Badly Broken... - Posted by JeffB (MI)

import · April 21, 2011, 7:50am

Posted by Glen (OH) on April 24, 2011 at 08:39:52:

By far, the best tool that I have in my arsenal is my relationships with the managers in the parks I work in. I locked horns with a manager a few years ago. By the time it was over I propably lost a couple millimeters of stomach lining. (I found out later she was doing deals in the park and I was unwanted competition.)

In my opinion the park manager is a HUGE factor between a nice walk in the “park” and trail of tears!

Good luck on your sales.

Glen (OH)

import · April 21, 2011, 7:50am

Badly Broken… - Posted by JeffB (MI)

Posted by JeffB (MI) on April 21, 2011 at 07:50:59:

Hi all,

My business model for Lonnie deals has undergone quite a transformation in the last few years. And it appears this is going to continue.

I am seeing almost no demand whatsoever for extremely cheap, “as-is” type of handyman-special homes that I’ve been trying to sell over the last year. I’m talking about late 1980’s, vinyl/shingle 14x70’s that need paint, carpet, and other minor repairs. I always have the furnace checked out and guarantee that HVAC, plumbing, and electrical will work at the time of sale.

Trying to sell homes like this for $2,000 or less has been a real struggle. These are typically homes that I sold a few years ago for $9,900 on a note, and am getting back as friendly repos. Fortunately I’m well into the black on every one of them, but now am left with the headache of trying to liquidate inventory that nobody wants.

Now, the demand for doublewide homes, particularly those in very good condition is not nearly so bad. Those still command a decent price and a decent payment. But the single wide homes are all but impossible to sell.

I’m going to spend a few thousand dollars and bring a couple of the nicer ones to good condition (new paint, carpet, and put appliances in). We’ll see if this generates some interest. I just wondered if anyone else is seeing the same type of thing. Gone are the days where I could sell a fixer “as-is” and still get a reasonable price for it. In order to unload any of these homes I would literally have to give them away, which admittedly might be an option.

I’ll continue to adapt, but don’t like the direction things are heading. Lots rents are rising, comparable apartment rents in the area are still falling, and the Lonnie dealer is left “in the middle” trying to squeeze out a small monthly payment. It’s difficult, to be sure.

import · April 21, 2011, 7:54pm

Badly twisted… - Posted by Dr. B. (OH)

Posted by Dr. B. (OH) on April 21, 2011 at 19:54:58:

Jeff,
I am sorry you are going through this business change but it should help you clarify things for the near future. Things are quite different in the industry overall and I find even sharper differences depending on State, county, town, and specific park location in the same area.

I too am trying to adapt. Glen(OH) and I both decided to cull the herd of 70s and 80s homes or even newer homes in parks with little future. That is; rural and high unemployment. The gasoline and L.P. gas prices (not included in the consumer price index) are going to kill these parks. I sold off a bunch from $700 to $4900 cash.

Oddly enough, I’ve just agreed to take on up to 16 abandoned homes in two different parks. Ages range from 70s to 90s but the location is closer to jobs. The homes are “free” and I am going to structure my business differently. There is a strong rental demand in the area. I would like to rent these homes but that is not allowed. So I will set relatively high prices on these homes at 0% interest (so I don’t have to escrow taxes and ins.), but relatively low down payments and monthly payments. I want to beat the pants off the apartment rentals. Thus my down payment plus the lot deposit will beat what the local apts. are going for AND my payment plus lot rent will beat their monthly rent. It is essentially what I’ve been doing all along but before, I was at 90-100% of the local apt. market. Repos ran 40-50%. Now repos will be higher but that is expected as people move on in their lives just as they would renting an apt. I hope to be able to do this at 75-80% of the local rents. Despite, or because of, my nicer homes at competitive rates, I will be more selective in the tenant-buyers.

I am also focusing on the nicest park in one county where financed sales are still in demand. We’ll see how this goes. I can’t change what’s out there, I can only change me.

