Adventures of the repo rookie - continued - Posted by John (TN)

Posted by Dr. Craig Whisler CA NV on October 10, 2003 at 21:52:16:

I can think of nothing to improve. You are doing terrific.

The only note I can add is not to you. It is to others.

You really wanna become millonaires? Print up Kens post and follow it. You can’t fail, with all of the help that you have on this forum. There are lots of brilliant people on CREonline, and Ken is certainly one of them.

Plan your work and work your plan. Or better yet, save a lot of effort, and work Ken’s plan. Its plain to see that he is moving up fast on the food chain. Why not just follow him…all the way to the bank?

Isn’t this why you are here?

Ken your valuable contribution is VERY much appreciated.

Thank You. doc

Adventures of the repo rookie - continued - Posted by John (TN)

Posted by John (TN) on October 09, 2003 at 09:12:53:

Scored two repos from Oakwood - a 2000 14x70 2/2 and a 1997 16x80 3/2. Including back taxes and lot rent, I’ve got about 8K in each home and a free lot rent arrangement with the PM until sold.

The 3/2 is roughed up a bit, but nothing major. The 2/2 is fairly nice and just needs a good cleaning, a few holes in the wall patched and some carpet.

I’m hoping to cash out on these, but am prepared to carry the paper if necessary.

Have any of you guys (Karl, KenS ?) worked with 21st mortgage? I’ve got their dealer package, but it looks pretty onerous. If your buyer misses two payments, it seems the dealer must buy the note back. They want personal guarantees from the company principals (me!) and on and on. Is this the standard protocol?

Thanks guys as always,

If it isn’t standard protocol it should be. - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on October 09, 2003 at 12:31:31:

I guess this post will make those of you who don’t know me think that I escaped from the zoo again, and those who do know me will be sure of it, BUT:

I just gotta defend the lenders in this case. All we ever do is ‘hiss and moan’ that we can’t get good easy financing for older, used, mobile homes. Well If I were a lender I wouldn’t loan any of you a dime on them either. Why do you suppose the most knowlegable note buyers won’t touch our paper with a 10 foot pole. Because we are offering the market CRAPPY paper. It is VERY shakey credit wise. It is even worse equity wise. It’s no wonder that smart trust deed buyers aren’t interested. If they bought the junk you are offering them they would go the way of Greentree and Conseco, belly-side up.

So what’s all of this griping I hear about not wanting to recourse our notes so we can sell them in the secondary market. If your notes are junk then sell then to the junk dealer. If you want to sell them at reasonable discounts then you NEED to happily offer FULL RECOURSE with them. Recourse is just another way of saying that you will guarantee the notes if they go bad, as well you should. Then it would be YOUR personal credit and your assets that would make class B and C into class G notes. G standing for golden and valuable and desireable. Passive investors would rather invest their money safely in CDs at 2% interest per YEAR, than risk it on your junk even if you offer it to yield 20-25%. I’d, prefer those CDs myself rather than buy what you are offering.

There is an old saying that the only reason something doesn’t sell is price.

Well now there is a new saying: the only reason you don’t have 20 buyers screaming for every one of your notes is their almost total lack of security and ZERO recourse.

For years, when I was still selling my mobile home notes, I offered a split rate of return. As an example I might offer a note at 15% with no recourse or at 25% with full recourse. I had WAITING buyers for EVERY note that I ever offered for sale. Most investors wisely chose the recourse notes.

All that glitters is not gold.

Here was my deal: If any of my notes went bad for 90 days I would have 90 days to buy it back for cash OR to replace it with another comparably sized, good note. The amounts didn’t have to be exactly the same but they should be similar or we could make up the difference in cash. I NEVER had to buy back a single note for cash. Yes some went bad, but I replaced them with new notes. I then repaired my bad notes and resold then to different investors. By repair I mean I repoed the mobiles or got the bad guys to refinance them or place additional security with them so I wouldn’t repo them, etc.

