4 completed LD's in first four weeks. What next?

Real Estate Investing Single-Family Homes
1

I started my LD adventures Oct. 1 and successfully completed 4 deals. Here is a run down…

  1. Bought for 3k, 700 expenses, sold for 8k cash
  2. Bought for 1500, no expenses, sold for 1k down, 5k total
  3. bought for 1k, sold same day 1k down, 3k total
  4. Bought for 1840, 500 expenses, sold for 1k down 6k total

So far so good right? But I have some concerns/questions.

When will I “run out of deals”. My dad and some mentors of mine seem to think I will run out of deals/motivated sellers. What “pace” can I keep doing this pretty much full time? 2 a month? more? less? I live in a large city in the midwest by the way, with about 12 mobile home parks within 15 miles of my house.

What type of income can you make doing 2-3 deals a month?

How can you spend LESS time doing this? I am working on a site, an email list, and a mass text messaging service I will use to notify my buyers list when I have homes for sale. Any other ideas?

How can I transition SLOWLY into single family house deals? I was thinking about trying to get a house under contract for 50-60% of ARV, then flipping the contract via double escrow. Possible?

How many mobile homes should I be willing to juggle at once? I have had 4 for sale at once, and was comfortable because 3 had no lot rent deal in place. Do you guys do more than one at once? Or always wait for one to close before starting another?

I feel like I can buy buy buy, but my problem is the selling. I guess its not a problem since I have sold 4 of the 7 I have bought within 2-3 weeks of buying, but I want to become as efficient as possible. Any ideas or tips for a newb who’s got 7 purchases under his belt and looking to amp it up a bit?

Thanks!

2

Great questions!

Most of the answers will lie within your own comfort level, goals and efforts. It sounds like you have found opportunity. How many deals you do will be up to you. Karl does hundreds, some do a deal a month others less or in between.

The best suggestion I have is that you look where you want these investments to take you personally. That is your target. Use them as the vehicle to reach your target. If you don’t have a target then you will never be able to judge.

If you were on a ship in the ocean and could see land you would know where to go and how to get there. If you were in the middle of the ocean with no GPS or stars to navigate by then just moving in any direction would be like just doing deals without a goal in mind.

If you want a certain amount of income per month then figure out how much each deal nets and then how many deals you need in the pipeline to make that happen.

If you decide to persue the single family homes you will have the experience and a cash flow to help offset the cost and education of those deals. There is a learning curve in everything we do.

There is no rush. Study on how to do stick built deals and then prepare yourself to do just 1 deal first. Focus on it and learn from it and you will be best prepared to create a business from that arena if that is your choice.

It really is no different than doing your first Lonnie deal. Study and apply, learn and try again.

Tony

[QUOTE=widemanb;882159]I started my LD adventures Oct. 1 and successfully completed 4 deals. Here is a run down…

  1. Bought for 3k, 700 expenses, sold for 8k cash
  2. Bought for 1500, no expenses, sold for 1k down, 5k total
  3. bought for 1k, sold same day 1k down, 3k total
  4. Bought for 1840, 500 expenses, sold for 1k down 6k total

So far so good right? But I have some concerns/questions.

When will I “run out of deals”. My dad and some mentors of mine seem to think I will run out of deals/motivated sellers. What “pace” can I keep doing this pretty much full time? 2 a month? more? less? I live in a large city in the midwest by the way, with about 12 mobile home parks within 15 miles of my house.

What type of income can you make doing 2-3 deals a month?

How can you spend LESS time doing this? I am working on a site, an email list, and a mass text messaging service I will use to notify my buyers list when I have homes for sale. Any other ideas?

How can I transition SLOWLY into single family house deals? I was thinking about trying to get a house under contract for 50-60% of ARV, then flipping the contract via double escrow. Possible?

How many mobile homes should I be willing to juggle at once? I have had 4 for sale at once, and was comfortable because 3 had no lot rent deal in place. Do you guys do more than one at once? Or always wait for one to close before starting another?

I feel like I can buy buy buy, but my problem is the selling. I guess its not a problem since I have sold 4 of the 7 I have bought within 2-3 weeks of buying, but I want to become as efficient as possible. Any ideas or tips for a newb who’s got 7 purchases under his belt and looking to amp it up a bit?