Steve

import · April 21, 2011, 4:10pm

Re: Badly Broken… - Posted by Leonard

Posted by Leonard on April 21, 2011 at 16:10:40:

Jeff,
Would you be wiiling to share with us how and where you usually find your buyers? Maybe even share an ad, if you’re using one?

import · April 21, 2011, 8:13am

Re: Badly Broken… - Posted by Tony Colella

Posted by Tony Colella on April 21, 2011 at 08:13:10:

If you choose to fix one singlewide up to test the validity of the “broken model” theory I understand but I would try one and have a plan “B” for the others.

Since you are in the black on these homes it may be time to just sell them for a few hundred bucks and move on to other deals.

Sometimes we “want” to know what has changed and other times we later realize that we didn’t really “need” to know, we just needed to cut the losses. Keeping one unit in the game may satisfy curiosity and provide information for adaptation of your broken model.

It does seem that many times these trends make no sense whatsoever. I would think that right now people would be happy to own a home for a couple of grand and not have such a big payment, less money down and a home of their own to ride the economic storm out in. But for some reason, your experience is indicating that people are still in the mindset of they want so much more (than they need) and somehow “deserve it” even though finances may dictate otherwise, at least for the present.

Cutting our exposure during these times seems wise to me but like you I believe we need to tweak the systems to discover new opportunities and not just abandon the game.

As often as I bang my head against ideas and seek clarity and opportunity the results are often less than I had hoped. I keep reminding myself that someone will find the solution. The greatest minds in this niche are right here. We can be the ones to find it. Why should someone else stumble upon it?

Long ago I realized that those who first enter a promising niche typically reap the greatest rewards. This group here should be a part of that pioneering profit and not just students waiting for the teacher to appear.

Tony

import · April 21, 2011, 8:08am

Re: Badly Broken… - Posted by Glen (OH)

Posted by Glen (OH) on April 21, 2011 at 08:08:11:

Here in SW Ohio I have had the opposite experience. Last year I decided to “cull the herd” and get rid of my less desirable inventory. These were mostly early to mid 80’s homes with working heating, plumbing and electrical systems. They mostly needed TLC in the interior such as paint or other minor repairs. Over a 3 month period I sold 6 for cash with prices ranging between 2-5K. This was last fall and I still don’t know where the cash came from since it wasn’t tax time.?.?

On the flip side I had a very nice single wide sit for over a year without a buyer.

Glen (OH)

import · April 21, 2011, 8:06pm

Re: Badly twisted… - Posted by JeffB (MI)

Posted by JeffB (MI) on April 21, 2011 at 20:06:51:

Steve, great post as always.

To be more specific, the competitive challenges I am facing are these:

Nearly every park locally is offering their own inventory with financing, including the very park I work in. Many, including my park also, are doing lease-to-own which many people find appealing because they are not responsible for any maintenance during the initial 12 or 13 month lease. The total monthly payment of the lease-to-own homes is in line with my low-end homes. The total monthly payment of the community-financed homes is typically lower than mine due to extended loan terms the communities offer, sometimes up to 15 or 20 years.
Many parks, not including the one where I sell homes, are offering handyman special homes for free in exchange for signing a one or two year lease. Some of these homes are really quite decent, with new water heaters and/or furnaces where necessary.
Overall market rents are falling, yet lot rents continue to rise a couple percent per year. As a Lonnie dealer I’m left with the difference (at most), which continues to shrink.

I realize I need to adapt, if only for the reason I have a whole lot of notes to deal with which means a whole lot of future repos even assuming nominal repo rates. I’m working towards an eventual exit from this business model, having the expectation that things aren’t going to change in a way that benefits me, so, it’s all on me to find something, somewhere, that DOES work.

