Deals on Wheels Read online

  Buyers Two Biggest Concerns

  Most of the people that we sell homes to have only two things in mind...“How much down and how much a month?” Sometimes they don’t even ask how many monthly payments there will be, or what the interest rate is. But once again, the reason behind the easy sales was offering to finance, which hardly anyone else was offering, especially banks.

  Now I grant you that most of the people that we sell these inexpensive homes to are not people that can go down to the bank and borrow money, but it’s not necessarily because they have bad credit. Many of the young couples just never established any credit. Some might still be living at home with parents, or maybe they have a low paying job and can’t qualify for a loan.

  There are all kinds of reasons why people can’t qualify for a bank loan. But most of the people we sell to are good responsible people that need an affordable place to live, and with monthly payments they can afford. And used mobile homes are the only affordable housing available for many of these people. But being affordable solves only half the problem, the buyer still needs someone that’s willing to take monthly payments instead of cash.

  And yeah, I do get a bummer once in a while. But I haven’t had any more of a problem evicting a buyer and getting possession of a mobile home, than I’ve had evicting tenants from rental houses when they didn’t pay. If they don’t pay, we get the home back and sell it again. If our buyer pays as promised, we make a good profit. If they don’t pay and we get the home back, we sell it again and make a bigger profit

  Some of our best deals have been from re-sales. I’m always being asked, “What happens if they don’t pay and you have to take the home back?” That’s usually the best thing that can happen for you. In almost every case, when we resell the home, we’re in a better position the second time we sell, than we would have been had the original buyer stayed in the home and made all the payments. We have several that I refer to as a “money pump,” because they just keep on pumping out the bucks. I’ll cover several case histories of this in another chapter.

  We’ve sold some homes several times, but in most cases, it’s not because we have to repossess the home and take it back. Sometimes the buyer has to move because of a transfer. Or, maybe a couple will split up and offer to give the home back to us in exchange for letting them out of the contract. Sometimes the buyers want to buy a newer, or larger home. There are a number of reasons why we get homes back, but it’s very rare that we have to take legal action and repossess the home.

  In some cases, after our buyers have paid the home off, they find it necessary to move and now need to sell their home. After they try, and fail to find a buyer with cash, we wind up buying it back because we’re the only ones with cash who are willing to buy.

  Sometimes the buyer gets out of the military, or has to move out of the area for some reason, and now they have to sell their home. Since they have to get cash for the home, they can’t find a buyer. When they run out of time and still haven’t found a buyer, I’ll get a call wanting me to buy their home back. If they quote a price I like, I buy it. And in most cases I let them name the price. When someone has to leave town in five days and has a mobile home sitting on a rented lot, and can’t find a buyer after a month of running ads, you’ve found a motivated seller. And a motivated seller is the only kind of seller you want to deal with.

  They either have to leave that home on a rented lot, pay lot rent while they’re trying to find a buyer, worry about it being vandalized, or just walk away and abandon the home. Or, accept the best offer they can get. If they name the price I’m willing to pay, I buy. If not, it’s their problem. They have to sell, but I don’t have to buy. So be sure you realize who has the problem.

  O.K., up to now I’ve been explaining how and what we do. Now, let’s break it down into individual steps and guide you through the complete transaction from the time you actually start looking for your first mobile home, until you sell and take back a note. We’ll go into the details of how to find them, what to look for, how to negotiate the purchase price, how to make repairs, how to find a buyer, how to negotiate the sales price, and how to structure the financing.

  I’m assuming you already know how to work a financial calculator and understand the power of compounding, and the time value of money. If not, I recommend you buy one of the inexpensive financial calculators and learn how to use it. It’s not really necessary to use a calculator to do these deals, simple math will determine whether it’s a good deal or not, but using a calculator makes it more fun and it’s much faster and easier.

  I use the HP 12-C, but there are several on the market for around $30.00 that will do everything you will need to do. The Texas Instrument BA 35, and the HP 17-B are both excellent, and inexpensive. But regardless of the brand, be sure it’s a financial calculator. Then spend some time studying the manual, punching buttons, and doing examples. And you will soon be amazed at what that little machine can do.

  If you’re using a computer, I recommend the “T-Value” financial software program. It’s an excellent program that does anything you would want to do, and also prints out amortization schedules. I usually furnish my buyers with an amortization schedule at the time of sale. They can keep track of their payments and see how each payment is applied to interest, principal, and their remaining balance at any given time.

