mobile home park owner, I have spent a fair amount of time researching this.  There are several industry groups that are trying very hard to have exclusions written to apply to manufactured housing.  As of today, those exclusions don't exist as law, so we are forced to operate under its shadow.  Some view this as a way to reduce predatory lending.  Industry insiders view it as a brick wall preventing low income borrowers (which, by the way, represent a very large portion of our buyers) with poor credit from getting ANY way to finance the purchase of a home.

Be very careful doing any Lonnie deals or any other so-called "creative" methods to try to skirt these laws.  They are written well to prevent being dodged.  Somebody is going to have to be the guinea pig in court.  It will end up being a very expensive lesson for all of us to be carried by the first couple unfortunate souls that get called into court over this.  As I recall, one of the provisions is that the home may end up transferring to the buyer for free, essentially, with no recourse on the seller/so-called lender.

The new report is not retreading old ideas about Dodd-Frank, 

It is clearing up a lot of misleading and false information which is prevelent on BP.  

The report was written by a real estate attorney who is very knowledgeable about mobile home investing and Dodd-Frank rules.

It explains how you can do more then 1-3 deals a year - legally.

It explains why you cannot buy in a personal property trust then sell the beneficial interest of a trust (which is promoted by some at BP)

It clears up the confusion about what interest rates can be charged and what can and cannot be in the advertising.

And it explains the solution(s) if you want to do a high volume of mobile home deals and still stay compliant with Dodd-Frank

There is still a done of opportunity to do Lonnie Deals, they just need to be done differently.  


Hi all,

Very good thread thus far. Thanks everyone for commenting and the debating.

@Jackie Lange I would like to make a humble comment and question so that others are sure to understand some of your comments written above and in the market place. 

When I read your ad saying that cashflowdepot (of which I am a big fan) had hired 2 attorneys to give their takes on the DF and Safe acts I was intrigued. Then when you stated in the same bullet section, "Why you cannot buy in a personal property trust then sell the beneficial interest of a trust" I was very very intrigued. (Indeed I am probably the one you were referring to as promoting this around the site.) I searched my brain and thought, "Why on Earth couldn't a trust be used if all other aspects of the sale are legal?"  

Needless to say I had to find out for myself what info you had uncovered. So this morning I happily purchased the 11 page PDF you are selling. I was a little upset to read that indeed trusts can be used legally. They do need to follow the same guidelines as a living person with regards to these acts and staying legal. Also, trusts do not circumvent any "dealer" license you may need per your state, however they are still very much applicable.  

With that all said, I am still unclear as to why trusts can not be used assuming all other aspects are followed legally? 

I completely respect what you are doing for Lonnie and other great teachers that have passed away. I am a big fan of yours and have been since attending Jack's events and meeting you multiple times over Jack's Friday night pizza parties.

Additionally, you unwittingly bring up a good side point for all readers. I am not sure this is the place to discuss it but any advice given on a forum post or podcast (by myself or others) should be explored further and not taken as truth immediately. I only say this because if I am the one mentioning that I "buy and sell with trusts" and it is heard/percieved as "buy and sell with trusts without consequences of legal responsibility" this is clearly not the intention. There is a method, ideally legal and fully compliant, that every active investor follows. With that said, I am very confident in my own. 

Thank you all for reading and thank you for clearing this up Jackie with regards to the Trust issue.  

Thanks and all the best,
John Fedro