Jeff

import · April 21, 2011, 7:37pm

Re: Badly Broken… - Posted by JeffB (MI)

Posted by JeffB (MI) on April 21, 2011 at 19:37:03:

Most of my buyers come from referrals, through existing customers. Others are referred to me through the park office. Aside from that I run some Craigslist ads which do not seem too productive most of the time.

Sources of print advertisement I have used successfully in the past are either no longer being published, or not remotely cost effective.

import · April 21, 2011, 8:57am

Re: Badly Broken… - Posted by JeffB (MI)

Posted by JeffB (MI) on April 21, 2011 at 08:57:27:

What really hurts is that these homes have significant value to wholesalers and other park owners who would gladly pay $5-7k for these homes even in poor shape. But my relationship with this park does not permit me to move homes out without starting a serious fight, which is something I definitely do not want to do.

Like I said, I’m going to test one or two out and see if it makes a difference. If nothing else, at least I’ll have a variety to offer my potential customers, instead of just a bunch of ratty homes, they can choose what level of niceness they want to pay for. I find that sometimes having that choice, makes the sale of the handyman-special homes much easier, as they can visualize before/after and see the savings.

import · April 21, 2011, 5:27pm

Re: Badly Broken… - Posted by Bernd Hanak

Posted by Bernd Hanak on April 21, 2011 at 17:27:13:

During the 2007/08 seminars with Cory and Steve, and especially with Tony and Scott, it was emphasized that given a choice between a S.W. and a D.W.,the tenant would choose the D.W ,every time. That made sense to me. Today, my competition rents a 3 bdrm. S.W. in very nice condition, for $650. per month. We offer a D.W.(that is all we have) 3bdrms , 28?x48? or 28?x52? for $675.-.We are fully occupied and don?t sell. We have also instituted a two year lease requirement.Only time will judge that decision. None-the-less,I believe that the demand for S.Ws. in good condition, at a reasonably desirable location, will remain for years to come.Change seems to be with us daily.As business people it behooves us to identify long term trends and to offer our products and services accordingly.The inflexibility,the inability to adapt, caused the demise of many species and enterprises. As I have said in other posts,I try to identify the delayed effects of the overlord’s actions and new regulations.For instance,as the purchasing power of our dollars is diminished,it seems to be reasonable to trade them in for tangibles that retain their value and could be used as money. Or, as new regulations crop up that are aimed to make life for the Lonnie -dealer intolerable,let’s change our modus operandi. Could a client become a small,temporary co-owner until he buys us out? I don’t know the answer. Or,could we offer a quit claim after a few years of good tenancy? Again,I don’t know. I don’t do the lucrative Lonnie deals because I don’t like to be a lender for the foreseeable future.It seems that the more one investigates and communicates, the more alternates present themselves.

import · April 22, 2011, 7:42am

Re: Badly twisted… - Posted by Dr. B. (OH)

Posted by Dr. B. (OH) on April 22, 2011 at 07:42:34:

Jeff,
Thanks for your response. In the past, I have stayed out of parks where the park or park manager does their own deals. Unless they cater to a different niche than me. E.g. MUCH higher end homes or low-end junkers with nothing repaired. Unfortunately for you, your park(s) have caught on to doing the thing that ensures their survival…Lonnie Deals and Lease-Options.

As you know, parks, especially decent quality parks, that give away handyman specials, get the desired lot rent Lonnie Dealers don’t.

What I call the market squeeze is the “outside force” of lot rents going up while incomes and rental prices stay the same or are going down. That leaves the home buyer with less and less monthly payment to buy a home. This guarantees the demise of the mobile home industry as new ones will not be bought except by the wealthy mobile home park owner(s).

My conclusion, extricate yourself from that park as a competitor, you cannot win. You have had a great relationship with them over the years but now it is over. They have taken your model, improved upon it, and run away with it. No blame here, it is just what a smart park operator must do.

Because you have a number of notes there and will get repos, I suggest you not buy any more in that park and slowly sell them all off for cash. If that becomes too difficult because of the competition from the park, I would start to look for other parks that would buy your homes and move them. There are plenty here that would buy them and move them. Remember, your happy relationship with the park is OVER!

