SD-IRA Cash - buy SFH or mobile home?

SD-IRA Cash - buy SFH or mobile home?

Investor · Orange County, CA · Member since 2013 · 119 posts · 127 votes

I have a SD-IRA and looking to deploy $180k into a real estate play. I plan to start withdrawing in next 20 years. i likely will not be getting financing as it would be a nonrecourse loan at roughly 9% and 30-40% down. I am more interested in high cash flow within this ira so I can reinvest any profits into some syndications. two scenarios as follows, but can't decide and would love your opinions:

1. I found a "turnkey" mobile home provider that owns the park, and will sell a brand new manufactured double wide home to me for $100k. They will find a tenant that wants to purchase and will create a note. Essentially, I would be buying the seller financing note and it will roughly cash flow $1500/mo (roughly 13%, 30 yr w 5K down). They will handle all management but tenant owner is responsible for most maintenance plus lot rent of $500. my main concern is depreciation of the asset; if the tenant owner does not execute and complete purchase i could be left w costly repairs to make it attractive to a new buyer tenant. I am also concerned with the length of term, 30 years for seller financing. Park is located near a military base and has been rated high (5 stars) on google if that's any consolation. 

2. Buy a traditional single-family house: I could buy a single-family house, with lower cash flow, but likely would have some built-in appreciation. 

3. Bonus scenario: bite the bullet and get a non-recourse loan with 30 to 40% down and buy 2? properties w the 180k. maybe cash flow is lower but ROI is better?

thanks in advance!

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Doug SmithPro Member
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
2y

Hi @Sendhil Krishnan, Congrats and welcome to the wonderful world of SDIRA real estate investing! I'm not a huge fan of mobile home investing, but many people make tons on MH park investing. I am more partial to option 2 and getting your cash flow and, perhaps some day, appreciation to offset inflation. A mobile home depreciates, but a single family home appreciates. With option 3, you do take on a bit of risk by levering the purchase, but it could pay huge dividends in the future. You've got a some good options. Let me know if you ever want to talk through options. I'm happy to do it. 

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  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    2y

    Hi @Sendhil Krishnan, Congrats and welcome to the wonderful world of SDIRA real estate investing! I'm not a huge fan of mobile home investing, but many people make tons on MH park investing. I am more partial to option 2 and getting your cash flow and, perhaps some day, appreciation to offset inflation. A mobile home depreciates, but a single family home appreciates. With option 3, you do take on a bit of risk by levering the purchase, but it could pay huge dividends in the future. You've got a some good options. Let me know if you ever want to talk through options. I'm happy to do it. 

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Sendhil Krishnan

    I would also

    Look into syndication or debt fund as since with traditional real estate you do not get to take advantage of any of the depreciation.

    I see many with deferred retirement accounts go this route since typically debt is taxed at ordinary income so using deferred funds you do not lose out on depreciation and can get consistent monthly cash flow

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  • Rental Property Investor · New Braunfels, TX · Member since 2022 · 409 posts · 408 votes
    2y

    @Sendhil Krishnan Option 3!!! Especially if you have 20 years until you need to use the account. Stick built homes will appreciate much better than mobile homes. 

  • Investor / Mentor / Contractor · Arcadia, CA Buying Out of State · Member since 2015 · 655 posts · 622 votes
    2y

    @Sendhil Krishnan. From your writing it sounds like you see your options being 1 or 2 single family rentals.  I think you need to be thinking (and looking into) multifamily properties with a commercial loan. You will only need to put between 20%-25% down and the loan is a business purpose loan and not treated like the mortgages we buy on our primary residence. So, it's easier.  An 8-unit property at $100k per unit and your $180k down would net good cash flow.  However, seeing you are in Orange County, CA, you will have to buy out-of-state for sure.

  • Real Estate Agent · Memphis, TN · Member since 2019 · 365 posts · 264 votes
    2y

    @Sendhil Krishnan what a great situation to be in. Personally I'm a fan of the single families for the long term. As others have mentioned that mobile home is going to depreciate while the SFH appreciates. Since you have a 20 year horizon I wouldn't shy away from the leverage. A 9% rate with 30-40 down is a great deal for a non recourse loan in today's market.

  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    2y
    Quote from @Sendhil Krishnan:

    I have a SD-IRA and looking to deploy $180k into a real estate play. I plan to start withdrawing in next 20 years. i likely will not be getting financing as it would be a nonrecourse loan at roughly 9% and 30-40% down. I am more interested in high cash flow within this ira so I can reinvest any profits into some syndications. two scenarios as follows, but can't decide and would love your opinions:

    1. I found a "turnkey" mobile home provider that owns the park, and will sell a brand new manufactured double wide home to me for $100k. They will find a tenant that wants to purchase and will create a note. Essentially, I would be buying the seller financing note and it will roughly cash flow $1500/mo (roughly 13%, 30 yr w 5K down). They will handle all management but tenant owner is responsible for most maintenance plus lot rent of $500. my main concern is depreciation of the asset; if the tenant owner does not execute and complete purchase i could be left w costly repairs to make it attractive to a new buyer tenant. I am also concerned with the length of term, 30 years for seller financing. Park is located near a military base and has been rated high (5 stars) on google if that's any consolation. 

    2. Buy a traditional single-family house: I could buy a single-family house, with lower cash flow, but likely would have some built-in appreciation. 

    3. Bonus scenario: bite the bullet and get a non-recourse loan with 30 to 40% down and buy 2? properties w the 180k. maybe cash flow is lower but ROI is better?

    thanks in advance!


     Opt for the 3rd place on your list, or opt for option 2. These are two different ones that would be the best for you with that time horizon. Even with that #1 looking good for some cashflow still mobile homes on that type of purchase seem a little too shaky. 

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