You're not likely to convince the bank to finance the rehab unless you do some kind of construction-type or hard money-type loan. Basically you're asking them to loan more than the FMV of the home. They're not likely to do that unless they know that you're going to be bringing the place up to FMV in a very short time. Of course, each bank makes their own rules and has their own priorities and financial goals. So I'm not saying that its not possible. But its not likely IMO.

Another idea would be to get a conventional loan and use an unsecured LOC to do the rehab. The prob there is that you'll pay high interest for the two years or whatever. But then hopefully you can refi the house and pay off the LOC and still have some cash flow and some money to put in your pocket.

Spex x,
I was wondering if you could elaborate on the mobile home deals. When you say you spend $3333 on each one, what are you buying? Is this a downpayment + repairs or are you buying a MH outright for 3k+. The $250 a month is that postive cash flow with debt service or net cash flow since you own the MH outright? I don't really know anything about the MH business but its cash flow opportunity sparks my interest. Im used to low end single family in the ghettos so this is right up my ally tenent wise.

Follow up question in advance- If your buying it outright I'm sure its like any other home. Finding motivated MH sellers and hitting them low? 3k seems like a very low amount for a MH even if you find a motivated seller. What do new MH's go for? What do average retail deals of used MH's go for?

Yes, its standard to have problems working through LLCs. This is particularly true if you're using a mortgage broker since the broker doesn't have any decision making capacity about the loan. It'd be easier to go to the banks yourselves than go through a broker.

The purpose of the LLC is to limit your liability, yes. However, put yourself in the lender's shoes. If you're not liable for repayment, then who is? Banks aren't in the business of loaning money to people when they have no way to get the money back. They need assurance of repayment. Loaning money to a new LLC is similar to loaning money to someone with no credit history.

There are ways around that though. You can usually personally guarantee the loan in order to put the deal together. That way you'll have the benefit of the LLC for everything except the loan, i.e., if you get sued by a contractor or a tenant or a buyer, etc.

Personally guaranteeing a bank loan for your LLC is not the same as comingling funds. Comingling is when you use your biz accounts to buy stuff for your personal use rather than your biz use. So if you want to buy some groceries and you use your biz credit card to buy them, that is comingling. HOwever, if you write a biz check to yourself, deposit the money into your personal acct and buy the groceries from your personal acct, that is NOT comingling. The owners can take whatever money they want from a biz whenever they want to. They can also give money to the biz whenever they want to. But the biz cannot buy stuff for the owner's personal use without it being comingling.

What kind of properties are you thinking about buying?

My philosophy is that tenants with pets are more stable than tenants without pets. Tenant turnover is one a major expense, so I want to minimize that as much as I can. So I do allow pets. Even if I can only get 1 month longer tenancy on average, that adds up a huge savings.

In the apts and MH parks I allow cats and dogs under 30 pounds. In the duplexes and single fams I allow all 'non-viscous' dogs b/c I've got fenced yards at all those properties. Allow aquariums less than 40 gallons (they're too heavy over 40 gallons), and all other pets. In all apts and houses I require a $200 non-refundable pet deposit.


If my rule is no pit bulls and I find out that a tenant has a pit bull, I give the tenant notice that the dog must be removed by date X or they will be evicted. Tenants get one warning. If they do not comply, they are evicted immediately. You can't play games with this kind of stuff. You have to have rules and its up to you to enforce them. You control your tenants or they will control you. If you show the smallest sign of weakness you're toast and the tenants will walk all over you. They're like little kids - always testing boundaries. Let them know that you move quickly and decisively..

Thanks for getting back to me. Just to clarify a little bit, my father got the loans in his name, and then we tranfered the properties into the LLC shortly afterwards. So I guess the loan is personally garenteed by him like you said. I didnt know if at this point, they would have issue with the loan being paid out of our LLC rather his own account, since we didnt get the loan through the LLC. I guess what Im asking is could a bank call th loan if they noticed it was tranfered into an LLC. Sorry I really wasnt specific enough in my original question.

I'm not sure if I'm understanding exactly what happened. Apparently your dad took out the loan in his personal name and signed all the loan docs. Then later on he went down the the register of deeds office and changed the name on the deed to your LLC rather than his personal name. Is that right?

If thats what he did, then that action would trigger the due on sale clause and the bank could call the loan. If I were your dad I'd call the bank up and get things straight before the lender gets the wrong idea about what is going on. The most likely scenario is that the lender just says no problem as long as your personally guarantee the note and all our lien has first priority on the property. But you guys should be proactive about this situation rather than waiting to see what will happen.

In my parks you can buy a decent, clean mid-1980s MH for about $2500-$3000 cash at a WHOLESALE price. You could sell that home for between $6k and $10k depending on condition. When I say 'sell' the home, I mean that you're taking a down payment and a note for the balance. The note is secured by the MH. I've done a handful of such deals when I first got into the MH parks, but now I refer them to another investor that wants to fool with them.