There are billions, I said BILLIONS of dollars just sitting in front of their picture windows, waiting for good notes to drive by and discover them. There is more DEMAND than SUPPLY, for GOOD notes. The operative word is GOOD. Why do you suppose trillions of dollars is earning less that 2% in savings accounts? Those investors would KILL to get SECURE NOTES yielding 12 3/4%. You folks have lots of such notes that you could get RICH from by cashing out at FULL FACE VALUE. Your Lonnie deals would start yielding tens of thousands of percent, instead of just a paltry 100%-200% per year you are settling for now. Remember if you can sell your notes for cash at full face value it is the same as making a cash sale in the first place. You could turn your investment capital over 6-12 or more times a year. Heck at that rate you wouldn’t hardly need any capital at all. You could do 6-12 deals per year with just 3k-4k total capital. You probably wouldn’t even be able to find deals for more capital even if you had it. Before you know it you would have so much money that you would be buying back your own notes. :~0. You wouldn’t have any installment sale tax problems either.

Whats the problem? Is that hard to see?

Honorable, ethical sellers of full recourse notes would set the mobile home industry on fire OVERNIGHT.

The CREonline board would light up like a Christmass tree, with retired folks looking for SECURE, recourse notes yieling 12 3/4%. And you’ve got’em by the car load.

Time to unload.

Regards, doc

Re: If it isn’t standard protocol it should be. - Posted by EEC

Posted by EEC on October 22, 2003 at 22:36:50:

IF you can sell a quality note for the full face value to yield the buyer 12.75%, I wonder if selling it for full face value plus more cash to yield the buyer 10% or even 8% would be a good idea. If they are really high quality notes the risk should be minimal. Do you agree?

The 15% & 25% were reversed. I can’t believe - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on October 20, 2003 at 21:52:38:

…noone caught it. It should have said that I offer notes yeielding 15% with full recourse or 25% with no recourse. If they will take a higher risk, I give them a higher rate of return to compensate them for doing so.

About Notes - Posted by gregoryvg

Posted by gregoryvg on October 10, 2003 at 09:29:27:

Okay Doc, let me see if I get this straight.

Let’s say I buy a MH for about $3K, and sell it for $7K, get $1K down and take back a note for $6K @ 12.75%. A traditional Lonnie style deal.

Now, I gathered from your post above that If I wanted to sell this note, I have two options; either guarantee the note (putting myself at more risk, but getting a higher price for the note) or not guaranteeing the note (putting myself at no risk, but getting a lower price for the not).

Thanks to your above post, I am starting to see the advantages of selling notes. If I could sell a $6K note for $5.5K in a short period, that would give me over 100% ROI ($1K down + $5.5K for the note less the $3K I have put into it). If I were to reinviest all of the profit back into creating another note or two, and sell those notes, I can see how you can make a lot of money in a very short time.

There are just two problems I see, and one has been addressed, the other is; imagine your tax bill that year. :wink: But I guess that could be a good problem.

Okay, let’s say I guarantee the note. About how much of face value should I expect to get? 90-100%? How much face value would I expect to get if I don’t guarantee it? Thirdly, where would I go to sell a Mobile Home note?

Yes, I am a pretty much a newbie at MH investing; I have read Deals on Wheels and am currently saving up to be able to afford my first purchase. I am thinking buying Mobile Homes notes woudl be a better way to save than keeping the money in a Bank Savings account for 0.15%.

The Zookeeper Cometh :slight_smile: - Posted by John (TN)

Posted by John (TN) on October 09, 2003 at 13:00:50:

Hey Doc,

Excellent post, as always. Your points are well made. We are not yet acquainted, but I am an avid and grateful consumer of the wisdom that you so generously share for all who are willing to listen.

I wasn’t hissing or moaning (well, maybe a little bit) as much as wondering out loud whether I should enter into a dealer agreement with 21st in the first place. I certainly don’t need to cash these out in order to keep moving forward.

