My First Mobile Home Story

16 Replies

I spend a decent amount of time lurking here but rarely post. That said, I thought I'd share my recent Mobile Home investment story. 

I was looking to buy some mobile homes last summer for cash and then flip it as an owner finance. I had read up on Lonnie Deals and decided to go for it. In May of last year I put up several ads on Craigslist and called a few ads for homes sale from Craigslist but did not have much luck in my area. I started driving for dollars and had better leads by calling for sale signs that I saw in homes.

I called on about 25 homes in 4 months and after screening for deals ended up walking through 5 and made offers on 3. 

The one deal I ended up doing was a 2 bed 2 bath 14' x 66' Melody. In early August the owner, who lived there with his wife and 3 kids, was asking $6,500. That was about $1000 less than comparable homes were asking for and he wanted to be out by the time school started, which was in a month from the time I walked through the home. 

There were several issues with the home. The exterior was light green with dark green trim and the interior smelled like old food. Not disgusting but it smelled baked in and like you could never get it out. Fly paper was hanging in the kitchen and only partially doing its job. There was a bedroom door off the hinges and a bathroom that had some "minor plumbing issues," but nothing major according to the owner. He wasn't sure what year it was but thought it was an early 90's model. The registered title didn't show a date either. Even with what I knew was going on, there didn't seem to be structural problems or any leaking and most of the fixes appeared to be cosmetic. The property tax and lien records also came back clean.

I did no further investigation of the house. I didn't check electrical, but I knew the AC worked because it was cool in the middle of the summer both times I went in. I spoke to the park manager about what I wanted to do and she was fine with it. However, she did have a few requests. 1) She wanted the exterior of the house repainted because it was an eyesore. 2) She was raising lot rent to "market" which would make it $420 a month! ($420 is very high in my area but the park was in decent shape with decent tenants.) I haggled with her on both accounts but she would not budge on the lot rent. She said we could leave the re-painting up to whoever ended up moving into the house.

After several back-and-forths with the homeowner I ended up getting the home for $4500 cash and had generated 3 very interested buyers by the time I purchased the home. I also had to pay a $200 deposit with the park. 

I scheduled a time for all 3 of my leads to come see the house. Only 1 showed up and was clearly on drugs of some sort. I ended up holding the home for a month and had to pay an extra lot rent. 

During that time I also went to transfer title at the courthouse. I had to pay the next year's taxes in order for the title to transfer (Tarrant County law, I believe) so I did that and it cost me another $190. 

I finally found a buyer. A boyfriend and girlfriend and the girlfriend's 2 kids. The park runs a solid background check and the couple passed and both had sources of income. They bought the place for $7500 and put $1,000 down plus the taxes. They would replace my deposit with the park once the note was paid off.

I financed the $6,500 over 3 years at 9%. That gave me payments of $208 per month and kept the buyers cost under $650 each month, including lot rent. We also stipulated in the contract that if they paid it off the note in 12 months I would take $500 off the principal. I would get all my money back in about 17 months (longer than I wanted) but would have about 19 months of $208 a month free and clear.

They made their first 4 payments before I got an email from the owner asking how much I would take off if they paid it off in 6 months. I told them I'd take an extra $250 off the balance, but had no communication after my response.

The following weekend I got a call from the park manager asking if I knew the tenants had moved out. Apparently there was a domestic dispute. I went to survey the damage and was dismayed. A fist sized hole was in one wall and trash was everywhere. Instead of repainting the exterior of the house they had painted the interior literally every color of the rainbow, including alternating green and yellow cabinets in the kitchen.

I called the occupant to no avail. Never heard a word.

To recap the numbers:

Out: $4500 purchase + $190 taxes + $450 lot rent + $50 cleaning = $5,190

In: $1000 down + $190 taxes + 4 monthly payments $830 = $2,220

I now owned a mobile home for $2,970, but in much worse cosmetic shape than when I originally bought it. 

