spex,
Love the thread. tons of good information. That's all

You might try something like: "I'd like to buy homes that are for sale for cash and resell with seller financing". That way the park owner gets a benefit because the chance someone buys it is higher.

Go to the manager and explain that you're a MH dealer and you're interested to work in his park. Explain that you act just like a bank - you don't rent the homes. And explain that you pay lot rent until you get the home sold. Tell him that you'll be sure the park approves any and all buyers before you approve the buyer. Thats how you do it.

Spex,

How did you purchase your personal residence? Since you said you normally don't find deals in nicer areas, I was wondering if you had any tips on how to get a good deal on a personal residence.

It depends a lot on your market. What I did is identified several homes that worked for my family. I took the ones that had been on the market more than 120 days. Of those, I took that ones where they buyer is not living in the property. Then I put in multiple lowball offers simultaneously.

We don't have a real fancy house. That isn't something that we feel we need. We have a simple house. Our house appraised for $160k when we bought it. We paid $140k. So that was a pretty good deal all things considered. But it was a situation where the seller was carrying a $1000/month mortgage. She had rejected higher offers than mine previously. But we bought in October, and she rightly figured that it was now or carry the place for several more months.

However, for a personal residence, I don't feel that its too important to get a tremendous deal. I mean, we didn't have a strong preference for neighborhoods or anything. and even though I consider myself successful, I don't really want to live around a bunch of doctors and lawyers and stuff. I think that its more important to get what you want out of your home than to get a great bargain.

max,

I can speak to this one. We looked for a place that might be a good flipper in a nicer (not too nice) neighborhood. For the most part home buyers don't want to do ANY work or they vastly underestimate how much work costs. We had just finished putting a new kitchen into our old condo so we had a contractor we trusted and a good idea of costs.

Once I found a place that needed work I brought my guy with me to a showing. We did this several times until I found a place. A 3 bed in a fantastic neighborhood being sold by an elderly woman's family. The kitchen was so bad that you basically couldn't live in it as it was.

So, I deducted twice as much as I though it would cost to do improvements off the list price and started negotiating. My realtor didn't want to even present my offer (it was so low) but eventually the seller caved and I got it at a steep discount.

the kitchen was demolished the monday after we closed and we were moved in 3 months later. I allowed this amount of time so my guy could work in a nice, empty house. The cost of those 3 months was built in to my discount of course.

anyway that's the only way you are getting a "deal" imo. be the flipper.

I was just curious because folks have said before that you can't find "cash flow" deals in middle income neighborhoods. But there have to be some kind of deals right?

Thanks for the advice.
Max

Spex,

Do you use any software to help manage your properties?

What laws and regs were u referring to about the credit reports?

What % down payment do you usually ask for in an l/o deal?

What, if any, paperwork is required to execute a wholesale deal?

My wife is a mortgage broker for a RE investor who also owns a brokerage. She has found a program that requires no seasoning on title to take out an equity loan. We have decided to use this in combination with a HML to purchase our first property. The REI would give us a HML to purchase a property. $2,000 Fee + 9% Interest (he charges more to others, but since my wife works for him this is what he has offered)

We would then go to the lender that uses this program and take out the equity loan against the property. Obviously the interest he charges will be next to nil so we are looking at a shade out over $2k to get the money before the fees on the equity loan.

I have met with him once and he operates on the same purchasing ideas as you. Mainly foreclosures on single family homes around 30% below FMV with a >25% COCR. He said he would help me find the properties and start teaching me the REI business.

He made it known what he charges on the HML and also said he would share in the profits after the sell.

My quesitons to you:

On a straight sell, assuming I did the majority of the repairs, what would a fair split on the back end be?

I assume what ever percent we decide I will also use that percent when calculating his portion on cost of material and carrying cost?

I have thought about this quite a bit and still cant settle on a number that would be fair to both of us. Obv, I am assuming all the risk once we get the equity loan, so I feel like I should get a large % of the back end profits, but I also understand that he will be helping find the property, giving us advice on what to do to the property, and helping us find buyers/renters. I feel like I have a great opportunity with him taking me in and being willing to teach me the business so I dont want to offend him with any numbers, but I also want to get my fair share.

Sorry for the long post.

Nope, there don't have to be any deals. Once in a while you'll find one if you devote yourself, heart and soul, to finding deals. Thats basically what GiddyUp does.

Depending on your market, you're looking at getting most houses in middle income neighborhoods for a minimum of 30%+ discount. That isn't easy to do.

I use Quickbooks. Otherwise we have a paper work order system that we've developed over time.

I'm not affected by them because I've got a separate business entity with its own tax ID number, office, etc. So the new laws don't really apply to me. My understanding is that small landlords now have to jump through several hoops in order to check credit. Like you have to get a signed statement from the tenant permitting you to check credit. YOu have to send proof of ownership of the property to the credit agency before you can get the report. You have to have an office with a locked file cabinet. The office will be inspected, which costs $75. There might be a few more things too. Your local landlord's association or REI club can give you some more information.

