First Mobile on Land - Posted by Cindy-OR

Posted by Tony Colella on May 24, 2007 at 06:41:21:

Cindy I can tell you are already sold on this idea despite our warnings to the contrary. I have always believed that value is in the eye of the individual investor and if you believe it is a good deal then it is one. I just want to make certain that you actually collect the profit you find to be a good deal. I have voiced my concerns that I do not believe you will but only your experience can prove either way.

One more factor I wish you to consider is taxes. You are flipping this home and when one buys with the intent to sell they can and at some point will be considered a “dealer” by the IRS which means that all profit is consider income in the year of that sale, even if you are taking a portion of your profit in the form of a note.

Sure you accountant might say this one will be ok to use the installment sale but as a business model, your plan will have you paying taxes on money you have not yet received.

So out of the $12k profit you will pay taxes on your entire profit, even that which is in note form. That means that at the end of the day you will not have $12k in cash left, you will have less and still have a likely worthless note that you are paying tax on.

Even if your accountant decides to take the installment sale on the note, you will have the tax to pay on the $12k right? So you will not actually have $12k left.

You mentioned that $12k plus a note is a good deal to you because you used none of your own money. This also means that in addition to your costs you have made mortgage payments that unless already factored in to your $80k will also eat in to your tax bitten $12k.

I will stop fighting you on this one and allow you the respect that once all factors are considered you will make a decision you are happy with. I just want to try and help you avoid the hidden costs of flipping that you may not have factored in to your profit/exit strategy.


First Mobile on Land - Posted by Cindy-OR

Posted by Cindy-OR on May 20, 2007 at 20:17:30:

Just closed on my first mobile on it’s own lot. If I were to carry a second for my buyer, what kind of interest rate?

Maybe I’ll join you at Summer Camp if I make some money!

Re: First Mobile on Land - Posted by Tony Colella

Posted by Tony Colella on May 21, 2007 at 07:20:15:

Honestly, if my buyer needed me to carry a second, I wouldn’t count on ever receiving a payment so the terms wouldn’t matter much.

I would prefer then to receive my profit from the first loan they got and just figure the second is gravy if it ever gets paid.

The reality to me is that if I am going to sell then I want full retail. If I have more risk then I want greater compensation. If I am at retail or close to it on the first then there is no real equity if I ever had to foreclose my second and then there would still be the first to contend with (not to mention the attorney fees etc). Unless the first is willing to short sale, what’s the use? Even then I would have to ask myself if I would have paid this much for the property to begin with.

A cash down payment from the buyer, with me holding the 1st mortgage is a different animal.

We talk about the pro’s and con’s of different exit strategies on these land/home deals in our book “Investing in mobile homes with land” and at our upcoming boot camp.


interest on a private mortgage - Posted by Steve-WA

Posted by Steve-WA on May 20, 2007 at 23:11:02:

depends on if you ever want them to pay you off or not - if yes, set interest high . . . if not, set it below the bank’s.

Why sell it? Why not rent and keep it - take a mortgage against it for cash (assuming it appraises for more than your purchase price)

Congrats Cindy - are you partnering much with Tom P, on this deal or Lonnie Deals?

Re: First Mobile on Land - Posted by Cindy-OR

Posted by Cindy-OR on May 21, 2007 at 12:21:56:

The reason I am thinking of carrying a second is that 100% loans on Mobiles on land are difficult to obtain around here right now.

I am working on a second Land/Home VA/REO and the Realtor said If I would carry 20% I’d “have buyers lined up around the block”

Here’s the numbers, simplified a bit.
Purchased for $77k, closing costs, Ins. etc totals 80k
Comps = $120k
DW all sheet rocked, 4 bedrooms, 2 full baths, 1200 sq ft, heat pump, HOA $40/mo for pool, club house, park like grounds and water.
Deeded seperate from the lot
Just needs new carpet, window blinds, bark on the flower beds.

If I sold for 115k, Buyers get an 80% ($92k) and I carry 20% that would be good enough wouldn’t it? Maybe I’m missing something.

I have your book, it’s great! Thanks for your help.

Re: interest on a private mortgage - Posted by Cindy-OR

Posted by Cindy-OR on May 21, 2007 at 11:57:41:

I would charge more interest than the first mortgage, but was just wondering what you guys do on seconds.

Why sell it? Because I am far more afraid of being a landlord than of carrying a second. I’ve carried one before. The first foreclosed, I thought it might, but it was gravy, as Tony said and would be this time too. I sold that note at a discount.