So what is next? SFRs as you’ve been hunting for? A park of your own (you know how this can work)? You might want to buy some silver or gold coins as they are not taxed and are likely to be the best investment in a very long time. Then buy your park with the gold or silver when the time comes.

Much luck to a smart guy looking ahead.
Steve

import · April 21, 2011, 11:27am

Re: Badly Broken… - Posted by Tony Colella

Posted by Tony Colella on April 21, 2011 at 11:27:49:

If other parks are willing to pay $5-7k for these homes in poor condition, would your park pay something to keep them?

Many parks want to avoid the rehab so what might they pay if you fix it up and offer them a decent deal that is win/win?

At some point one would have to consider the lot rent vs. wholesaling these units to other parks as a final exit from this park.

A worst I think a good long reality check/chat with the park to explain your situation and desire to work with the park and not sell to other parks might yield fruit.

Tony

import · April 21, 2011, 9:39am

Re: Badly Broken… - Posted by Shawn Sisco

Posted by Shawn Sisco on April 21, 2011 at 09:39:28:

It sure sounds to me like your advertising no longer works. We are bombarded with “easy financing” in every ad. If you stay after it - you’ll find a way. I wonder if the park may be able to help with some ideas that customers may like enough to set your houses apart.

import · April 22, 2011, 4:11pm

Re: Badly Broken… - Posted by Brian in C-bus

Posted by Brian in C-bus on April 22, 2011 at 16:11:44:

Hey Jeff,

Are you posting your Craigslist ads in the RE for sale section or in the Apartments for rent section? I have had much success in Apartments for Rent section with “why rent when you can own” as part of the subject header.

As an aside, I’ve seen an influx of folks pre-empting or coming out of foreclosure and stepping down to my single wides in suburban parks with good schools. Rehab is required in most homes, but all in all, the model still works. I’m staying away form all 2br homes and only deal with 3/2’s. No doubles yet.

I do agree with Tony on a MOM with the park owners. If they don’t want to work with you and you are on your way out of the biz model, what do you really owe them? Wholesale those babies and move on down the road…

import · April 22, 2011, 10:13am

Re: Badly twisted… - Posted by Bernd Hanak

Posted by Bernd Hanak on April 22, 2011 at 10:13:25:

Just as a matter of interest, I believe if one chooses to declare a capital gain, the so-called tax liability is 15%, unless a precious metal is involved, then we are permitted a 28% rate. It is strictly a voluntary, patriotic privilege. However, if their constitutionally enshrined status is recognized again, they would revert to become common currency, which I expect they will.

import · April 22, 2011, 4:35pm

Re: Badly Broken… - Posted by JeffB (MI)

Posted by JeffB (MI) on April 22, 2011 at 16:35:39:

Hi Brian,

Good to hear from you. Yes, I post almost exclusively to the Apartments for Rent section. Strangely, I have never had an ad flagged in that section, like I have for other things I’m selling which are actually posted to the CORRECT section.

In 2008 I was selling probably 4 homes per month exclusively through Craigslist ads. I have watched the effectiveness of Craigslist plummet to near zero now.

I’ve gotten a lot of advise from you, Tony, and Dr. B about either making a deal with the park owner or just wholesaling houses out of the park. I see that as an eventual exit, but I’m not ready for that yet.

One must remember that with as many notes as I have in this park, they could make things a living hell for me. Start with charging me rent on all my inventory at $450/mo, plus, rent due when homes come back repo until I can get them out of there. Add to that the things I’m not even thinking of and there’s plenty of pain to be inflicted. The guy who owns this park is a big fish and I’ve seen what happens to people who make him angry. I’m not quite ready to be on that list until I have all my bases covered.

I do however really appreciate all the advise and it is really helping me to formulate my exit strategy, distant as it may be…

Jeff