Thursday, May 13, 2010

Done Deal: 4/2 Singlewide Mobile Home In a Park



Since I've received a lot of requests for more case studies, I thought I'd make a post on another one I closed on recently.

(Note: This mobile home is very similar to this deal with the same title. The only difference is that it's a few years older. But, it does have the same specs).

This one was referred to me by the park manager in one of my favorite parks.

(Note: When first starting out, you'll find there are parks you like and parks you don't like. It's all a matter of personality and your comfort level. For me, I prefer high end parks due to this experience - it's just my comfort level. I enjoy working in high end parks because of the clientele - I find it attracts the types of people I feel comfortable working with. Again, it's all a matter of personality and what works for you).

The park manager told me the seller had been trying to sell this one for 2 months. I had just found out about the deal as I had returned from a trip. So, it was already 2 months into the sales process when I started working on it.

So, I decided to check it out and met up with the seller. On my first visit, I learned the seller had already moved out of the home - it was vacant. The seller had bought a new home out on land about 2 months ago. For two months, the home had been vacant.

When I went around and inspected the home, I found it matched my buying criteria. Usually, I will only take on homes that have cosmetic issues and not much fix up work - no major rehabs for me. As long as all the major systems are in working order and the structure is solid, I'll take it on.

If there are issues with the roof (i.e. major ceiling leaks) or with the major systems in the home - it's too much for my criteria. I look for homes that don't need much work that don't take too much time to fix up.

(Note: Since I work in high end parks, the lot rent fees are higher than low end parks and can add up. This is why I need something in pretty much move in condition so I can get it on the market and get it sold fast).

Looking through the home, it just looked like it needed a major cleaning and a bit of touch up work. In high end parks, most buyers look for quality - not cheapness. Especially in this economy, it truly is a buyers market.

After looking around the home, I asked the seller how things were going with the sales process. He told me he had a few buyers go through the home. There was one family in particular who was really interested.

Though, he told me he wasn't sure if they had the funds to buy the home. They had asked him if he was willing to owner finance to them. Though, the seller told me this was not an option for him because he wanted to cash out and not deal with this home anymore.

If he were to seller finance, then he would still be tied to the property - he wanted to cut off all ties. Plus, the seller told me since he lived further out now he didn't want to deal with this home and the issues that would come up if the buyers didn't pay and he had to take the home back.

After talking for a bit, the seller asked me what I thought. He told me the park manager told him that I may be able to help him out.

(Note: Since I've been in the business for awhile and have gained a good reputation, it's the park managers that are my cheerleaders - they are the ones selling and promoting me. Most times, I end up being more of a consultant to sellers than anything. When meeting with sellers, I don't try to buy the home out right unless I see it as a good fit - it must be a win/win situation for both me and the seller. The deal must match the seller's needs as well as mine).

I told him there are a couple of problems here - the home needs to be properly staged. First, the condition of the home. I told him the home really needs to be staged well - it needed a good cleaning and a bit of touch up work. The floors, walls, ceilings - they were all dirty.

In order for this home to sell and attract the right kind of buyers, I told him he would need to really give the carpet a good cleaning - there were patches of stains throughout. I suggested a home cleaner if he didn't want to spend the money for a professional carpet cleaning company.

Then, I told him it would really need to be cleaned inside and out. I highly suggested using a professional cleaning company if he didn't want to do the work. I also suggested he may want to re-paint some of the areas of the home as it needed a bit of touch up.

After going over the inside of the home, I talked about the outside. I told him he would need to sweep the porch and do a bit of landscaping outside. Maybe he wanted to re-mulch around the house and plant some nice flowers. I reminded him the outside is the most important as it's the first thing people see when they drive by. If the home does not have curb appeal, then in most cases people will not take the time to look at the inside.

As I explained to the seller about the things that needed to be done to fix up the home, I could see the seller getting overwhelmed. Since I do this on a regular basis, I know what the majority of buyers are looking for - they want a nice home.

Most buyers (i.e. homeowners) do not want to buy a home that needs work. They want everything all fixed up. And, especially in this economy - it's a buyers market.