I used a local lender on this one, but would like to work with Tom some more. I just got an offer accepted on another Land/Home. It was a VA Foreclosed, but a friend down here offered to finance it so I’ll probably do that.

I read about our deals down the page a-ways. Great Job!

Re: First Mobile on Land - Posted by Tony Colella

Posted by Tony Colella on May 21, 2007 at 13:18:01:

As long as you are happy with a $12k profit ($92k first loan minus your $80k costs) then fine but if that’s the case, let’s look more seriously at Lonnie deals and forgo investing $80k for that kind of return. My point was that your second is essentially worthless in this scenario and practically indefensible if the buyer does not pay.

Your real estate agent wants a quick commission. You want a quick sale but don’t throw the profit out with the bathwater.

Step back and look again. Mobile home buyer wants a no money down deal at full retail. Mobile home buyer’s are typically in that market due to price but more likely due to credit. Here we have a very volatile mixture… bad credit buyer with no money wants to buy your house.

No money down means they have very little commitment (this coming from folks that may already have a proven track record of poor commitment to financial obligations).

If you do the deal the way you describe you get your $12k and accept a second mortgage behind an $92k loan.

Credit bandit buyers decide they want a divorce, lose a job, change plans, don’t like the way the wallpaper clashes with the label on the beer…whatever and the pack up and move out.

Are you going to cure that $92k first to protect your second? I suspect that the $80k was more than you wanted to put into the home the first time and at least then it was in market condition when you were done. After buyer punched holes in your walls on the way out and took your heat pump, are you going to want to pay $92k to buy then fix up again?

Or let’s say the buyer likes the home but not the payments. They decide to make the payments on the first loan but not make any payments to you.

Are you going to pay to foreclose, the cure the first to protect your second lien? If you did, would their be any profits left? $92k plus foreclosure costs, plus fix up.

Even if you can just make the payments on the first instead of paying it off you are going to lose money each month (in the form of those mortgage payments), still have the costs of foreclosing and fixup … all to protect what again???

Maybe it is I that am missing something but one thing I have learned is to work to protect my profits in a deal and forget about the realtors quick commmission concerns.


Re: interest on a private mortgage - Posted by Michael(KCMO)

Posted by Michael(KCMO) on May 22, 2007 at 09:32:01:

“I am far more afraid of being a landlord than of carrying a second”

Being a landlord scared me at one point too. Then I inherited a few tenants in a package purchase from another investor. While I ultimately concluded that renting mh’s on someone else’s land offers no avantages over a straight LD, I’m glad I had that experience. I’m no longer of afraid of being a landlord and will do it again when I own the land.

The single biggest tip I can offer is that the whole “secret” is in the screening. Good tenants, properly “maintainted” and in a quality home don’t cause trouble. Put some thought into exactly what kind of person you want and screen, screen, screen.


Re: First Mobile on Land - Posted by Cindy-OR

Posted by Cindy-OR on May 21, 2007 at 16:31:22:

All of these “what if’s” remind me of the same ones we deal with on Lonnie Deals, to me anyway, “divorce, taking the house back, fix up”. Seems I stand a better chance at controlling the dirt than dealing in parks and just sounds like another digit in all the numbers.

I feel comfortable with this. The first buyer in line has 5k or more to put down, I forgot to mention that, sorry.

Personally I would be thrilled with the 12k and wouldn’t sweat pulling the first mortgage out of foreclosure for the 5 months in arrears that would/will accrue.

It’s not my 80k. I got a hard money loan at 10% for one year, no minumum months required, no pre-payment penalties and no points.

I’ll think on all you said, and might just “flip it”

Thanks again Tony!!


P.S. - Posted by Michael(KCMO)

Posted by Michael(KCMO) on May 22, 2007 at 09:34:22:

I think it was one of Doc’s old posts that stuck in my mind when I first started. It was something to the effect of “If you get a bad tenant, it’s your own fault. Unless you turned a good tenant into a bad one then they were bad when they applied. It’s YOUR job to screen and find that out before you agree to rent to them.”

Wise, wise words. I’ve never forgot 'em.

Re: P.S. - Posted by Cindy-OR

Posted by Cindy-OR on May 24, 2007 at 02:23:25:

Thanks Michael, if I ever decide to rent instead of sell I will keep that in mind.

I am still thinking of carrying a second because so many lenders are only doing 80%. Wonder what would happen if I inflated the price so that the 80% would pay back everything and make enough profit. Then I just gift back the second? You know just write it off and be done with the thing. We landscaped to day there’s not much else to do to it but hang curtains so I’d be happy with 10-12k. Has anyone done this?