It was now winter and I put the home back on the market. There were very few bites on my ads and signs and ended up paying another $420 in lot rent. I doubled my efforts on Craigslist and called some of my old leads and eventually ginned up enough interest to do an open house on one Saturday. I had 4 buyers come by all around the same time, which was great. I got 2 offers that day. The offer I ended up going with was an offer of $4000 down and 4 monthly payments of $500, contingent on the electricity and plumbing working, since all had been shut off since the last buyer left.

The deal immediately made me whole on my investment. I was due 4 payments of $500 and would be rid of the Mobile Home in 6 months, August of this year, or at least I hoped.

New numbers:

Started: -$2970

Out: $420 Lot rent

In: $4000 down payment

I was now in the clear $610.

A few months in to the new year I got a letter from the tax assessor saying the since the home no longer carried a homestead exemption the taxes had doubled. I owed another $190. I'm now in the clear $420 before I start collecting my 4 $500 payments.

Before I received my first payment the new owners wanted to meet with me about some things they discovered about the home. When we met they brought pictures and receipts from contractors. One of the pictures showed the tub in the bathroom that experienced the "minor plumbing issues" had rotted completely through the floor. In the same bathroom the toilet was not hooked up to any sewage and just flushed onto the ground. The electrical in one entire bedroom also didn't work.

We agreed to knock their final $500 payment off of the contract.  I would now be receiving 3 payments.

They new owners made their final payment last month. I ended up making $1,920 on the deal in a year and should get my $200 deposit back once I am officially off the park lease this month. I'm also working with the current owners to find a place to finance for their niece.

Lessons learned:

You make money on the buy, not the sale; be more thorough on inspection and don't be generous regarding fixes before you take possession of the property; I still like holding notes instead of being a landlord; there is a price for your time. I'm sure there are others that I don't realize I've learned yet.

I hope others can learn from some of my experiences.

I'm glad it all worked out in the end. I think you should have charged a lot more for the home. Have a listen to John Fedro's podcasts.   Lonnie's great, but I don't think he marked up his homes enough. Also, you may not have seen, but we have a section for MHs here.

Good story, thankfully you were able to walk away with money in your pocket and hopefully a lot wiser :).  Hopefully next time will go a lot smoother.  

With owner financing make sure to follow the SAFE Act regulations.  

@Brady Dawkins  So how much of your actual time was spent on this deal?  Was it worth the $1920?  Glad to see another Arlington, TX investor on BP. 

 @Leslie A.: You're definitely right about the price. Looking back I should have had a tougher negotiation on the original purchase. If I would have bought for less I could have done some of the cosmetic work myself and probably gotten 10k for it.

I forgot to mention that a lady walking through the home one day showed me that on most MHs near the breaker box there is a sticker that shows the original construction date. This home ended up being an early 80's model instead of early 90's.

And it's funny you mentioned John Fedro. I just listened to one of his podcasts last week. Very informative. 
Originally posted by @Rocky Vasquez:

So how much of your actual time was spent on this deal?  Was it worth the $1920?  Glad to see another Arlington, TX investor on BP. 

 Good question. I've tried to figure it up looking back but that's hard to do. I'd definitely say too much for the $1920. It probably would have been less stressful and the same amount of time spent if I would have just gotten a second job. With no equity in owner finance deals it's important that you make plenty of money to make your time worth it. 

Great to see another Arlington investor. Maybe our paths will cross at some point.

Hi Brady and the BP group,

First off thank you for posting this story of your first MH deal in this section. Your story is one that should be read by everyone thinking about getting into mobile home investments. Secondly I am glad you got all your money back out of the "deal". I must commend you that you never gave up during this journey, you could have bailed or threw in the towel however you did not, well done.

This story is powerful and so very similar to other "brand-new MH investor-stories" told by seasoned SFR investors who turned to MH investments to make profit, with less than happy results.

For everyone reading this who has never owned a MH investment be aware that it is too easy to 1.) over pay for a used MH 2.) over repair a used MH and 3.) leave thousands of dollars on the closing table when you resell. 

Now it is obvious that the Brady likely did not go through a year of effort and hurdles to make only $1920 in profit. In reality if Brady could have done things differently with regards to his desire to invest in mobile homes he likely would have had a very different outcome. 