Thanks![/QUOTE]

3

When will you run out of deals? Who could know the answer? I believe that since you now have 4 customers you should carefully record every thing that you did in this process: the exact wording of your ad, the exact script of your dialog, the level of clean-up of the home, how were you dressed, what car you drove when you met the customer…everything. Write this stuff down, keep it, and review it. These things are golden; you have connected with your customer base. Maybe you just stumbled onto all of these points, and maybe you live a boom town where housing is in short supply. But I would rather imagine that you could identify well with your customers wants and that you tailored your approach to what you thought would work best- and you were spot on!

When I began selling mobile homes, I had a real high batting average too, but with some successes and personal growth, no longer am I very certain what approach best appeals to my customers.

Keep doing what you are doing, but document just what that is…

4

b,
As Tony and Shawn say: Keep doing what you are doing.

Yes, you can buy homes all day long. It’s easy. Selling them is the key. It sounds like your market has enough demand for the prices you’ve set. Stay aware of what prices worked for what kind of home in which park. Park location (and sometimes lot location) and condition are extremely important. Remember the 3 most important factors in real estate are true in MH Parks too: Location, location, location.

Karl (as mentioned by Tony) and I have found the more homes you have in inventory, the more you can direct your customer to best fit. If you only have one home in inventory, you have to find just the right buyer for that home. However, the more junker homes you have in inventory, the more you will sit on them.

The income issue is entirely up to you. For me and others I have spoken to, we found depending on the income was probably a mistake. Find additional ways to make money including a JOB. The extra income from this business is great and fun but once you are dependent on it, it is no longer fun. When the income from it is is overwhelming, then it will be fun too.

Steve

5

4 completed LD’s in first four weeks. What next?

What years of homes are those 4?

Thanks and great job!

6

Thanks Tony for the great advice. I have set some income goals, and also some “number of deals per month” type goals as well. I am going to use this as a side income, and then also try to parlay the money into some bigger land/home deals, or some single family home deals.

Who is Karl by the way? Doing hundreds or these sounds pretty impressive, and I would be interested in hearing from him about how he manages all those deals. I think if I had an unlimited bankroll I could realistically do 5-8 a month, but that is so far from hundreds!

Thanks again!

[QUOTE=Tony Colella;882184]Great questions!

Most of the answers will lie within your own comfort level, goals and efforts. It sounds like you have found opportunity. How many deals you do will be up to you. Karl does hundreds, some do a deal a month others less or in between.

The best suggestion I have is that you look where you want these investments to take you personally. That is your target. Use them as the vehicle to reach your target. If you don’t have a target then you will never be able to judge.

If you were on a ship in the ocean and could see land you would know where to go and how to get there. If you were in the middle of the ocean with no GPS or stars to navigate by then just moving in any direction would be like just doing deals without a goal in mind.

If you want a certain amount of income per month then figure out how much each deal nets and then how many deals you need in the pipeline to make that happen.

If you decide to persue the single family homes you will have the experience and a cash flow to help offset the cost and education of those deals. There is a learning curve in everything we do.

There is no rush. Study on how to do stick built deals and then prepare yourself to do just 1 deal first. Focus on it and learn from it and you will be best prepared to create a business from that arena if that is your choice.

It really is no different than doing your first Lonnie deal. Study and apply, learn and try again.

Tony[/QUOTE]

7

Great post Shawn. I totally agree. I am a HUGE stats guy, coming from a background as a professional poker player. :wink:

I keep very detailed spreadsheets on all my deals, expenses, experiences, etc. I have made a TON of mistakes in my first 7 or 8 deals, and I plan on just getting better and better each 5 or so that I do. Within a few months, hopefully I know exactly what sells, and for how much. After that it’s pretty much rinse and repeat. I am experimenting with automatic text blasts to my buyers list, a web site, an email list, and much more. My goal is to find what works, and automate as much of it as possible, then move on to bigger real estate deals.

The main lesson I have learned so far is BUY LIVEABLE! I bought some junkers that needed tons of work and time, and they are a pain in my ass and offering lower yields than the cheapo deals I did that took like 3 hours of time!