Since I work in high end parks, I rarely sell homes "as-is." The homes I sell have to be in pristine condition - it's just what the types of buyers in these parks attract. It's extremely difficult to sell a home in high end parks in "as-is" condition and command retail price - it's just not going to happen.

After giving my input to the seller, I asked the seller what he wanted to do. I told him if he wanted to work with me, I could buy the home but I wouldn't be able to meet the price he was asking for. I told him with the fix up work needed and since this was a cash deal, it would have to be less.

(Note: When he first put the home on the market, it was listed for 30k. When I got into the deal, he was at 25k).

The seller told me at this point he was open to the possibility of working with me. I asked him if I could get some estimates from my contractors on the costs of some of the fix up work, would he be willing to negotiate the price?

He said, "Yes." He told me he would like that and would like me to show him the estimates. So, I agreed to get the estimates and we agreed to meet again in a few weeks.

(Note: Typically, when I'm working deals I don't rush things unless the sellers are truly motivated. If they are semi-motivated, I give it some time in between meetings to let them mull things over. I find that time has a way of increasing motivation).

After a couple weeks, we met again with the estimates. The seller looked it over as I explained each item in detail. He said he understood the home needs work. And, he told me he didn't want to do the work himself.

After going over the estimates and the fix up work needed, I asked the seller what his best cash price would be. Then, I was silent. At this point, he told me he'd take 21k for the home. Then, I asked him - is that the best you could do?

(Note: Going into the deal, I already knew the market. I knew a home like this would sell in the low 30k range owner financed).

Then, he went down to 18k. And, then asked me what I'd be willing to take the home for. I told him 14k cash with a quick closing.

At this point, he said he would have to think it over. He said he really wanted to get more than that. I backed off and said, maybe he should continue showing the home and see what happens. But, he said he didn't want to leave things up to chance. So, we agreed to meet again in a couple weeks.

After a few more weeks go by, we met again. This time I asked him what he thought. He told me he'd take 17k for the home. I told him I still think that's a bit too much for me. I asked him if we could meet halfway. He asked, "You mean, between your 14k and my 17k?" I said, "Yes."

He then said, "How about 16k?" Then, I said "Well, that sounds good but it's still a bit more than I was willing to spend." I think I could go for 15k. Then, he said "Really 16k is my bottom line price." So, I said "How about 15k and you take the outside shed?"

(Note: Many times there will be an outside shed that goes with the home. It's nice to have but is not a major selling point (in my opinion). Really, it's the home and the type of park that really makes a difference to most buyers).

He was a bit surprised with my counter offer. He told me he thought he needed to include the shed with the home. I told him, "No, really I don't really need that - it's not a requirement for me." Then, I reminded him having a shed would actually be good for him since he could have a place to store some of his items. He told me, "He never thought of that."

So, he agreed. And, that was that.

To make a long story short, I bought a mid 1990s mobile home, 16x80 with 4 bedrooms and 2 baths for 15k in a high end park. I sold the home to a family who had relatives already living in the park - I received $2500 down and it cash flows in the $500/month range for 10 years.

Though this deal took a bit of time and negotiating back and forth, all my hard work paid off. It made for another nice and relaxing cash flow payday for many years to come.

Happy investing!

p.s. Feel free to leave comments on any post either here and/or my Facebook Page. Comments are always welcome, thanks for reading!

6 comments:

Shae said...

Awesome, awesome post! I love reading these case studies, Rachel!

Quick question for you....I keep hearing about some pending federal laws that will restrict seller financing (without a mortgage broker license). Are you familiar with this and does it impact mobile homes?

Mobile Home Gurl said...

Hey, thanks Shae! Glad you enjoyed it.

Yeah, that's the Safe Act. Honestly, I think people are making way too big of a deal about it. I'm not sure if you remember that huge foreclosure act that happened awhile back. Basically, it was a result of investors trying to rip off homeowners. I think this is the same thing.