Brady did a great job outlining the deal and we can learn a ton from what he did and did not do. With everyone's permission I would like to take Brady's original post and comment on the many red flags I see. I have never seen anyone do this in this forum so I hope it will be alright and educational for everyone. 

Brady's original posting is in bold and non-italic letters. My comments are in Italic letters. I hope this makes my thoughts easy to read and differentiate. 

"I was looking to buy some mobile homes last summer for cash and then flip it as an owner finance. I had read up on Lonnie Deals and decided to go for it. In May of last year I put up several ads on Craigslist and called a few ads for homes sale from Craigslist but did not have much luck in my area. I started driving for dollars and had better leads by calling for sale signs that I saw in homes. It takes a lot to simply build up the nerve to start investing so well done on this. The 2 strategies are a good start however they will only open your eyes up to a small percentage of homes for sale and sellers to help. It is important to know every MH that is for sale in your county and the surrounding counties. This way you can have clarity on every seller's property and then you can make purchase offers to every seller, not just one or two.

I called on about 25 homes in 4 months and after screening for deals ended up walking through 5 and made offers on 3. This is a good start compared to others however you have a much larger inventory near you than this. In 4 days you should have (could have) aimed to speak to 25 sellers, not 4 months.  

The one deal I ended up doing was a 2 bed 2 bath 14' x 66' Melody. In early August the owner, who lived there with his wife and 3 kids, was asking $6,500. That was about $1000 less than comparable homes were asking for and he wanted to be out by the time school started, which was in a month from the time I walked through the home. How were the comparable homes sold? Via all-cash or monthly payments? If they were sold for all-cash then you were comparing apples to oranges, meaning that you may have sold for way to cheap of a price for payments. It is crucial in my opinion to know what buyers will and are paying for 2 bedroom, 3 bedroom, handyman specials, clean homes, older homes, all-cash, monthly payments, amount down, etc? Once you know this with somewhat certainty you can now make purchase prices to make sure you make all your invested money back within 10 months or less. 

There were several issues with the home. The exterior was light green with dark green trim and the interior smelled like old food. Not disgusting but it smelled baked in and like you could never get it out. Fly paper was hanging in the kitchen and only partially doing its job. Not uncommon. The smell and other issues shows low pride of ownership and a lack of money to make improvements in my experience. There was a bedroom door off the hinges and a bathroom that had some "minor plumbing issues," but nothing major according to the owner. Make sure to walk every inch of the home for soft spots and to find hidden leaks. He wasn't sure what year it was but thought it was an early 90's model. Many sellers are liars. Make sure you verify all repairs, issues, taxes, lot fees, ages, utilities, appliances, mechanical systems, walls, windows, roof, etc yourself. The registered title didn't show a date either. This should be listed online in TX, however you may have verified this. Odd that he didn't know. Even with what I knew was going on, there didn't seem to be structural problems or any leaking and most of the fixes appeared to be cosmetic. The property tax and lien records also came back clean. Good that this was checked.

I did no further investigation of the house. I didn't check electrical, but I knew the AC worked because it was cool in the middle of the summer both times I went in. I spoke to the park manager about what I wanted to do and she was fine with it. However, she did have a few requests. 1) She wanted the exterior of the house repainted because it was an eyesore. This is common. This is our job as helpful investor in the park. If we keep the park manager happy then she can help sending leads our way. 2) She was raising lot rent to "market" which would make it $420 a month! ($420 is very high in my area but the park was in decent shape with decent tenants.) How much of an increase is this? 3%-10% raise per year is common. Make sure you can sell and net $300 per month if possible. I haggled with her on both accounts but she would not budge on the lot rent. She said we could leave the re-painting up to whoever ended up moving into the house.

After several back-and-forths with the homeowner I ended up getting the home for $4500 cash and had generated 3 very interested buyers by the time I purchased the home. I also had to pay a $200 deposit with the park. Without looking at pictures or knowing what local buyers will pay for a 2 bedroom I can only assume that $4,500 all-cash was too high of a price or terms to pay.