I don’t blame an outfit like 21st for holding the dealer responsible for the paper he creates. My concernn is that if I start doing a number of these late-model repos and cash out by selling notes with recourse and using this cash to bankroll more units, is that I will create a house of cards that could come crashing down if I end up getting a number of these things back. Sort of like buying stocks on margin. It can be a powerful tool, but is a sword that cuts both ways.

Best of luck with your investments,

Sorry, I don’t understand your question. - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on October 23, 2003 at 24:21:03:

Could you clarify what you’re geting at?.

Put your money where your mouth is. - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on October 10, 2003 at 10:29:38:

If you sell and guarantee a note you are not puting yourself at more risk. The risk is exactly the same as if you keep the note because either way you must take the hit if it goes bad. If you sell the note without guaranteeing it you DECREASE your risk.

There are NO new or added tax problems to selling notes immediately but there is a GREAT tax benefit. You don’t have to pay taxes on the future payments BEFORE you receive them as you have to do NOW, with your present Lonnie notes, in order to comply with our present IRS installment-sale tax rules.

Then why not sell without rcourse? Simply because you generally can’t sell it at all or you must discount yout note from 35%-70% or so to make it marketable. Who wants to sell at such a huge discount? Even then your notes would only be marketable to someone who is willing to take a very high risk. Such individuals would be speculators, not investors. They are as scarce as hen’s teeth. I myself, would not enter the market until discounts reached about 70% or so, if at all.

What is the gain to the seller for offering full recourse?

  1. Marketability. There is an anxiously awaiting, and inexhaustable pool of investors just waiting for a SAFE & HIGH YIELD. Some people are not exactly thrilled to be getting less than 2% on their saving accounts. Would you believe that? They are very safety conscious people. If you want to do business with them give them what they want, SAFETY & yield.

  2. A sale at or near full face value. The fact that you get a LOT more money and get it right away, makes it well worthwhile for you to assume the risk. You are a business man. You take calculated risks to earn profits. You have delt face to face with the note payor and can better asses this risk than any other person. If you don’t trust this person, don’t sell to him. And if you do, put your money where your mouth is, aligator. :~0

  3. The need for seasoning is greatly reduced or eliminated.

Is it worth guaranteeing our notes if it virtually guaranteses us millionaire status in a very short period of time? You decide.

Hey, why are you all so afraid to guarantee your notes? Because they might go bad? Ha, Gotcha!

NOW, you understand the fears of the note buyers.

Regards, doc

Isn’t a house of cards just what you have now? - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on October 09, 2003 at 13:24:01:

What is the difference in risk to you if you can’t sell your notes and keep them yourself OR you sell them with full recourse? Either way, it is YOUR loss if they go bad, so what is to be gained by NOT cashing them out with recourse. NOTHING. There is no FURTHER downside if you do or if you don’t. That is precisely the point that I am trying to make.

THERE IS NO NEW RISK BY SELLING YOUR NOTES FOR CASH WITH FULL RECOURSE. You have EXACTLY the SAME risk of loss either way so why not profit by selling them quickly for cash at full face value.

For those of you looking for a silver bullit, that will make you rich and famous by next Wednesday, you’ll NEVER come closer than this.

This is your opportunity of the CENTURY. Think well on it.

Think you don’t need to cash out to continue moving forward? Not so. No matter how much capital you have, you will NEVER be better off investing it at 100%/yr that at 10,000%/year, with the same risk level.

The risk is the same either way, but doing the latter you get an infinately higher return, therefore the risk really isn’t the same, is it?

Regards, doc

Re: Sorry, I don’t understand your question. - Posted by EEC

Posted by EEC on October 24, 2003 at 13:40:09:

Let me explain by using some numbers:

I hold a note on a mobile:

Rate 12.75%
Number of payments 60
Face value $10,000
Monthly payments $226.25

In this example, I found a buyer for this note secured by me, but this buyer is satisfied with a 10% return. So I can sell him the above described note for $10,648.54. It is the very same note but I can get a better price because the buyer is willing to get less return on his investment.