Just like in real estate, there are mobile home investors who try to rip people off too - they basically ruin it for everyone. It's annoying. I've known of some who basically try to sell homes without title (they don't even own it) and try to owner finance that way - they get a bad name. Then, the word gets out and the government has to get involved to protect the consumer. It happens.

I think the main issues with the Safe Act regarding mobile homes is if it applies to mobile homes as personal property and also if it applies to Lonnie dealers. To me, it seems to apply mostly to park operators (aka the mobile home park).

The wording in the law as I understand it is "personal dwelling" and this is subject to interpretation. Some believe this only applies to real property while others think it applies to all property - real or personal.

The issue then goes on to question what is a mortgage and it's definition.

If you'd like to read up more on it, I highly recommend visiting Mobile Home University (these folks have been in the biz for a long time) and checking out this link:

http://tinyurl.com/2cnb5qy

Read John Hyre's response (he's an attorney, investor and accountant). I read his stuff on MH University and CREOnline regularly for any legal/tax issues.

I think it all boils down to the interpretation of the law and how each state handles it.

I've always had the belief that if I conduct my business honestly and am always upfront with folks, it's enough. So far it's worked. Many people have come to me due to my reputation I've worked so hard to build.

Hope that helps, thanks for stopping by!

Shae said...

Very helpful, thanks! I just need to make sure I'm clear on how this impacts private money lending scenarios (if at all) since those are loans that are secured by real property. I'll have to talk to Equity Trust. I'd suspect that everything stays the same, but you never know unless you ask.

Mobile Home Gurl said...

Sure, glad to help! It definitely is better to ask than to just assume. It should be interesting to see how everything pans out.

There was a guy on CREOnline, Will, who seemed pretty knowledgeable about this area. He wrote a blog specifically on this topic and I used to frequent it back then. Though, I checked and it does not seem to work right now.

Here's the link just in case it comes back up:

http://willsugg.com/irablog/

Don said...

I love how you explained how you found the deal and how you worked the deal. But here is the BIG question every one wants to know how did you fund each deal you see every one out here tells a good story about what they have and how they did it but they always leave a lot out and how they got it funded.
Thanks NINJA

Mobile Home Gurl said...

Thanks for the note Don/Ninja, nice to meet you!

Regarding funding, no - just cash. Though, you're probably thinking, but how?

It's simple. I've just learned to be a good steward of money. A successful businessman once told me, "It's not how much you make but how much you keep that counts. If you want to be rich, you have to keep your expenses as low as possible and increase your income. If you can do that, you will be wealthy - I guarantee it."

So, that's what I do . I play it just like the cash flow game. I buy assets, not liabilities. And, in order to purchase these assets I keep my expenses low. With the extra money, I use it to purchase assets that cash flow. In this case, mobile homes.

It boggles my mind how there are other investors out there who just don't get it. They read and say they want to be financially free. Though, when it boils down to it they are not willing to do what it takes to get there. Sometimes it will involve sacrificing time and money on things - it's just the name of the game.

For example, one of the things I've cut out of my budget has been television. It just takes up too much of my time and I don't really enjoy watching commercials in between programs. Without having television, I've found it's freed up a lot of time - time to be used to read, study and work on more productive things.

Now, there are some people who simply can't imagine going without television - it's just one of the many sacrifices I've made.

I can go on and on with the examples. But, the bottom line is that it's going to take a sacrifice of time and money. Those who understand, do it and eventually get to where they want to be, and those who do not remain where they are.

I know what it's like to struggle. In the beginning it's hard. But, those who have the will to go on and really believe in what they're doing will eventually get there.

I've met people through this business who struggle to make ends meet yet they make it work. One case, there was a couple I was working with who had a really limited income - they had to set aside $40 per month for food. Yet, they made it work. It was amazing as the bulk of their income went towards lot rent.

So, if these people can do it and keep their expenses low - so can I. And, with the extra money left over it's used to purchase assets that cash flow. It's all very simple. Though, for many it's having the will and the discipline to make it work. And, making the decision as to where the money will go.

Hope this helps, glad you enjoyed the post - thanks for stopping by!

p.s. An article I wrote that may help:
http://tinyurl.com/y3p3lhp