On a l/o deal you're not asking for a down payment, you're collecting option money. Big difference. A down payment gives a buyer an equitable interest while option money doesn't. I'd want to get at least 1.5-3% of the purchase price.

A purchase agreement and a contract assigning the purchase agreement to the investor. There might be more that I'm not aware of.


Huh, around here they charge 4 points and 14-16%, plus fees. I think you're getting a bargain. Just be sure there is no penalty for early payoff.

Maybe GiddyUP could be more help than me. Personally, I wouldn't be willing to pay points + 9% + a share of the profits. There won't be anything left for you guys. His share of the profits is the $2k plus the holding costs you're paying him. I'd give him the choice of either points + 9% OR a piece of the upside.

There is a difference between a money partner and a hard money lender. This guy is trying to be both for this deal. It doessn't work. I feel that the deal he is offering you is unreasonable. You're doing all the work and getting the smallest chunk of the money. I bet you he's going to try to take a 6% commission on top of everything too. This deal is not that good for you guys.

I can't answer that. You have to decide that for yourself.

If its a partnership, then the partnership will pay all expenses and split whatever is left over.


I'm not following you here. Where does the equity line come into this? If you need both a HM loan AND an equity line (which you won't get in any case) then you are paying too much for the property.

I will use the equity loan to pay off the HML. Its just a way of him getting his money back pretty quick and me getting a smaller rate. I don't think he is interested in the deal unless he can get his money back out of it fairly quickly to use on another property.

I like what you said it being either a partner or a lender. I'll talk to him about that and see what he has to say. It makes it a little tricky since my wife works in his office and he takes pretty good care of her salary/commission wise.

EDIT: Why did you say I won't get the equity loan?

I see what you're saying. You're not taking a home equity loan, you're refinancing the property. Those are very different. In a home equity loan, the order to liens remains the same with the HELOC taking a subordinate position to whatever liens are there first. But with a refinance, the lender pays off all liens and their position is first lien on the property. You are talking about refinancing, not HELOC (home equity loan or second mortgage).

I thought you were originally saying that you'd need a HML plus a HELOC to do the deal. That won't work for anyone. I'm with you now. Yes, that is the way to do it - buy w/ the HML, fix, sell or refinance. The project should probably take no more than 3 to 4 months so that you have time to refi or sell.

This is a business transaction that is totally and completely unrelated to your wife's performance at her job. He takes care of her because she is worth it. This deal isn't going to change that. Plus, this guy is a businessman. He thinks in terms of dollars. Either a deal works for him or not. If this deal doesn't work for him it shouldn't have any bearing on your wife's work of his treatment of her. What I'm getting at is that this is not personal. Its not a reflection on him to reject a deal that you offer, and its not a reflection on you if you reject a deal he offers. So I can't see how this deal is relevant to your wife's position. If he is a professional then he'll act like it.

Purchase Price 30000
Monthly Rent 800
Maint Factor 0.5
Annual Taxes 1100
Annual Income 3700

DP % 0 10 15 20
Outlay 30000 3000 4500 6000
MP 0 198 187 176
Annual after MP 3700 1324 1456 1588
COCR 12.33 44.13 32.36 26.47


Am I doing the COCR calculation correctly?

There are deals in middle income neighborhoods but they usually aren't "cash flow deals."
Consider this...
In florida prices doubled or more in the last 5 years.
3/2's in middle income neighborhoods priced at 280k at the peak can be bought for 150k today if your savvy. They are only worth maybe 220k retail today. Buying a 3/2 with a pool for 150k and renting it out for a few years won't cash flow. But I can tell you that this house will never be worth less then 150k. What and when you can sell it for is hard to say but I would be willing to bet that if your able to take a small loss each month ($100-$200) you will be able to more then make up for it in a few years when houses are actually moving somewhat. Losing $2000 yr for 4 years is $8000. I know you will be able to make 40k easily on the resale of this house.

Cash needed to purchase house approx 20k (2k closing costs, 18k down)
Loan- 132k
Loss of $2000 yr for 4 years=8k
Repairs-10k
Total investment=38k

Minimum Resale Price 190k (could be much higher
Pay off loan of 130k

proceeds= 60k-38k investment = 22k profit
Thats a minimum of 57% profit in 4 years or 14.25% year on your 38k.

Now the risks are slightly higher but so is the reward.


Note these numbers are all made up for illustration purposes only on how a middle class neighborhood can be profitable.



Sorry Spex for hijacking your thread here and there...

your forgot insurance costs (about $800 yr i bet). Also what kind of place can you buy for 30k that rents out for $800/m? I just picked up a 3/1 for 20k that is rented for $550/month and I thought that was a bargain.

You are correct that I did not include insurance costs -- it wasn't something I understood Spex as listing as an input to the COCR calculation.

20k for 550 is almost the same factor as 30k for 800 (36.4 vs 37.5).

I recently in this same area purchased a home for 30k put 20k (it was distressed) into it and it rents for 1100 per month. As a note these are multi-family units (2 in both cases here).