Basically all you're doing is buying the MH at wholesale and selling at retail by carrying a note. Obv you'd also charge interest on the retail price. If you spend a little time with your financial calc you'll see how fast small amounts of money turn into large amounts of money.

New single wide MHs go for $25k+ and probably average around $35k or so. The problem for MH sellers is that banks won't finance MHs that are over 10 years old. So if the seller is moving and needs the cash in order to get where they're going, then they don't have a lot of options. Most people that will live in a 15 year old MH aren't going to have $10k cash. They're not going to have $5k cash. Maybe they have $1k or $2k tops.

So you can swoop in and buy the place for $5k from the seller that has to have the cash. Then you can sell it to the buyer for $1k or $2k down and carry the difference.

the retail price of a MH depends a lot on the area. In my parks, an average 1970s home will wholesale for between $100-$2500 and retail between $1000 and $6000. A good 1980s home with vaulted ceilings and 3 bedrooms and a clean average interior would retail between $7k and $10k. A 1990s home can retail as high as $20k if you sell it on a note.

One thing about buying these things though is that the MH community is small. Everyone knows each other and has relatives in every park in the area. So your reputation travels really fast in this business. If you treat people fairly then, in my experience, you'll have as much business as you can handle.

When you go to buy, just explain that you are a MH dealer and that you have to buy at wholesale prices in order to make a living. Tell them that you are the last person that they want to sell to unless they have to. But you can bring cash today if you can come to an agreement. Try to suggest some other ways for them to get the best price. Tell them that you'll give them the paperwork so that they can carry a note and get the full value from their home. In short, this is pretty much the same as buying RE from motivated sellers. But if hese people feel that they're getting taken advantage of it'll kill your business. Just be very upfront with them.

My 80 lots produce about one deal every month for the guy that works my parks. I think that he works 3 other parks besides mine. But all told, i'm sure that he's working less than 700 lots total. And he works full time on MHs. So the deals are there - especially in Florida where you are.

I don't yet have a whole lot to add on this topic; maybe I will post a TR when I do. But I recently bought a 1985 3/2 single wide for $800. It needs a bunch of cosmetic repairs (drywall, etc), but nothing major. This was the asking price, and the people needed that money to move out of state. Such deals exist if you look around for them. Heck, even watch your local craigslist with a search for "mobile".

I'd be very interested in a trip report. Are you paying the monthly rent while you work on it?

Yes, but took it over recently and don't have to pay rent until Mar 1, since the old tenants paid February. Detailed TR to come as I do the work and (hopefully) sell it.

what makes you say this?

I didn't say this but Ill put my two cents in anyway. Middle class neighborhoods won't cash flow because your rent will never equal your monthly expenses.

There is a ceiling to what you can get in rent. People just won't pay $2000+ month rent. If someone can afford $2000 month they usually have decent secure jobs and are better off buying a property. If you do the math you won't be able to cash flow something over 200k-250k usually.

Low income housing programs in Florida top off rent at about $1500/month for a 4 bedroom residence.

Its very difficult to find someone willing to pay 4k month in rent ...say to cover expenses on a house worth 450k. People I have dealt with who are willing to pay 4k month rent are looking shorter term. This would lead to a very expensive and higher vacancy rate.

Now I have seen some deals people have put together in mansion neighborhoods . One guy I know bought a huge mansion in a ritzy suburb and turned it into an upscale drug/alcohol impatient house. Renting a bed was very expensive but it included the whole treatment package as well. He then had a half way house that people then went to an rented for a year. HE always had a steady flow of tenets He made a killing but really this goes beyond RE as he ran a full business as well.

if you take a 200k house with 40k down, and a 30 yr fixed 6% rate, that makes payments a little less then 1000. you could easily rent a 200k single family home for 11-1300 couldn't you?

expenses are going to kill you

Epic thread spex. I've read it all yesterday and I liked it.

Too bad I live in Europe (the Netherlands to be exact) and investing in real estate is all about big numbers. It's almost impossible to buy a duplex and make any money of it. First because real estate prices are absurdly high (small country with a 'huge' population). Secondly because low income housing is mostly done by state subsidized corporations that own half the inventory of residential rental houses. And thirdly because protection of the renters is absurd. If they won't pay they can stay in that home for about 90 days without ever paying your bill. This is ofcourse a big pain in the ass and makes investing in real estate almost impossible. You're going to need to invest several million euro's to buy huge amount of units or complexes to offset all your legal fees/unpaid rent etc. So as a small time real estate baller it's almost impossible to do anything.

I also like the MH thing. So let me get this right: you (your friend in this case) buys the mobile home from a motivated seller for a nice price. You fix it up a bit and sell it to some other lower class guy (nofi) for a nice markup. But you don't sell it for cash but you give him a loan for ridiculous interest numbers? Sounds pretty sweet, especially because the risk is so small, so it's perfect for a novice to start things going.

Sometimes I wish I lived in the United States. I would definitely put some money into this.

