lease option that turns into an owner contract

1 Reply

Hi, we have mobile homes.  We like lease option.  We have found a 1976 single wide 2/2 that would cash flow well, and have money at the back end,  but will probably not qualify for any loan programs anywhere.  We can use our credit lines to buy it, but who we sell to would not be able to get a loan on it, except one place that requires 20% down, and 7-11% interest, and has a 4.75% set up fee (rolled in)---this is not a very good loan, and I'm not sure that people will go for that.  I can't blame them.  

I hate to pass up cash flow, though, and the price of the home is only a little more than the land value, with about 3 grand in repairs(although these usually wind up being more.  

This is my "creative thinking strategy idea"  

Lease option ($3.500 option fee that comes off the purchase price, normal for here) for 1-2-3 years, offering owner financing, with $5-7,000 down. 7% interest  If they needed more time, we'd probably work with them.  The selling price of the home would be very reasonable.  

backup plan, sell at discount, for cash,

back up-back up plan, regular rental.


I have a friend and know others in Texas making a killing by selling mobile homes with owner financing.  They buy the home cheap (preferably with land also since lots of counties don't want mobiles) and typically double the price and sell with owner financing.  I'd say 7% interest is WAY too low to use on the sell side.  I'd recommend 10% interest.  Most mobile home buyers are buying on terms, meaning they can afford the monthly payment, so simply structure the length of the loan enough years to meet their need.

I like the idea of the lease/option if they don't have enough to start out with owner financing immediately.

The only caution I would offer is know your state laws.  Texas can be difficult if you sell more than 1 mobile a year.  Apparently you need to become a licensed dealer to do so. I can't speak knowledgably regarding Washington.  You may also need to qualify the buyer with a Residential Mortgage Loan Originator (RMLO) if you do this too many times.  Dodd-Frank Act may kick in and has nasty penalties.  You have 1 exemption, then the rules change for 2-5, but if you'd done 5 you definitely need a RMLO to qualify your buyer.  If Dodd-Frank applies, it will also govern your interest rate.  The allowed interest is APOR plus a spread, which varies if it is a first loan or a second loan.  If you're selling on a wrap you are allowed a higher interest rate.  One way around the interest rate issue, however, is to simply raise the price and lower the interest to meet federal requirements.