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How I started in mobile home notes

Satpoint

PARKED
Aug 15, 2007
35
0
9
Im waiting to see what SteveO has to say about this, it does sounds like a great idea. Have you done any repairs so far?
 

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kurtyordy

Bronze Contributor
Aug 28, 2007
2,375
277
70
41
PA
aroundtheworld- mh on a rented lot are not typically considered RE, so there is typically nothing to record a lien against in the courthouse. Works more like a lien on the title of a car.


bflbob- mh owners typically do not allow for rented trailers, therefore it may be difficult to do a l/o. that will depend greatly on your relationship with the park owner/manager
 

BFLKiddo

New Contributor
Mar 24, 2009
15
1
10
34
Triple J - Are you still doing these type of deals. I would love to strike up a conversation with you. I am in the NY area.
 

kwerner

Bronze Contributor
Read Millionaire Fastlane
Speedway Pass
Oct 4, 2007
1,399
261
118
Thought I'd bump this thread and add a thought I had the other morning on this subject...


Let's say you purchase a mobile home in a park for $3,000, then you turn around and sell it for $6,000 with $1000 down, financing the remaining $5,000 for a term of 36 months at 14% interest...

Starting out, you only have $2,000 into the deal ($3,000 purchase price – the $1,000 you received as down payment).

The monthly payment you would receive is $170.89.

So, it looks like you'd recoup your investment of $2,000 within 12 months ($2,000 / $170.89 a month = 11.7 months, rounding up to 12 months). And after that point, the note you’re holding is still earning you $2,051 per year, for two more years, for a grand total of $7,152 (includes the $1,000 down payment). That’s pretty damn good for a $2,000 investment, in my opinion!

However, factoring in the time value of money, I believe that it may be wiser to “churn” your money and Sell The Note (even if you have to take a discount on the note – i.e. selling it at 90% of face value) rather than keeping your capital tied up for 12 months; and this is where I want to focus.

Instead of holding that $5,000 note 36 months (until maturity) to receive $6,152, what if you sold that $5,000 note to a buyer within 3 months for $4,500 ($5,000 note – 10% discount)? Do you think you could take your payoff of $4,500 and re-invest in into another deal? Then do it again, and again, and again? I think so too. And I believe that’s where the compounding effect of doing these deals could substantially increase your ROI vs. holding a single note until maturity - or even holding it for 12 months, when you recoup your initial invested capital.

Now, of course, the downside to selling the note, instead of holding it until maturity, is that you have to find / create another deal. But I imagine once you gain experience in doing this, finding the deals / creating the deals becomes much easier, as most things do once you learn how. And, I think once you compare the numbers, that it will become clear that selling the notes makes more sense – and reduces your exposure to risk as well.

So, the next questions are:
1) Who do you sell the note to?
2) What’s in it for them? and
3) How do I increase my ROI, while simultaneously lowering my risk?

And this is what I came up with:

*First a disclaimer* I’m not suggesting this is the right way / best way / only way to do these kinds of deals; nor am I an authority on the subject (I haven’t even done this yet) – it’s just an “Ah HA!” moment I had this morning while thinking about how to increase one’s ROI on flipping mobile homes, so I figured I’d give it a go and share my thought with the group to get some initial feedback on the idea.
:eek:fftopic:

Who do you sell the note to? – You could sell it to someone that’s looking to get a better return on their money – people that may have their money sitting in CD’s / money market accounts / mutual funds / etc. – this could be your friends / relatives / co-workers / business associates / acquaintances / complete strangers – literally anyone with an open mind and a risk tolerance above zero that’s looking to make a better return on their investments.

If you don’t feel comfortable with mixing business with friends / family, you could run ads on Craigslist or in the newspaper – “Looking for a better return on your money? Tired of losing your a$$ in the stock market? Purchase notes secured by real estate! You could be earning xx% per year on your money! Call xxx-xxxx for more information.” Or something of the like – you may have to be cautious about how you word it – don’t want to get in trouble with the SEC for making it seem like you’re guaranteeing a specific return on their investment. But you get the idea.

And another thing - technically, mobile homes aren’t considered “real estate” unless they have a foundation and are on their own land, but you could still run the ad using the phrase “secured by real estate”. And you may, in fact, purchase mobile homes with foundations, on their own land – you may just not have one available at the moment. However, you do own the note on one that's in great shape at a nearby trailer park - it passively earns a xx% ROI, the owners are always on time with their payments, and the mobile home itself is appraised for $xxxx more than what's owed on the note – it’s a real sweet deal (see where this is headed? :smxB:)! Either way, I think you’re probably going to get more interest / more calls from your ad using the term “secured by real estate” than “secured by a mobile home”. Then you can explain the details to them, once they’ve shown interest in the opportunity and have called on your ad.