[QUOTE=shawnsisco;882190]When will you run out of deals? Who could know the answer? I believe that since you now have 4 customers you should carefully record every thing that you did in this process: the exact wording of your ad, the exact script of your dialog, the level of clean-up of the home, how were you dressed, what car you drove when you met the customer…everything. Write this stuff down, keep it, and review it. These things are golden; you have connected with your customer base. Maybe you just stumbled onto all of these points, and maybe you live a boom town where housing is in short supply. But I would rather imagine that you could identify well with your customers wants and that you tailored your approach to what you thought would work best- and you were spot on!

When I began selling mobile homes, I had a real high batting average too, but with some successes and personal growth, no longer am I very certain what approach best appeals to my customers.

Keep doing what you are doing, but document just what that is…[/QUOTE]

8

[QUOTE=DRutt;882273]What years of homes are those 4?

Thanks and great job![/QUOTE]

The first four homes that I bought and sold were…

  1. 1996 3/2
  2. 1991 2/1
  3. 1976 2/2
  4. 1981 2/2

I have learned that most buyers don’t even ask me what the year is. Most buyers want 3 beds (duhhhh obvious right?). Most buyers want 2 baths. And finally most buyers want liveable, but cheap! They don’t want you to put 2k into a home then mark the home up 4k. I keep my total payments between the loan and lot rent around 550, which seems to be the sweet spot.

9

First, congrats on your early success. Sounds like you are approaching things the right way and are paying attention to what’s working or not.

Second, while I think it’s OK to to have income goals and deals/month goals, please beware that it’s not as easy as it might seem right now. I don’t say that to scare you, but the reality is that you are not done with those homes you’ve sold, more than likely. So while the first year may seem like everything’s going so smoothly, you have to be prepared to deal with getting homes back later in the cycle. At some point, if your business is not growing, you will reach a point (where I am now) that you no longer can buy new homes. If you sell 4 per month, and average 4 repos per month, you can’t buy more homes. This doesn’t happen right away, but down the road.

I also urge caution with your attempt to automate the business too much. It will always require some amount of your time, or it will start to unravel. Dr. B makes excellent point here about depending on that income.

As I have posted here before, I’m slowly getting out of the business, using the cash flow from payments to periodically purchase free and clear rental homes in nice areas. This seemed like a logical step to me in many ways, and reduces the number of people I have to deal with in my life substantially (read: less phone calls and headaches).

Keep up the good work, and congrats again!

10

Great post. I never thought about the entire “cycle” of this business. I know from speaking with some of the pros that only 50% of people actually complete the payments and take title, the other repos vary from easy resells to total disasters where you get something back that is time consuming and needing thousands of dollars of rehab. I am structuring MOST of my deals so I get my money out of the home within a few months. An example would be I purchase for 1200, I put 300 into it, 1500 total PP, I get 900 down, and payments of 200 per month, 5k total. Well I only have 600 of risk, so 3 months to recoup. If I keep doing small deals like this, can I really get hurt? If so, in what ways if I carry insurance, both liability and property?

I understand that if I start to stalemate I will have to reconsider buying any homes due to holding costs. I never want to have more than 4 homes for sale, or be on the hook for that much lot rent per month.

As of today, my current stats sit at 9 deals. 1 Assignment, 1 sold for cash, 5 notes created, and 2 for sale (one of which should be done Friday). I wish I could post my spreadsheet, but the main numbers are:

5100 left invested in my deals
38,100 in notes created, with terms of 12 - 98 months.
Monthly recievables of 1450
Recoup my investment in less than 4 months

Not sure if those numbers are comparable to the pros, and if they are hardly sustainable, but I think I am going to keep moving along. I expect to get a few of these homes back, but my question is how many payments do people make on average. Common sense tells me that if someone puts 1k down, they aren’t going to default on the first few payments that often bc they have so much invested. How many payments would you guys say people make on average before default?

Thanks!

11

Hopefully Dr. B comes back into the discussion with some of his stats. In the meantime, do a search for his posts. He keeps great records and has been at it a long time (not saying he is old, but…)

Anyway, I’ve always tried to get all my money back out in 6 months on SW deals and 12 months on DW. Even so, you are going to get some of those back and while I usually have no money left in the deal, I still have to do something with it. Cause losing the cash flow sucks, and giving it away usually also sucks.