The 30k place in the calc above is already filled with tenants.

Yeah by the way the 36.4 you are talking about is what is called GROSS RENT MULTIPLIER or GRM. Its another way to evaluate an RE deal.

Yes when calculating COCR you have to take all expenses into account.

If the property is grossing $800/m or $9600/yr.
Take away taxes/insurance/garbage/landscaping/scheduled maintenence etc. Any expenses you are going to have to pay for. What is left is your net operating income or NOI. This is the number you can calc a cap rate from.

Subtract debt service from NOI and what you have left is CASH FLOW. This annual cash flow is used to calc your COCR.

In your case
purchase price =$30000
DP=$3000
MP=$198
taxes= 1100 yr
insurance=800yr
landscaping/garbage/water=? Im going to estimate $1000 yr.

Total expenses =$2900yr
Debt service= 198 x 12=$2376yr
Cash flow= $4324/yr

COCR = 144%
Cap rate=22%

If this information is correct you have a homerun on your plate.

Giddy thanks for the information - so what is being accounted for in the ".5" maintenance factor that I computed? Also, my original calculations only took into account a single months mortgage not a year. I have corrected the original post. Would you be willing to take a look at the new information and figure your COCR again? Because without the insurance, etc but with the ".5" factor I come up with a COCR of 44% with 10% down.

Also, how do you compute the Cap Rate?

I don't need to go through all the numbers to see that if you buy a house for $30k, put $3k down, and rent it for $800 per month, you're going to recover at least half of your $3k in one year, i.e., a 50%+ COCR. 44% is probably close.

Cap rate = NOI/PP
NOI = gross income minus all expenses OTHER than debt service (Prob around 45%)
COCR = cash flow divided by cash outlay

So your .45 factor includes things like insurance, landscaping, etc that Giddy was mentioning?

Yup. 45% is the national average. Actual expenses will vary somewhat, so get the real numbers from the seller.

does anyone feel like checking my math on this sample mobile home "problem"

Find MH listed at $4500
Negotiate to buy for $4000 cash.
Lot rent is $200/mo.
Place ad/find seller for $5250 with financing.
Buyer can afford up to $200/mo (plus lot rent) with a $500 down payment.
Using loan calculator, the loan amount would be $4750, 14% interest rate, for 30 months.
This produces a monthly payment of $188.57
Profit is the difference of sale price and investment price plus interest paid ($906.98)
Gross profit on this deal would be $2156.98 over 30 months.

Buyer pays title fee and taxes ($10+3.5%*$4000) = $150
Assume it takes one month to sell, lot rent = $200
two week newspaper ad = $60
Total expenses = $410

Total profit = $2156.98 - $410 = $1746.98

So I'd pay roughly $4400 to get this sold, receive $500 right away and a montly cashflow of $188.57 with $1746.98 total profit.

So I use $3900 cash to receive a 45% return realized over 30 months. (18% yearly)

Here is how you do it using your financial calculator. You are selling for $5250 on a note, less $500 down. So the note terms will be $4750, $200, 28 months, 14%. You get 28 months by plugging in the other numbers and computing N.

Ok, if you want to determine your yield, first you determine your basis. The title fee and taxes will be reimbursed to you at the closing, so those are not part of your basis. Your basis is $4000+$200+$60 = $4260 LESS the downpayment that you took. So your total basis is $3760.

Now, grab your calculator again. If you plug in $200/mo for 28 months (the terms of your note), $3760, and compute %, you'll get your yield. In this case, your yield is 35.81%.

I can buy passive MH notes at 30%, so there is NO WAY I'd do a hands on MH deal for only 36%. You have to get that MH for about $2500 tops for it to be worth your time. Take 25 $100 bills with you. Lay about 20 of them out on the counter. I bet they take it.

Spex,

I'm trying to write a business plan for mobile home investing. One issue I'm being challenged on through a professor helping me is worst case scenarios.

In Lonnie's book he says defaults can be a great thing. But they cost money and time. Every extra day a defaulted buyer is still on the property costs me money. I'm generally not going to be able to collect from these people and what if they cause damage to the home? How do I analyze these risks and costs?

I don't know that these types of deals are 100% plannable but I would like to have a guide so that I dont have any huge surprises in my first few deals. Additionally, I understand I probably just need to jump into this and learn as I go.

You can't analyze them. But what is your real risk? Say you buy a $10,000 MH for $3500. Then you collect $500 down and 6 payments of $250. So you've got $1500 left invested in this deal. Now the buyer defaults and tears up the place. So you have to make $1000 worth of repairs (which is a lot for a MH). Now your basis is $2500.

So you take another $500 down payment and sell it again and your basis is back down to $2k. Play around with your financial calc and see what happens in different scenarios. IMO the absolute worst case is the MH burns down and the buyer didn't have insurance. That is the only realistic scenario where you lose money. In just about every other instance you can resell that MH for $3500 cash in a pinch. You can do that because you bought it right to begin with. If you pay too much you won't have that option.