I scheduled a time for all 3 of my leads to come see the house. Only 1 showed up and was clearly on drugs of some sort. This very common. If 100 potential tenant-buyers call you from your payment sales offer, 95% of these folks will not be low-risk buyers you want to sell to. This is a rough but fairly accurate generalization. I ended up holding the home for a month and had to pay an extra lot rent. Not as bad as it could have been if you purchased a home most buyers didn't want or were trying to sell over the winter holiday months. 

During that time I also went to transfer title at the courthouse. I had to pay the next year's taxes in order for the title to transfer (Tarrant County law, I believe) so I did that and it cost me another $190. 

I finally found a buyer. A boyfriend and girlfriend and the girlfriend's 2 kids. Boyfriends and girlfriends, especially in their 20's, have a high likelihood of defaulting. The park runs a solid background check and the couple passed and both had sources of income. They bought the place for $7500 and put $1,000 down plus the taxes. They would replace my deposit with the park once the note was paid off. $7,500 seems like a cash price. A payment price should be closer to $15,000+. 

I financed the $6,500 over 3 years at 9%. Aim to hold 5 years of payments when possible. That gave me payments of $208 per month and kept the buyers cost under $650 each month, including lot rent. What can a local 2 bedroom apartment rent for? If you answer $650 then this home is priced correctly per month. We also stipulated in the contract that if they paid it off the note in 12 months I would take $500 off the principal. Many well-meaning buyers may agree to this however an early pay-off rarely happens.  I would get all my money back in about 17 months (longer than I wanted) but would have about 19 months of $208 a month free and clear.

They made their first 4 payments before I got an email from the owner asking how much I would take off if they paid it off in 6 months. I told them I'd take an extra $250 off the balance, but had no communication after my response.

The following weekend I got a call from the park manager asking if I knew the tenants had moved out. Apparently there was a domestic dispute. I went to survey the damage and was dismayed. A fist sized hole was in one wall and trash was everywhere. Instead of repainting the exterior of the house they had painted the interior literally every color of the rainbow, including alternating green and yellow cabinets in the kitchen. For some weird reason this wacky paint is not too uncommon either. In the 4 months the home was sold to them it would have been ideal if you made a trip to see the home and verify repairs were being made. These buyers were clearly not a vetted or screened as well as the park may have wanted you to believe. I advise to always charge every potential buyer over 18 years old living in the home an application fee to verify their history and credit yourself. 

I hope all this has made some sense and is helpful. If not please let me know. 

Thank you for the shout out Leslie. 

Additionally, Omar is very correct about the new Safe Act and Dodd Frank acts. Make sure you know these acts and how not to fall within their scope. 

In conclusion make sure to have a proper plan when investing in MHs. Have clarity of what you are buying and how you will sell it. This business is very profitable and very rewarding as we are only here to help solve problems. However, again it is all too easy to over pay, over improve, and sell for too little of a price.  

All the best,
John Fedro

Search here on "dodd frank has killed lonnie deals".  Read that thread a few times.

A better model is buying double wides on land.  rent to own and owner finance but Dodd Frank compliantly.  There's quite a few threads on how to be compliant as long as you not financing mobile homes in parks.

@John Fedro: Thanks for the critique. It's interesting to see an experienced investor's take on the Red Flags and how to handle them.

I think my 2 biggest issues are 1) knowing what problems to look for as well as knowing how much it will cost to repair them. I've done some repairs to my own home but I know nothing about furnaces or floor repair. 2) finding homes for sale and buyers. Craigslist is filled with brokers selling houses and most of them need to be moved. There were 2 or 3 new ones a day. Like I said driving for dollars worked but it's time consuming. I have a full time job and would try to hit a park or two on the way home after work but gas and time start to add up quickly. Any tips on finding leads would be great. Or maybe I'll listen to a few more podcasts!

@Curt Smith - I've read that thread and a couple of others a few times. The condescension really wears me out. I did a SFR owner finance a few years ago before I had any clue about regulations and once I found out there were some I freaked out and started reading as much as I could. However, in Texas, my understanding is that if you originate less than 5 loans in a rolling 12 month period you don't have to be licensed.

http://www.sml.texas.gov/tdsml_faq_mb_texas_SAFE_A...