Well, I meant . . . - Posted by Gregory

Posted by Gregory on October 10, 2003 at 11:35:20:

I guess I worded the tax problem wrong. What I meant was you’d be making so much money this way, you’d have a big tax bill! lol

But, as you seem to be saying, at least we’d have the cash in hand to pay the tax man, while by keeping the note ourselves we’d be paying the tax man for money we have yet to receive.

Makes sense.

It seems that by selling guaranted notes, you could be doubling your money on each transation (if you buy and sell properly). How many times would you have to double $3k to get to a million?

Answer: 9 Times

But I know I am a newbie, and I doubt it would work out that good; but still food for thought.

“Dr. Whistler says: If you sell and guarantee a note you are not puting yourself at more risk. The risk is exactly the same as if you keep the note because either way you must take the hit if it goes bad.”

Ahhhh, I get it! :slight_smile: Thanks for clarifying that point.

Yes, but it is a small house - Posted by John (TN)

Posted by John (TN) on October 09, 2003 at 14:17:56:


It is certainly my problem either way if the notes go bad. The difference, as I see it, is the method for fixing the bad note.

If I’m holding the note and it goes bad, I out the deadbeat, clean up the place, find another buyer, collect another down payment and start the game over on my schedule and at the pace of my choosing.

If I’ve sold the note with recourse and it goes bad, somebody’s gonna want me to write a check NOW. At this early stage of the game, I may or may not have a similar performing note to offer the notebuyer.

I can most definitely continue moving forward without cashing out - just not as fast - which is probably a blessing. Were this not true, the Lonnie concept would be a fallacy.

I agree that the mathematical risk is the same in either case, no disagreement there. From a practical standpoint, fixing a bad note sold with recourse and fixing your own note seem to be two different animals.

This has been a thought provoking discussion for me and hopefully others are following along. There are two different methodologies here - the hold your own notes and grow slowly approach, or the high-octane cash-out approach.

Doc, in a fairly recent post, you alluded to moving toward high-equity (paid-for) real estate or to holding low-equity real estate with non-recourse financing in these uncertain times. The message was to avoid the dangerous middle ground where one might get crushed if the bubble bursts.

This discussion is sort of the flip-side of that equation. How do you feel that our business will fare if an economic shoe drops and under which of these scenarios (low octane or high octane) would we find ourselves best positioned?

Best to all,

Now I understand your situation. Now what is… - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on October 24, 2003 at 20:53:42:

…your question?

9 Times understates the amount of work… - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on October 10, 2003 at 12:02:31:

…involved quite a bit, but you get the idea.

Yes you do about double your money each sale when you can cash out. About your 3rd or 4th time you would have trouble finding enough mobiles to buy for the next step.

If you make $5k profit per deal it would take about 200 deals to make a million exclusive of tax consequences. Maybe 300 when factoring in the taxes, unless you work through a tax free entity. Once you get rolling you could conceiveably be doing two or three deals at a time, especially if you tap into a lender with many repos who wants to deal quickly, and you are in a hot market like we have now in most places.

A better strategy would be to begin flipping larger deals as your capital accumulates. Some investors can buy and (not fix up) flip rehabable houses and make $10-20k or more per deal. I’ve seen a number of flippers that have made $50k or more recently here in California. The important thing is to sell for cash or take a note that you can sell for cash.

There seems to be almost an infinite number of ways to make a buck, when you have enough capital to work with.

Regards, doc

Doc, you roc - Posted by John (TN)

Posted by John (TN) on October 09, 2003 at 16:14:27:


The enlightenment of reading your posts is surpassed only by actually participating in a discussion with you.