  Chapter 2

  Which Homes Offer The Best Profits?

  We normally look for a home that we can buy for around $2,000-$3,000, and can sell for $4,000-$6,000. In my opinion, and based on my many years in this business, I’ve found that these are the type homes that offer the biggest profits, with the least amount of risk, and the least amount of cash invested.

  These homes are 10-20 years old, single wide, 12-14 feet wide and 60-70 feet long. One of the most popular and best selling home is a 14 X 70, 3 bedroom, 2 bath. This is a very good seller and brings a good price.

  I normally don’t like to buy homes that are more than 20 years old, but that’s not to say I wouldn’t buy one if I could see it was a good deal. In fact, some of the older homes might be in better condition than some of the newer ones, so that’s not the problem. It just seems that when you tell someone that the home is 25 or 30 years old, there’s a psychological barrier for that buyer to purchase one that old, even if it’s in real good condition.

  We’ve sold several in that range and it turned out O.K., but it’s not as easy to do. But let me say also, if the deal is good enough and if it works for you, do it! Do whatever makes sense and will make money for you. So learn to recognize an opportunity when it pops up, and take advantage of it.

  I also advise against buying anything less than 12 feet wide, which would probably be the homes in the 1960’s models. We bought a 1965, 10 x 50 model one time that was in outstanding condition, and it took us about two months to sell it. We had a lot of people look at that home and they liked it, but we kept hearing the same remarks...“My furniture won’t fit, it’s too small.” We finally sold it, and because we bought it right, it was still a good deal. But I wouldn’t buy another one like that, and I don’t recommend you do, either.

  We stay away from double wides for several reasons. The main reason is because the price for a double wide is usually much too expensive and the numbers just don’t work nearly as good as a low priced single wide. In most cases, we can buy two or three singlewide homes for what one double wide home would cost. Another reason is, if we should have to move and re-set the home, a double wide will cost about three times what it will for a single wide.

  Avoid Moving The Home

  We try to avoid moving any of our homes, but there’s always the chance that we may sometimes need to have one moved. Having a mobile home moved and set up is very expensive, so our purchase price would need to be exceptionally good before we get into moving one. In most cases, the cost to move and re-set a home is enough to buy one already on a
lot that doesn’t have to be moved, not to mention the time and headaches involved. Also, by not moving the home, we don’t have to deal with City Hall, building and electrical permits, and city inspectors.

  To illustrate my reasons for staying with the less expensive, singlewide homes that don’t have to be moved, let’s do some comparisons. Suppose we have $5,000 to invest and we want to minimize our risk, maximize our yield, and do the deals quickly. Our minimum guideline is to sell for at least double what we have invested in the home. And we can do this much easier on the “cheapo” homes.

  Two $2,500 Homes

  Suppose we find two homes that we can buy for $2,500 each, and they don’t have to be moved. Let’s also suppose we don’t have to make any repairs, or pay anything other than a little advertising, which for simplicity sake we won’t include in our figures. These homes are 12-14 feet wide, 60-70 feet long, and 10-20 years old. Our total cost in each one is $2,500. Now, let’s sell these two homes and structure two different notes from two different buyers.

  We sell each home for $5,000 with a $500 down payment. Our buyers sign a $4,500 note, payable 12.75% interest, $175.96 per month for 30 months. Let’s see how we come out on these two little cheapo deals.

  How We Structure The Note

  N

  I

  PMT

  PV

  30

  12.75

  175.96

  4,500

  Amount Invested And Yield

  N

  I

  PMT`

  PV

  30

  94.78

  175.96

  2,000

  After receiving $500 down, we have $2,000 left in each home. Our total monthly payments on the two notes amount to $351.92 And we also have $1,000 cash from the down payments. As you can see from our chart, this works out to be a 94% yield.

  These are very workable numbers in my area, and we’ve sold many homes with prices and terms like this. You might have to adjust the numbers up or down in your area based on your local economy, or cost of living range, but you should be able to follow these guidelines. But please don’t get hung up on my numbers. If prices are higher in your area, then probably the cost of housing, wages, and other things are also higher. Just learn this concept and make the numbers work. It will work where you live.

  One $5,000 Home

  Now, let’s take the same $5,000 and buy one home. In order to meet our minimum requirements to sell for double what we have invested, we must sell that home for $10,000. So we find a buyer that will pay $10,000 for that home with a $1,000 down payment, (to equal our total down payment on the two $2,500 homes). In order to get the same yield that we’re getting on the two $2,500 homes, we will have to structure our $9,000 note in one of two ways.