I assume I am protected by this but I'm the first to admit I know a lot less than I should. Dodd-Frank requires a ton of disclosures and due diligence now in order to make everything up and up. It's all very confusing and gives me tired head just to think about.

@Curt Smith  

 I don't see why you can't do a Dodd-Frank compliant transaction on a mobile home in a park. 

@Brady Dawkins  

 I think you did a great job on your first one. 

I know how you feel about finding all the flaws.  It's pretty overwhelming.  I've just started buying RVs to rent out and I've forgotten to check many things.  Really, a detailed checklist is needed.  I also have learned that I don't like rehabs at all.  

I am loving that rehabbing an RV is much simpler than rehabbing a mobile home.  It's more in my ability level to do.  And the neat thing is that my gross cash flows are about as much as a MH.  On the 2 I have so far they rent for $650 a month less $260 lot rent.

@Leslie A.    Have you read DF, the text of the act?   The phrase "mobile home" is in the text of DF several places.  Have you read the threads here about 9 mo ago on "has Dodd Frank killed lonnie deals?  It seems the authors of DF don't appreciate the risk and value investors in lonnie deals where providing park residents.  For some reason they felt they are the same as payday loans and did their best to outlaw them.  I'm just a messenger on this one.

Search BP on "lonnie deals" then read the threads with Dodd Frank in the title.  All the banking experts weighed in including the park compliance person.   

Just expressing my opinions now;  The root issue in my view that the DF authors where wanting to eradicate re Lonnie deal math is:  buy at $X  mark up to $3X and finance at 18%.  To be DF compliant you'd need to do:

- verify 43% DTI including the payment amount

- pay $750 +/- to a licensed mortgage loan orignator to originate the loan

- DF mentions that an appraisal at no cost to the borrower.

- Set the price based on fair market for a fixed up mobile

- charge no more than 6.5% over floating prime including points.  Which means no more than 9.5% including any upfront points.

Most lonnie deals even today would not fit into the interest rate or appraised price numbers.  Certainly no one originates an owner occupied mobile home loan using a LMLO.

@Brady Dawkins ,

To make the @ work, do the following:
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Look below this Window, and you will see a list of names of people that have posted in this thread.
Click on the name of the person that you want notified via an email, that you responded to them.
If you are a Colleague with anyone that has NOT posted in the thread, and you want them to see your post, hold down the shift key, type the @ and the first 4 letters of their First or Last Name.
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Raymond

Curt, yes I have read all those threads and I do not do Lonnie deals. I do rentals.

However, your list of the requirements could certainly be met on a sale of a mobile home in a park.

@Raymond B.  This opens up a whole new world for me. Thanks Raymond.

@Curt Smith  I took this excerpt from a RE lawyer's website. Seems to me I can do 3 of these a year without having to jump through every hoop.

"The Dodd-Frank Law (Title XIV – Mortgage Reform and Anti-Predatory Lending Act)"

...The seller is obligated to investigate the buyer’s credit history, current and expected income, current obligations, debt-to-income ratio, employment status, and the like in order to make this determination. This law provides for a de minimus exception for persons doing not more than three owner-financed transactions per year (so long as the seller/lender is not in the building business) – but the loan must be fully amortizing (no balloon); the seller must determine that the buyer has the ability to repay the loan (and this must be supported by verifications and documentation); and the note must have a fixed rate or, if adjustable, may adjust only after five or more years and be subject to reasonable annual and lifetime limitations on interest rate increases.

@Leslie A.  

Just wondering, how well the government is going to enforce Dodd-Frank since they let the bankers and mortgage lenders destroy most of the world economy and none of those big boys ever went to jail?  They may decide to take on some mom selling her mobile home on payments and let J P Morgan pass out million dollar bonuses while breaking the law.  Since most of us don't make the big political donations we have to watch our back.  Its been a number of years since that act passed we should not still be waiting for court cases to define what it really means.  Write your congress man!

@Brady Dawkins , thank you for sharing.  Have you done more deals after this first one?  

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