I take back on average about 45-50% of the homes I sell. This is just a gut feel, but I’ve found that if someone stays in the home 18-24 months, they are likely to stay long enough to pay it off. The majority of my repos happen between 12-14 months. For some people, moving is an annual right of passage. I try to steer clear of those folks. It’s plainly obvious when their rental history shows annual moves.

12

Brian,
Your numbers are great, like mine used to be when I started. What area are you in? Obviously good demand there. Our demand has dropped significantly in surrounding Cincinnati.

Per Jeff and your request, here are some numbers.

126 Notes created since Jan 2003
36.5% First-buyer default rate
52.4% First AND subsequent-buyer default rate
45 mos Average loan term
12.49 Average time till default (mos)
2.3 Minimum time till default
42.6 Maximum time till default (These people paid more than $12K over the years and walked away with a $465 balance owed. Had another that paid all but $400 of $7K owed, then walked!)

$3712 Average Total Investment (including Initial and Subsequent)
$8800 Average Individual Note (Including multiple notes on same home. So this is misleading as many don’t pay off and new notes are created. So, for one home I sold 6 times the total note value I sold it for was $10.6K, $11k, $9.2K, $10K, $10K and finally $5600 cash. Total actually collected was $21,615. Cash outlay over 8 yrs for initial investment and repairs:$6,129.)

239% Avg note yield, EXCLUDING numerous infinity yields because I had no money in them after the initial, 2nd, 3rd,4th, etc. down-payment.

Brian, a number of people fail to make their first or second payment after putting their $1000 down. This is likely due to poor money management: They use their, gas, food, beer, cigarette, diaper, and car payment money to come up with the $1K (they didn’t save up for it) so now they start juggling who gets paid this month. Or grandma gave them the $1K and they have no idea how to stay on budget to make their monthly payment.

I wish I would have asked, and kept track of, where the down-payment came from to compare to default status. This is why lenders want to see your down-payment sitting in your bank account for 3 or more months.

Steve

13

[QUOTE=Dr B(OH);882540]
12.49 Average time till default (mos)
[/QUOTE]

Steve, thanks for posting your stats again. I always learn something. The stat I quoted above is the one that sticks out, primarily, because I had just made the comment about 12-14 months being my average default time (gut feel) and the fact that SO many people seem to NEED to move once every year. Not that they have a good reason for doing so, it’s just that they can’t help it. Identifying and avoiding these folks early is key to building a portfolio of notes that actually performs longer-term.

14

Brian, All $1,000 down payments are not equal.
Down payments that have been earned and then saved represent a commitment on the buyers part.

An “earned income tax credit” or a cash advance from a credit card, a gift, or any other source does not represent a commitment. It works from the deal structure standpoint, and who knows? the deal may actually stick…but the buyer has not commited at the time of sale and will not behave as if they had…will walk away at the first bump in the road.

15

Absolutely awesome post, and very motivating to keep fine tuned stats on each deal. I thought I was a numbers guy but clearly you have me beat. :wink:

What jumps out at me is the average loan term. My average loan term is much shorter, and my payments are in the 200-250 range, which seems to be the sweet spot for St. Louis. My avg. note amount is also probably smaller than yours though. I do have a couple questions for you guys, since this seems to be a good discussion so far, why not keep it going right!?

  1. You said “like mine used to be” when referring to your starting stats. Can I ask why the decline in the stats? Should I anticipate getting BETTER deals in the future, or am I just fooling myself into thinking this is going great because I have not experienced some of the pitfalls that occur later on in the business cycle/loan term?

  2. What’s your main goal if you had to choose from these three things:
    a. Having as little money in the deal as possible in order to recoup ASAP.
    b. Creating long term notes to achieve long term passive income.
    c. Getting good, reliable buyers to lessen the default rate.

Or better yet…if you had to choose from the list of stats you provided, which would you love to improve if you could? And why?

Thanks guys!

[QUOTE=Dr B(OH);882540]Brian,
Your numbers are great, like mine used to be when I started. What area are you in? Obviously good demand there. Our demand has dropped significantly in surrounding Cincinnati.