What’s in it for them? - The note buyer (the person you’re selling the note to) is getting a much better return on their money purchasing one of your notes, rather than letting their money sit in a savings account / CD / money market account or (currently) losing it in the stock market. Now, obviously your note buyer is going to be concerned about the risk involved in holding the note, so you can ease their concerns by selling them a note that’s had a good payment record, that’s been performing for a few months, and the owners have a reasonable debt to income ratio so that they’re able to continue making the payments.

So, in a nutshell, you’re offering them a reasonably safe investment - they’re buying a performing note at a discount (albeit it’s a mere 10% discount, but at least they’re walking into the deal with some equity – and really you don’t even have to discount the note, it’s just an extra enticement you can offer if they’re on the fence about buying it at full face value). It may take some explanation on your part to help them understand WHY it’s a better return on their money and a moderately safe investment – but it shouldn’t be too difficult. Well maybe, maybe not – probably ought to fully review the benefits and risks before trying to explain it to them in person. And if you’re really having to “hard sell” them on the idea, you’re probably selling to the wrong person (due to a lack of their understanding on investing / finance).

Another point to consider – if you’re dealing with friends / family, you could tell them “Look, if by chance this note should happen to default (where the owner stops making their payments), I’ll help you repossess the mobile home, you just pay the repossession costs, we’ll sell it and split the profits, okay?” Basically this removes nearly all of the risk for the note buyer and helps preserve your relationship with the family member / friend.

How do I increase my ROI while simultaneously lowering my risk?
- As explained before:
1) Buy the property cheap
2) Sell it for more than what you purchased it for (maybe 100% markup)
3) Finance the purchase
4) Then Sell The Note!

So, how does selling the note increase your ROI and to what degree?

Well, as stated in the example above: when you’re buying the property for $3,000, selling for $6,000 with $1,000 down, and financing the $5,000 balance at 14% and holding the note – you’re initially into the deal for only $2,000 ($3,000 investment - $1,000 received for down payment) and earning $2,051, or an ROI of 103%, per year on your invested capital. So, we’ll consider the 103% ROI our baseline performance.

Now, using the same scenario: if we hold the note for 3 months (to demonstrate performance of the note) then sell the $5,000 note to the buyer at 90% of face value ($4,500), and you're are able to repeat this every 3 months (4 times in a year), you’ve increased your earnings to $18,000 and your ROI to 900%!!!

That’s an incredible return! And you thought the 103% ROI was great! :smug2:
But wait, there’s more!
By selling the notes, you’ve also lowered your risk level because you don’t have to worry about the loans defaulting. And as an added bonus, you’re creating a great opportunity for your note buyer to earn more money than they could through conventional methods. It’s truly a win-win deal!

…And that’s how I believe you can take a “small deal card” (borrowing the terminology from the Cashflow game) and turn it into a “big deal card” by flipping mobile homes and selling the notes.

I’d love to hear feedback / criticism / questions from others that have experience in this area…
 

kwerner

Bronze Contributor
Read Millionaire Fastlane
Speedway Pass
Oct 4, 2007
1,399
261
118
Another thought I had on this subject...

When trying to flip mobile home notes, and keep your capital churning, you could sell the notes to... YOURSELF! :wtf:

What do I mean by this?

You could sell the notes back to yourself through your self-directed IRA! This way, you could keep your investment capital churning on the "outside" for wealth building / capital accumulation, and hold the notes inside your IRA for your long-term wealth accumulation.

I know the latter part might sound a bit slow-lane, but the fact is that many of us do have 401k's / IRA's, and if you have the opportunity to roll it over into a self-directed IRA, holding notes may be a better passive investment vehicle for you - after all, these notes are still yielding a 16.65% ROI. This could be an opportunity to increase your wealth on a couple different levels, using the same low-risk investment vehicle.

...Just my thoughts


Edit: Changed the ROI to reflect selling the note into your IRA at $4,500, with 33 payments of $170.89 remaining = 16.65%.

And to be honest, it doesn't sound nearly as sweet of a deal anymore. :( You could probably put the money in your self directed IRA to better use with another investment vehicle. However, the note is still earning you 16.65%, it is relatively low risk, and it is passive for the most part. So, I guess it just depends on what your goals / objectives are with your IRA and how much time / effort you want to spend on building it.
 

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