Quick 101 on Note Investing?

Question

I'm an experienced investor looking at possibly putting in an offer on a 9-note package of MHs.  I dont know much about this subsection of REI.  Seeking a quick summary of how it works?  Thanks in advance, guys!

Don Konipol · Answer

@Dave Rav

The security for a note than includes real property is the real property itself, the lien is perfected by a mortgage or deed of trust that’s filed with the county in which the property is located.  A loan secured by a mobile home is not a real property loan, so there is no mortgage or deed of trust.  Depending on the state the option for a security filing are either a UCC which is a notice of lien on personal property, or a lien on a vehicle, which mobile homes are considered in a few states.  The security for the lien is of course the mobile home, which is not only a depreciating asset but also can have NEGATIVE value, as it may cost more to relocate than the home is worth, and if located in say a MHP can have rent payments too high to profitably lease out.  Below is the “bible” on mobile home investing and notes

Making Money with Mobile Homes Kindle Edition

by Lonnie Scruggs  (Author)  Format: Kindle Edition

4.2 out of 5 stars    37 ratings

Chris Seveney · Answer

@Dave Rav

The quick summary is you are the lender just like getting a mortgage from PNC but you are PNC. It is impossible in one post to give you everything you need in note investing

I would say if it’s mobile homes you are buying notes on does it include the land? If not it’s a depreciating asset like a car loan but if it’s land and the home may have more value but have to be careful on what your note secures.

It’s not something I would recommend someone do who is not experienced or has taken the time to learn the business

Andy Mirza · Answer

@Dave Rav Just be sure to educate yourself properly, which you are starting to do by asking here. There's a lot to learn with notes. Mobile home lending isn't necessarily too advanced for a newbie but it's not what we usually discuss on this particular forum. Find the forum that discusses mobile homes.

With mobile home notes, you have the chance to get into a note with low capital & borrowers who many times don't have any other options. Yes, risky but you mitigate that by educating yourself and limiting your risk and, if you do it right, you're rewarded with a good return. Instead of a 9 note pool, maybe do one...

Chris Seveney · Answer

reason I asked is wanted to see if a judicial or non judicial state. That will have an impact on pricing.

Dean Dubach · Answer

Dave, there is so much more than the relationship between UPB and the purchase price when dealing with MH ( or any property ) when lending.  I hold in SFR notes, and I wouldn't do HM lending even where I had an ownership stake in the park.   It is not a good starting point for someone new to notes.

I think there are some books on MH lending, don't recall the names of them.

Chris Seveney · Answer

What state is this property in as well?

Dave Rav · Answer

@Andy Mirza thank you kindly for your input!  I agree starting out with 1 note vs 9 would be a better starting position as a newbie!  There are two reasons why I gave this 9-note MH package consideration:

1) The asking price is less than $15k per unit!  ( I understand if all 9 notes are linked to older MHs this may not be a deal.  Land-home packages changes things.  If just 50% of the 9 include land, I think there is value here!)

2)  Though new to note investing, I am a seasoned REI with several properties, including multifamily.  I've also been a buyer in an owner financing transaction.

@Don Konipol I appreciate the quick run down.  Very thoughtful and a good summary.  Great information.   I understand how the security instrument of the note and mortgage.  Its the holding side (playing bank), as well as when MHs are introduced where things get fuzzy for me.  You bring up an excellent point on the question of how MHs are treated with respect to collateral.  Some states definitely treat them differently.

As for the Scruggs reference - I am familiar.  But i wasn't aware he talked about note investing with MHs.  I need to review that

Dave Rav · Answer

@Dean Dubach thanks for your insight.  I agree that starting with MHs in the Note-Buying space may be too advanced for a newbie.

Dave Rav · Answer

@Chris Seveney SC

Dave Rav · Answer

@Chris Seveney thank you.

Yes, I agree one post won't satisfy all the education necessary on the topic.  I do thank you for your contribution.

The MH being with or without land is something I have considered.  Need to speak to listing broker here.  Also, I would think I'd need to know term/maturity of these notes.  Would also like to know how many of them are performing.

Is there a method or formula to determine desired price you should pay for the note, as it relates to the payoff balance?

Thank you so much!

Quick 101 on Note Investing?

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