Thursday, May 7, 2009

Quality Vs. Quantity

I thought I'd address the topic of Quality Vs. Quantity. Recently, I've had some people ask me about the default rate with mobile home investing.

Turns out, there are some people out there who have done some mobile home deals saying that it didn't work out because they had to take back the homes every 3-4 months. Folks, it's all about quality. Not quantity.

Since I've been a landlord and managed my own properties in the past, I have experience in this area. I'd much rather go for someone long term than short term. This is why I screen all my buyers personally. Yes, if I do a deal in a park, the park managers have their own application process. But, I have to do my own due diligence. Here are the 3 top factors I look for when screening buyers:

1. Job History and Income

I verify all jobs past and present. I send an employment verification form for verification for each job. Once I receive the employment verification form back, I call and follow up to clarify any questions I may have. In addition, I also require all prospective buyers to submit current and past paycheck stubs and their W-2 for the past 1-2 years. Then, I take the info and analyze it. Basically, I use the rule of 3rds - the rent/payment required cannot be more than 1/3 of their gross income. If the rent/payment is more than 1/3 of their gross income, they simply cannot afford it. This is nothing new - this is one of the rules lenders usually use.

Now, what if the buyer(s) don't supply this information? Simply put, they cannot move forward with the application. This paperwork is a requirement. If they simply refuse, in most cases they may not be the most qualified candidate.

2. Landlord and Rental History

A park manager once told me the landlord history is one of the first things their park checks - it can say a lot about a person and their ability to pay. I've never forgotten this statement. In most cases, it has rung true. Again, I check all past and present landlord rental history by sending a landlord verification form. Once I receive it back, again I follow up with each landlord to clarify any questions I may have.

Now, what if the buyer(s) do not have any landlord and/or rental history? One such case is if they have been living with family and/or relative(s). In these types of cases, I still have them list them as references and verify the info they write down. Sometimes buyer(s) do pay some money in the form of rent when living with family and/or relatives. This information is all verified. If the information they list check out, it scores points with me as being honest - a very important quality to have.

3. Criminal History

In general, the parks will be sure to check this. I do my own search through the public databases in my area. When potential buyer(s) call in, I always tell them this is one of the most important things that will be checked. In most cases, this deters a lot of people who may have a criminal history.

Apart from these 3 factors and screening potential buyers, I also take the time to meet prospective buyer(s) - I show the homes myself. Why? It gives me a sense of who these people are and I can tell a lot from people just by meeting them.

Let's face it - it's one thing to talk to people on the phone but it's another thing to meet people in person. Sometimes people may not be what they seem to be when you talk to them on the phone - you find these kinds of things out when you meet them in person. To me, it's very important to meet potential buyer(s) in person - this is a long term relationship. I'd much rather take the time now and screen carefully than rushing in (which I find a lot of people do) and filling it fast.

Remember the race with the turtle and the hare? The turtle eventually won.

Happy investing!


LLnL said...

Great post, I learned a lot. The first time I visited your blog I though you were flipping mobile homes and wondered how you made money. I feel bad that it hasn't take me so long to return to read your new post because I've learned so much form the little time I've spent today.

My problem is that I feel like I'm a long way from investing and I don't know what to do with the knowledge in the mean time. i do want to tell you that you are a god writer; your post are interesting and stimulating.

Mobile Home Gurl said...

Thanks! I'm glad you enjoy the posts. Most people starting out ask the same thing - getting the education and the knowledge is the first step. Then, it becomes all about applying what's learned. Glad this has helped!