Per Jeff and your request, here are some numbers.

126 Notes created since Jan 2003
36.5% First-buyer default rate
52.4% First AND subsequent-buyer default rate
45 mos Average loan term
12.49 Average time till default (mos)
2.3 Minimum time till default
42.6 Maximum time till default (These people paid more than $12K over the years and walked away with a $465 balance owed. Had another that paid all but $400 of $7K owed, then walked!)

$3712 Average Total Investment (including Initial and Subsequent)
$8800 Average Individual Note (Including multiple notes on same home. So this is misleading as many don’t pay off and new notes are created. So, for one home I sold 6 times the total note value I sold it for was $10.6K, $11k, $9.2K, $10K, $10K and finally $5600 cash. Total actually collected was $21,615. Cash outlay over 8 yrs for initial investment and repairs:$6,129.)

239% Avg note yield, EXCLUDING numerous infinity yields because I had no money in them after the initial, 2nd, 3rd,4th, etc. down-payment.

Brian, a number of people fail to make their first or second payment after putting their $1000 down. This is likely due to poor money management: They use their, gas, food, beer, cigarette, diaper, and car payment money to come up with the $1K (they didn’t save up for it) so now they start juggling who gets paid this month. Or grandma gave them the $1K and they have no idea how to stay on budget to make their monthly payment.

I wish I would have asked, and kept track of, where the down-payment came from to compare to default status. This is why lenders want to see your down-payment sitting in your bank account for 3 or more months.

Steve[/QUOTE]

16

[QUOTE=JeffB (MI);882541]Steve, thanks for posting your stats again. I always learn something. The stat I quoted above is the one that sticks out, primarily, because I had just made the comment about 12-14 months being my average default time (gut feel) and the fact that SO many people seem to NEED to move once every year. Not that they have a good reason for doing so, it’s just that they can’t help it. Identifying and avoiding these folks early is key to building a portfolio of notes that actually performs longer-term.[/QUOTE]

Great thought, and tip. I will be sure to look for patterns in the future in both mobile homes, and stick built rental properties of mine. This one top alone would probably create better performing notes for the beginner in real estate.

17

[QUOTE=shawnsisco;882543]Brian, All $1,000 down payments are not equal.
Down payments that have been earned and then saved represent a commitment on the buyers part.

An “earned income tax credit” or a cash advance from a credit card, a gift, or any other source does not represent a commitment. It works from the deal structure standpoint, and who knows? the deal may actually stick…but the buyer has not commited at the time of sale and will not behave as if they had…will walk away at the first bump in the road.[/QUOTE]

Should I be careful come tax refund time when selling homes? I hate to say it, but so far I have almost said to myself, “every person that applies will have bad credit, history, etc. so I can’t be too picky.” In other words, I have been super lenient with my buyers provided their income is 3-4x the monthly rent and loan payment. Faulty thinking?

Also, you guys mention homes that you keep getting back and keep selling over and over again. Is this really a bad thing? Which would you prefer…

a. A home is paid off in 48 payments, and you get nice passive income? or…
b. You sell homes super fast to buyers who may be a bit iffy, anticipating a high default rate, but also assuming you will get to sell most of your homes 2-3 times a piece.

I have sorta used the logic that if I can have a very small amount of money in my deals, I can sell to iffy buyers, sell the home multiple times, and have a long term income that way, even if its a little more hands on. Bad? Ok?

Thanks Shawn, and by the way I got your message the other day and I am going to call you back sometime to chat since we are in the same general area. :wink:

18

[QUOTE=widemanb;882545]

  1. You said “like mine used to be” when referring to your starting stats. Can I ask why the decline in the stats?
    [/QUOTE]

For me, it’s the fact that household incomes are falling, lot rents are rising, and therefore I, as the guy collecting house payments, continue to get a smaller and smaller piece of the pie. My average house payment has gone from near $280 my first couple years, to just under $200 now. And that’s not representative of reality, because most of the new singlewide notes I write are in the $125/mo range. I have several higher end doublewide payments that bring the average back up to $200. But then again, lot rent in my area is in the $460-480 range. 2 bedroom apartments can be had for $500-550. So as you can see, there is not a lot of room there for a house payment.