  If we keep the payments the same, ($175 approx), we have to carry the $9,000 note for 75 months, which is 45 months longer than the cheapo homes. We can see from our charts, our yield drops to about 50%.

  Same Monthly Payment (Approx)

  N

  I

  PMT

  PV

  75

  12.75

  174.70

  9,000

  Amount Invested And Yield

  N

  I

  PMT

  PV

  75

  49.95

  174.70

  4,000

  Or, if we structure the note for the same number of months (30) as the two cheapo homes, the buyer would have to pay $351.93 per month. We would be getting the same yield, but we would need to find someone that could pay double the monthly payment they would pay for a $5,000 home. It would be much more difficult to find a buyer that could afford the higher payment.

  Reviewing our charts, we see that in order to get the same yield as the two cheapo deals (94%), the payments would be $351.93 per month for 30 months.

  Structured For 30 Months

  N

  I

  PMT

  PV

  30

  12.75

  351.93

  9,000

  Our Investment & Yield

  N

  I

  PMT

  PV

  30

  94.79

  351.93

  4,000

  Which home would be the easiest to sell? Which would give you a bigger return with the least amount of risk? Would it be more difficult to find one buyer with $1,000 for a down payment, or two buyers with $500 each? Would you prefer to take back one note from one buyer, spread over 75 months with payments of $175 per month, or take back two notes from two buyers, spread over 30 months with payments of $175 each per month?

  You decide which would be best for you. I prefer to get as much money as possible up front, keep as little money as possible in each deal, and get my money back quickly so I can keep re-reinvesting in more little deals. The smaller deals are not only easier to do, but they minimize my risk, and at the same time, maximize my yields.

  So, for the biggest returns with the least amount of risk, stick with the older and cheaper mobile homes that will sell quicker and easier, with the least amount of your cash invested. These kind not only sell easier, but your money will compound much faster. And too, there are a lot more people that can afford to pay $500 down and $175 monthly on a $5,000 home, than there are that can pay $1,000 down and $350 monthly on a $10,000 home.

  Chapter 3

  How Much Should You Pay?

  The question often comes up, “How do you know how much to pay for a mobile home? How do you know if it’s a good price, and you’re not paying too much?” The best answer I can give you is that first you must know, or have a very good idea what the home will sell for. When you know what you can sell the home for, then it’s simply a matter of negotiating a price you’re willing to pay. You have to decide how much profit you need in order to make the deal work.

  How Much Should You Sell For?

  My rule of thumb is to sell the home for at least double what I have invested. So obviously, I must first have a very good idea what a particular home will sell for, before I can know how much to pay. And how do you learn what a home will sell for? You learn by studying the types of homes you will be selling, and by learning your market.

  Start by studying the sales and comparing prices of homes comparable to the ones you want to buy and sell. Check the classified ads in your local paper. Stop by several dealers and ask about any used homes they have for sale. Visit all the parks in your area to determine which parks you want to do business in, and which parks you want to stay away from. Meet the park owners/managers and see if they are people that will work with you. Learn what the rules and regulations are in the various parks.

  The prices listed in your paper, or by a dealer, will normally be full retail price. And in most c
ases there is no owner financing being offered. Or, the dealer’s ads will lead you to believe they offer financing with little down and small monthly payments. In reality, this is really a teaser ad to get people to stop and look. It’s a numbers game, and they know that if enough people stop and look at the home, they will eventually find someone that will qualify for bank financing. But, the majority of potential buyers won’t be able to qualify, so don’t be intimidated by the ads and think you will have a lot of competition.

  It takes time and patience to learn this, but it’s necessary. Without this knowledge, you could very well wind up paying too much for the home, and then find out you haven’t left your self enough of a profit margin. Or, finding out after you’ve bought the home that it’s in a park that has a bad reputation, and you can’t find a buyer that wants to live in that park.

  NADA Book

  There’s a NADA book that will show you how much a mobile home is supposed to be worth. The books are quite expensive, around $90.00, I believe. I’ve never used this book, and I don’t recommend that you do. And here’s the reason.

  For the older type homes like I deal in, and hopefully the kind you will be dealing in, I think that if you use the prices in the book, you will wind up paying too much for the home. You will also probably try to sell the home for too much. I think you will be much better off by learning your market, and learning what the fair market prices are in your area.