I’ve enjoyed this thread and look forward to many more!

Best of luck with your investments,

Part of the Lonnie concept IS a fallacy… - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on October 09, 2003 at 16:04:58:

…though I STILL recommend his general mo. It is only a fallacy in a limited way. Its just that this limited way is so VITAL to our success. Its only the cash vs. carry the paper aspect that needs updating. Buying moile homes wholesale and selling retail with financing is STILL the best game in town for most folks as they are starting out. Its just that if you sell your notes, even with recourse, for cash at full face value, you would be INFINITELY better off.

There is a certain false allure to carrying back notes Lonnie style, and it is a VERY SERIOUS impediment to maximizing our success.

This is what I am referring to. Typically Lonnie deals result in notes yielding for 100% to 200% return on investment per year. Now, note clearly that almost ALL of that high rate is due to buying wholesale and selling retail, NOT, to carrying back the paper. You only make 12 3/4% or so by carrying back the paper and you make the other 86 1/4% to 186 1/4 percent by buying for half of what you sell for. TIME is the critical element in determining your rate of return with this scenario. If you can get your cash back immediately and reinvest it at a 100% mark up in just a month or so, your annual rate of return will be in the THOUSANDS of %. It is natural to equate super high rates of return with super high levels of risk. But it just isn’'t so in this case. It is therein that lies the bargain of the century. The higher rates of return actually reduce the risk in my opinion. Remember it is the ratio of risk vs return that is important.

In my recent post I did reccomend reducing long term holdings (rentals is what I was refering to) in the 30-70% LTV range (I forget my exact figures but their exactness isn’t critical to the theory). I also recomended Lonnie deals as being exempt from my warning because I feel that their high rate of return actually makes them safer for short term investments. The only thing safer is to be able to cash them out at full face value, even if it is with full recourse.

I admit to not being the clearest writer on this board, but I hope I have resolved any SEEMING inconsistencies between my various posts.

John, I just love it that you have stood your ground, with well reasoned arguments. If I didn’t scare you away, noone ever will. I think you will go VERY far in whatever you do.

Note please: That I have the greatest respect for Lonnie. He is STILL and always will be the grandfather of the, find, flip and finance deals in MHPs. The techniques he has taught us have stood the test of time. They are still the cutting edge after all of these years. It is only the finance instead of sell the notes with recourse that has not keep up with the times and noone should expect 100% of any author’s writing to endure for all time without some change, as more knowlege accumulates.

Regards, doc

Re: 9 Times understates the amount of work… - Posted by KenS(WV)

Posted by KenS(WV) on October 10, 2003 at 20:07:13:

You are onto exactly what I do, with some modification. I buy and sell repos and locally bought homes as fast as I can get them. I average $6k on single wides and $12K+ on double wides. I get finance companies to finance as many homes as I can. The rest I finance in house. I have investors set up to buy at 100% of face value on note. Each note has an interest rate of 13 - 15.5%. Now, as you say, I offer FULL RECOURSE on all notes. However, the cost to do this for the note buyer is I REQUIRE that I service the note for full recourse. I charge 2 points as a service fee on the note. Actual interest return on the note to the investor is about 11-13.5%. The reason I feel comfortable doing this is that I aggressively service each note. I can beat most of the industry default rates by originating and servicing the loan locally.

I also put a clause in all of my note contracts that I can buy it back at principle balance at my discretion.

By the way, to answer John’s original question, I haven’t heard of a lender putting this clause to buy the note back in their dealer package. 21st mortgage doesn’t work in WV. I talked with the president of 21st mortgage at the NC Manufactured Home show last month. WV has some screwy tort laws and they don’t have an office here. They aren’t ready to come here yet. Try Tammac, Sebrite, or Triad Financial and see what they say. I don’t remember seeing that language in my package from them.

Doc, a constructive critique of my above essay is appreciated. John, good luck… you are headed in a good direction!!