[QUOTE=widemanb;882545]
2. What’s your main goal if you had to choose from these three things:
a. Having as little money in the deal as possible in order to recoup ASAP.
b. Creating long term notes to achieve long term passive income.
c. Getting good, reliable buyers to lessen the default rate.
[/QUOTE]

I don’t think these are mutually exclusive. My instinct is to answer “A”, because that typically generates the highest yield and lowest risk. But then if I say “C” is most important, then suddenly “B” becomes more important, because if I have reliable people, I can offer higher end homes on longer notes, and don’t mind paying more for the homes and fixing them nicer.

This is a great discussion, even for those who are experienced, and has my motor running, even if it is sputtering and backfiring more often these days.

19

Brian you ask why the decline in net income? my answer is the same as Jeff’s. Apparently you numbers for lot rent, 3 BR apartments, and income are at better ratios today in St. Louis than elsewhere. I have been arguing for some time now that all economies are local. Also, there has been a precipitous drop in demand for 1970s and 1980s homes here.

As far as choosing a,b,or c: I would definitely choose a. As is often said by experienced investors, you make your money when you BUY (buy right/wholesale/at a discount, etc.). As Jeff says, b & c are related, but to me they are far secondary to a. As you astutely pointed out, if you have very little left in it after the down, why should you care that they walk in one year? I’m totally with you on this. It is just that, as Jeff says, down the road when you start getting 2-4 homes back in a month, the time and effort dealing with those takes away from creating more NEW deals. Also, I require a monthly income 4X my payment plus lot rent. I didn’t before because I thought the park knew what they were doing when approving people.

The statistics I did NOT post was my gross, net and debt. I have made a LOT of money from this business in 8 yrs. However, I would like to make two points here:

  1. I did not diversify enough. I have been a one-trick pony for too long. Although I have flipped 7 houses with a partner, looked at buying several MHPs, and evaluated the lack of feasibility for land/homes here, I have not done enough. When the market started failing for Lonnie Deals, I had no other leg to stand on as Tony talks about the three-legged stool. Right now while I still have enough income from the business, I am starting a private practice and looking at additional alternatives for income and equity buildup.

  2. I would love to have less business debt. This is related to the above answer of “a.” Today I would pass on a number of okay homes and rehab deals I’ve done thus lowering my costs (debt). I love to rehab but it does not always make economic sense as you have learned. If I owned the park and got lot rent too, yes extensive rehabbing makes more sense. I was in a early 80s home today that made me sick that the park will probably junk it. It has good “bones” but the previous owner (a “contractor”) left the home with raw drywall walls, wires hanging everywhere, broken and crappy windows, NO KITCHEN and NO BATHROOM, etc, etc. At $1000 down (if I could get it these days) and $175/month it would take forever to get my rehab costs back. If I were collecting the lot rent too at $285/mo. then maybe.

I really like your mantra to buy LIVABLE. It is like buying a used car to fix up and sell. If it is all rusted out, the brakes don’t work, and it is not running…it is a parts car.

Steve

20

Great posts guys. I learned my lesson the hard way on a 3 home rehab bulk deal I did with a park manager. I still have one of the homes for sale, it took me 3-4 weeks of time to get the homes turned around, and I spent about 5k on materials, labor, and misc. Screw that! I could have bought 5 homes and most likely sold them AS IS in that time period if I did it full time. Instead I have 3 homes with about 10k in them total, I will only get about 1k down on each, 200 a month, and about 18k total sales price for the three. Compare that to the 2500 purchase I just made which sold for 1k down and 13k total sales price! Sigh… what was I thinking! Newb mistake, but I won’t make it again! Also, it’s nice when your “mistakes” have yields over 70%. :wink:

One other question I had in mind was in regards to what should be your goal when evaluating a deal. Do you guys prefer say 50 small deals or 10 large, longer term deals? Diversification wise I guess it’s best to have as many as possible, but does that then take much more of your time? I guess this is a personal preference question, but I think I am going to keep my purchases around 1-3k because I know I can usually get 1k down and 200 per month. I’ll pump out as many of those as I can, then look to move up the ranks to land home deals.

Tony - Please get your book out ASAP because I want to buy it! :wink: