Buyer's: What would the perfect MH note look like? - Posted by Rick G.

Posted by Rick G. on June 14, 2001 at 13:59:15:

I think I understand now. I guess when you talked about TCA having information about how to structure notes, I assumed it had MH notes in the book. No harm done.

Once I decide to enter the arena of notes, I will sure to check out TCA as a possible learning tool.

Thanks for the input. It was very helpful.

Rick G.

Buyer’s: What would the perfect MH note look like? - Posted by Rick G.

Posted by Rick G. on June 13, 2001 at 14:45:09:

Here is a mobile home note buyer’s assignment. If you could create the pefect mobile home note for you to purchase, how would it be worded? I know there are a lot of factors to take into account. I will elminate some of the factors.

  1. The MH will not come with land.
  2. The MH will be in the 15 to 30 year old range.
  3. Financing will be for a term of 5 years at 12%
  4. Seasoning will be no more than 6 months.

OK. with those things in mind I want to you to write up 3 notes that you would be comfortable buying.

1 note at 75% LTV.
1 note at 85% LTV.
1 note at 95% LTV.

You could also just post the best note you have.

Keep in mind I would expect 70 cents on the dollar or more. You would still get a great yield. The buyer would have an A or B credit rating. And partials are what I would be offering for the most part. Say 50% of the payments or less.

The reason I am doing this is so I can structure my notes accordingly as to make them more presentable to you(the buyer). It will make things simpler and more profitable on both ends. Of course you have to structure the notes so they are accetable to me. Keep that in mind.

You may feel free to post them here on the message board and or, E-mail them to me directly. If E-mailing please use Microsoft Word or Adobe Acrobat format. I am interested in working with note buyers nation wide.

Rick G.

I would like to see the actual contract - Posted by Rick G.

Posted by Rick G. on June 14, 2001 at 02:21:38:

I would like to again than those who offered input on this.

Perhaps if I narrow it down to ask for just one note that you have purchased that was particularly to your liking.

I am asking the note buyers here to provide a copy of an actual note. Feel free to delete all sensitive information.

I think this would be invaluable to both the newbies as well as the more seasoned investors.

By having a better idea of what is acceptable as “good paper” in the market as of now, it is sure to improve both the quality and quantity of notes for sale.

Rick G.

Perfect MH note? - Posted by David Butler

Posted by David Butler on June 13, 2001 at 21:03:03:

Hello Rick,

Most important principle for all note sellers (or sellers of anything really) to have a very firm handle on… is that what you would expect to receive is the last thing on a buyer’s mind when determining what they will pay for whatever it is you are offering, be it a note or otherwise. What they expect to receive for their purchase is what they care about.

Where your expectations come into play, is in terms of whether a buyer will make any offer at all. Once buyers become knowledgeable about a given investment sector, they won’t waste much time putting in the effort to work up a MEANINGFUL quote - if they already know that the seller’s expectations don’t meet the marketplace.

That being said, you can find a clear description of the “perfect” freestanding mobile home note at the beginning of Chapter 8 (p. 79) in the latest edition of TIN CAN ALLEY, at: http://www.creonline.com/b-138.html

In addition, you can find perhaps the most accurate worksheets and current MH note pricing information that I am aware of, in Chapter 7, at pages 67 through 71, along with information about how to keep updated with changes in the note markets, on a quarterly basis.
These will give you very accurate ballpark figures with regard to yield requirements, and ITV limits. Park rating, complete MH info and valuation, and Payor’s credit profile and down payment will account for individual investor adjustments to that pricing.

I am confused in that you ask for quotes at 75%, 85% and 95% LTV, but that partials are what you would be offering for the most part???

Am I right in assuming that by A credit you mean 680 +, and B credit 640+ , from primary credit repository for the location of the home???

In any event, based on the information you have provided, in the general MH note buying marketplace, partials are most likely what you would be offered (or split-funded purchases) and cross-collateralization would generally be required (unless your buyer’s are putting up 25%/30% down payments). This is due to the fact that most experienced MH note buyers want deep equity protection in a high-risk environment.

Depending on a number of factors that we don’t know about (as described above)… I think it is fair to say you are most likely to receive offers ranging in the $3,500 to $5,000 range for 30 payments, using $10,000 as the note amount (1st lien position), based on what you have indicated, and assuming 10% to 19% down payments. Possibly up to another $1,000 if credit scores above 640 and good credit profile, and/or 20%+ down payments. Very generic is best we can do on the limited information at this point.

But hope that helps give you some perspective with regard to relative open market values.

David P. Butler

Tie it to land… - Posted by Note R Us

Posted by Note R Us on June 13, 2001 at 19:59:40:

If you are seeking to generate quality “paper” that involves mobile homes, the so called “great mobile home note”, then set up that mobile home on some Real
Estate, make sure all utitlities are connected, and then get at least 5% Cash down, and strutured the 1st lien financing at no more than 85% LTV for newer Double wides and lower LTV’s for older homes or single wides. This PAPER is easily sell able to many different note funders and one can regurarly obtain pricing in the 90% or better range.

The market for Chattel liens on mobile homes is very disorganized, there are few national players, many are very credit driven, etc.

So, in my opinion there is NO perfect mobile home only “paper”

Notes R Us

Re: Perfect MH note? - Posted by John SirJohnathon Grounds

Posted by John SirJohnathon Grounds on June 15, 2001 at 23:35:19:

David,

I just read your post replies to Rick G. concerning the “perfect” mh note. Thanks for the great info. I just ordered your TCA book today and am looking forward to receiving it. We have been in the SFR rehab and rent business since 93, and just started getting into the “Lonnie” deals. We have a few under our hat, and realize we need to generate more cash in order to continue to grow. With that in mind, I bought your book.

I assume TCA will list sources of note buyers? If not, where would you suggest I start shopping? We have operations in the Western Suburbs of Chicago, SW Indiana, and the Albany NY area. Notes would be from all three places. We write an average of 4 deals per month.

Also, we have the ability to bundle into reams of around $250,000 total representing 20-25 notes. I am not sure if this would help move us into the institutional range.

Thanks for your help,
John “SirJohnathon” Grounds
www.jrgholdings.com

Re: Perfect MH note? - Posted by Rick G.

Posted by Rick G. on June 14, 2001 at 02:13:31:

Thank you for the information.

Sorry for the confusion. I was considering partials because they have a lower risk. Also, I would like to have some payments down the line to look forward too. The LTVs were just a guide. I am sure a note with a 75% LTV will market better than an 85% LTV. All other things being equal.

You are pretty much on the money with the credit rating.

Your breakdown of expected value was about what I figured.

I was trying to get a perspective from a note buyer. There are many good forms available for a MH payment contracts. You mentioned Tin Can Alley. I am sure others will mention DOW and other books of that nature.

What I truly wanted was what a Note Buyer thought would constitute a good note to buy. I am sure that a note buyer has forms that he/she likes better over others.

To Not Tie To Land - Posted by Rick G.

Posted by Rick G. on June 14, 2001 at 01:56:15:

Thanks for the info. But, I was interested in MH that are not tied to land. Many MHPs in this area are not likely to sell single lots. That is why I wish to get information on MH not tied to land. Since this is much more common in my area.

Re: Perfect MH note? - Posted by David P. Butler

Posted by David P. Butler on June 16, 2001 at 19:11:55:

Hello SirJohn!

Hey… that’s a catchy moniker! Wonderful… I think Tin Can Alley will do you a lot of good with regard to your objectives. In fact, we discuss your particular objectives at great length in several different areas of Tin Can Alley, particularly in the section related to “Lonnie Dealers” in the chaper WHERE TO FIND THE NOTES, as well as in the various deal structuring techniques and discussion related to Lonnie Dealers in the Section “Showtime”, related to NEGOTIATING DEALS.

You should see from this that a great deal of what we suggest in those discussions, fits hand-in-glove with Lonnie’s instruction and training for mobile home investors, in pages 178-171 of his Deals On Wheels course!

I regret to say that there is no list of freestanding MH note buyers, particularly at a “national”, and/or institutional level. That market changes daily. What few “national” buyers claim, and what they do, are far apart from reality. There really is no such thing… such as that which we have in the real estate note markets. So, unless you are creating paper similar to that which would come out of retail dealerships (and mostly on newer doublewide homes less than 15 years old), “bundling” portfolios of these notes would not necessarily give you any particular advantage (and even those markets are being hit hard right now)… it would actually be somewhat counterproductive, if your objective is to build up “Lonnie” portfolios, since the mass wholesale of your notes, partial or otherwise, would be depleting the future cash flows that are the end-game of what “Lonnie Dealing” is all about.

However, there is discussion related to the fragmented nature of MH note markets, what is slowly developing to channel funds through the secondary markets, and how and where to sell the notes you create on an as needed basis. There are numbers of small note buyers and brokers operating in various parts of the country who handle MH notes… in easily digestable amounts, which would include anywhere from one or two notes, up to $1 million portfolios. But, the greater flexibility appears to be in the 1 to 10 note portfolio range… with regard to selling partials, split-funded deals, etc… and most particularly with the types of deals that come through “Lonnie Dealer” originations!.

We are slowly training small investors in how to safely work with this type of product, and teaching other brokers to do the same thing. The private secondary markets are a broker driven community however, and until enough note brokers understand how to put this kind of localized investor purchase money together, we still are shopping every day. Based on current deals in the works, we anticipate another $2 million being raised throughout the course of this summer. But like the $550,000 I just raised $550,000 this past month, it is reserved locally for my own purchases of Lonnie deals and similar small unit packages, in southern California, Arizona, Las Vegas, and possibly the Boise area.

However, I do have an investor with $200,000 for Indiana purchases, and a former hard money lender out of New York who is trying, but not yet comfortable understanding how to convert his investors to underwriting this type of product. He is coming down to Orlando for the NoteWorthy Convention next week to get some hands-on coaching from me on that end of it, so possibly he will develop resources from that end of the table, that could conceivably service your NY inventory needs.

I have worked with several increasingly successful note brokers in the Chicago area, and some have put together several larger mid-range portfolio deals that they needed help with in placing with investors. Hopefully they will soon have gone far enough in the local markets to have started generating small local buyers more suitable for bankrolling “Lonnie Deals”… I’ll have to wait until I get back from Orlando to determine that, due to current time limitations.

Hope this is at least of some value to you, and look forward to your growing success in this end of the marketplace!

David P. Butler

Re: Perfect MH note? - Posted by David Butler

Posted by David Butler on June 14, 2001 at 13:10:50:

Hello Rick,

The partials are definitely more attractive, particularly on short seasoned notes and less than 20% down payments (although we do purchase a lot of those, the discounts are steeper, to add the necessary protective equity)… that’s why I suggested you are much more likely to see partial offers rather than whole note purchases, particularly at LTV’s approaching 70%, on “freestanding” MH product.

By the way, you seem to be comparing apples and oranges a little bit here. What I have suggested in the previous post is that TIN CAN ALLEY features a MH Note Grading/Pricing Guidelines section that allows you to plug in the true information related to the notes you are holding, or plan on creating - and gain an accurate ballpark figure for what you might get for those notes, out in the open marketplace. I also suggested that this section provides you with information on how to keep updated with pricing structures as they change with the marketplace (as we work with and survey the other buyers we work with, as well as the various larger investors who pop in and out of our market, and what their yield/safety requirements are).

Although TIN CAN ALLEY offers note purchase contract forms and additional useful contract material, none is related to buying or selling MH units themselves, nor did I make mention of any such forms (for that kind of material, I would definitely recommend Lonnie Scruggs excellent Deals on Wheels material available at this site, at the mobile home section of the bookstore, rather than the note section). I did however suggest that you will find a full page description of what would make a perfect MH note on page 79 of the TCA course at: http://www.creonline.com/b-138.html

And yes, TCA does discuss the forms we prefer seeing (with regard to the MH Note Offering Summary itself), but no mention of that was brought up in the original post either. We dealt there with the questions you asked… so the rest of the material in TCA would be gravy, so to speak, or icing on the cake, whatever you might consider… for your purposes.

We did an article for the Manufactured Housing Institute last year, HOW TO BEAT THE FLOOR PLAN MAN, that discussed the same questions you are asking, from the perspective of retail dealers sitting on used mobile home paper assets. You should find that very helpful for your purposes as well… simply type that subject title right into the “keywords” in the search facility here at creonline, and you should be able to learn more about that through the several posts appearing in the past few months.

Hope that helps, and best wishes for your success!

David P. Butler

Re: Perfect MH note? - Posted by John SirJohnathon Grounds

Posted by John SirJohnathon Grounds on June 16, 2001 at 21:18:38:

David,

Thanks!! I appreciate the info.

Once you get back from Orlando, perhaps we can talk again. By then I will have read TCA and will have a better handle on things.

Have a great trip!!

John “SirJohnathon” Grounds
www.jrgholdings.com