GittyUp basically summed it up. You have to remember that in REI we are not looking for properties. We're looking for motivated sellers. In middle class neighborhoods you don't don't find the motivated sellers. Those neighborhoods are generally desireable and by slashing 5%-10% off the FMV seller can move a property in such neighborhoods very quickly.

What that means is that even the good deals are still going to show a negative cash flow. The properties are just too expensive.

My opinion is that it is very difficult to make a lot of money renting RE if your focus is middle class and upper middle class tenants. Its not impossible to make money that way. But to do it you have to build huge high end apartment complexes. You'll never make good cash flow properties in middle class neighborhoods.

If you want to make it in the landlording business then stick to blue collar and poor areas. That is my experience at least.

1) I doubt that you'll get 6% fixed for an investment property
2) that $1000 pays your P&I only. You'll also have to pay into escrow for taxes and insurance each month
3) even beyond taxes and insurance you'll have other expenses to consider. Read through the posts in this thread and you'll see what i mean by other expenses.

Yup, thats about it. Its a simple system that you can start with little money and little experience. And since the MH is securing your note and since you bought it MH cheap to begin with, its very low risk. Worst case you sell it for the same price you bought it for. Its a powerful way to get started. I'd say that its probably the best way for someone with little capital to get started in REI.

You have your own parks so it makes things easier. But what if you don't. Do you pay the ground it's on too? Or do you buy the lease of the ground?

How do you get your customers to accept the crappy terms on their loan? I've seen percentages of about 12%. That seems a little steep, there must be easier ways to get a few K (remember, I'm in Europe so my perspective might be a little different).

Too bad there are hardly any mobile homes in my area (or western Europe for that matter).

Spex, I've always been interested in real estate and I found this thread to be of huge help to me. Thanks!

The guy that works my parks - I give him one month of free lot rent to get his places sold. I do that because I know that he's making the homes nicer and bringing good people into the park. Plus he gives me another layer of control over the tenants. After one month he pays lot rent to me.

It seems steep to you, sure. But you're not the one that a) wants to live in an old mobile home in a MH park, and b) has crappy credit and can't get a loan from anyone else, and c) whose other option is to keep renting which gets you nowhere.

Try to put yourself in the buyer's shoes. You grew up in a trailer park. You have no education or real job skills. Your total annual household income is around $25k. You've got 2 kids. You've got bad credit from medical bills b/c you've never had health insurance. You've rented every place you've ever lived in. NOBODY has EVER offered you any credit to buy anything. Now comes along a guy that will extend you credit for a mobile home that you can own free and clear in 3 or 4 years.

In that position, how hard would it be for you to pay 12% interest? Not too hard. Plus, if someone thinks the interest is too high, I'm sure that there are 10 or 20 people that would snatch up that deal.

What I'm saying is that these people don't take a lot of convincing. They intuitively know that you're offering them the best deal they can hope for. And you can rest assured that you are providing a much needed service by giving people a chance to own their own home. Even if its not the home or the deal that YOU would take.

Another thing Spex has mentioned about a deal like this is the fact that your investing 40k plus tranaction costs, vacancy costs, insurance etc. Lets say it takes you 50k to buy the property and get it rented and insured.
Your debt service is going to be about $900/month (7% int.). Insurance $100. Taxes $300

Thats $1300/month total expenses. If your lucky you might be able to squeak out $100 postive cash flow if you get a good interest rate or find some good renters willing to pay.
You just invested 50k to get an annual return of $1200. thats 2.4% on your money. Your actually losing money because of inflation but that will be slightly offset but any appreciation on the property.

Now obviously if you bought the property for 200k but it was worth 320k in todays market, this deal might still work out. You can make your money when you sell. I know a lot of investors in Florida that are planning on renting out for 3-4 years with break even cash flow as long as they have about 40% equity in the property. They are insulated from further declines with a fat equity margin. This kind of deal is the only way investors are buying property in middle class neighborhoods. They know when the market recovers they have a 3/2 with a pool in a nice neighborhood and the resale will be relatively easy.

This isn't what Spex is advocating but its still possible to make the $$ this way.

Sounds reasonable. And so you have a balloon payment planned on the end of the term (lets say 5 years)? Someone who couldn't afford the thing in the first place isn't going to be able to pay the balloon payment now. How do you work that out? Ofcourse you like the person to stay on your lot. Do you offer him another loan, making even more money, or do you hope he gets the money from somewhere else? Trying to keep him in debt to you seems like a great strategy because you're pinning him down to your lot.

spex,

I mentioned something earlier to you in this thread about a condo and you told me it was a bad investment due to the condo fees. I'm young and not sure what i will be doing with my life in 3 years, I figured a condo would be a great first investment because it will be much less of a headache, even tho the lack of a headache will eat into my profits... I just don't want the added responsibility of renting out a home as opposed to a condo, especially for my first property

Is this just a bunch of loser talk by me? is renting out a condo a waste of time/money?

i would find this hard to believe, but then again, what do i know

thnx in advance for your response