How big is too big? - Posted by LeonNC

import · February 10, 2005, 7:15am

Posted by Tony Colella on February 11, 2005 at 10:18:53:

That was kind of my concern. Leon posted about Land/Home deals and his concern about size of the homes affecting profitability and marketability.

Your response was based upon you trying to fill 60 vacant lots in a park that you own.

This is an extreme case of comparing apples to oranges.

In a park, the singlewides may well be the only and likely the best way to go but this has nothing to do with the Land/Home question posed. The land/home deals have an entirely different finance structure, investment approach and profit realization.

Tony

import · February 10, 2005, 7:15am

How big is too big? - Posted by LeonNC

Posted by LeonNC on February 10, 2005 at 08:15:53:

I’ve seen some land/home packages where the mobile is 2100 sqft. I can’t see it renting for more than say a 1500 sqft mobile. But, I can see maintenance and repairs being more than a 1500 or 1200 sqft mobile.

Has anyone here found a maximum square footage that you’ll buy for one reason or another?

Thank-you,

Leon

import · February 10, 2005, 10:36pm

Re: How big is too big? - Posted by mike/nc

Posted by mike/nc on February 10, 2005 at 23:36:51:

Ohhhh the age old question. Does size matter?? Well from what I can figure around here in eastern NC smaller is better.(thank god for more reasons than one) For example. To finance a dw for less than 32K I can do four deals @ 15 year amoritization. So Really that rules out doing deals from between about 25K and 32K because of low returns on what I can rent it for. I can do deals for over 32K for up to 30 years. But if im going to spend that much I might as well go ahead and get a stick built that anyone with a dollar will finance it for me. On the other hand, no one and I mean no one (that Ive found) will finance a single wide with or without land.The same goes for pulling cash out at the end of the deal. No bank I know of here will lend more than 90% of what it takes to buy it. But being able to rent it only for $150 to $200 cash flow I’d be scared to get too leveraged on a single deal anyway. But I can use my credit line to put them in a local park that charges 150 per month lot rent. If I can do the deal for around 8K turn key then I’ll recieve about 100 to 125 per month cash flow for the first five years. Not too good till you run the numbers. That works out to about a 15%yield vs about half that on the DW or stick built. (if memory serves me) Then after 5 years I’ll have the single paid off and my cash flow will be about $300 per month after expenses. Ofcours I could lonnie the SW out but right now im willing to do the Land Lord thing rather than have to constantly find or create new deals…And I can always sell the sw when I “retire”…Hey Tony, how long have you been doing the real estate thing? How has the competition changed over the last few years. I talked to a local broker and she told me that just over the last 3 years she could tell me of about fifteen people she new personally that has gotten onto the DW band wagon. There some around here buying and flipping DWs for a few K profit. Ofcousre their holding time is running in the 6 month to year range. Ok if you can hold that long. I’m in the process of finishing up a rental DW here on my farm and then I’ll have one more single to get moved onto a lot of mine then I’m going to try and exploit a different nich. That being buying county lots that have had a single wide moved off of. My thinking is that I can buy the lot with improvements already in place (ie septic and well) for about the same thing I can buy the raw land. Thus saveing a few Ks… Then get me a cheap small single wide and developeing a land home to rent or flip for bucks…Anyone else doing this??
PS to Tony: I asked you about insurance the other day. Well I was paying $522 for a single wide. Ive since found a different agent that will write the same policy for $83. Needless to say I’m in the process of getting my ducks in a row to move everything from this guy… A family friend that we’ve been doing business with for fourty years… some friend huh??

import · February 10, 2005, 1:32pm

Re: How big is too big? - Posted by John

Posted by John on February 10, 2005 at 14:32:37:

Not sure if this answers your question. I prefer newer single wides 16 x 80 (3 bedroon 2 bath) because I can get more renters for one of them at about $500 per month. A doublewide of the same approximate square footage costs about $10,000 more to buy and setup but will only generate $25 to $50 more in rents. Course that could just be my market which readily accepts older single wide units.

import · February 11, 2005, 9:12am

Re: How big is too big? - Posted by Tony Colella

Posted by Tony Colella on February 11, 2005 at 10:12:19:

There is a very strong “I buy ugly houses” type investor presence here in Asheville. They fight tooth and nail to word their ads so as to get placed one spot higher than the next guy.

Every now and then, one of them buys up a doublewide land/home package, fixes it up and tries to flip it. We had no luck with this here and just yesterday I drove by one that a guy bought, fixed up OVER A YEAR AGO and it is still on the market. His price is below appraisal and not unreasonable for an end user.

This is one reason that Scott and I stick with rental land/home packages and small mobile home parks.

Even the singlewide land/home packages can be sold just like a Lonnie deal via owner financing that makes it attractive the buyer and profitable for us but we will wait until we truly “retire” to do this.

Like you mentioned, buying a lot with an older singlewide can often be done for land value alone. You do get the improvements but make certain that the authorities, the lot size and septic location (if applicable) allow for you to bring in a larger home. In the book we called these deals, “Semi-development deals.” You may well be onto something with these type of deals. Just be sure to do your due diligence first.

Tony

import · February 10, 2005, 4:55pm

Re: How big is too big? - Posted by Chris Reuman (Maine)

Posted by Chris Reuman (Maine) on February 10, 2005 at 17:55:26:

John,

Do you have a lender that will refinance your rental singlewides and cash out money? If you do, please drop me an e-mail. Thanks, Chris

import · February 10, 2005, 2:53pm

Re: How big is too big? - Posted by Tony Colella

Posted by Tony Colella on February 10, 2005 at 15:53:27:

John, I might understand your argument if it were referring to singlewides in parks but if we take the question and address it to land/home deals, the answer might be quite different.

The singlewides provide little to no net worth growth, or access to cash through financing. That was why we called them “cash flow critters.” The singlewide land/home deal is a creature of another kind. It is inexpensive and spits off cash flow but that’s about all it can do.

With the doublewide land/home deals, you can buy wholesale and have access to the equity through financing.

By utilizing the doublewide land/home as a “land bank” as we do, you can pull thousands of tax free dollars out of the property. The property still cash flows but now you are able to use that cash to do other deals.

You could pay cash for a singlewide land/home deal, leverage the money into more doublewide land/home deals, small parks etc.

The doublewide land/home deal provides us with all 3 legs of the balanced financial stool. Cash flow, access to lumps sums of cash and net worth growth.

As for Leon’s concern about what is too big, there is a point at which a larger doublewide on land becomes too big, but there are arguments for and against.

As a landlord, I prefer the middle sized doublewides as rentals. Less cost to operate and you don’t really lose too much in income. Dollar for dollar they are better producers than the 2100 + square foot homes (here in my area).

But the larger home may be a terrific land/bank. Having one that size might allow an investor the opportunity to pull a great deal of cash to do several other deals that make a great deal of higher cash flow return.

There are many ways of looking at deals. There are no right or wrong answers. It just depends upon what works well enough for you. I just wanted to point another option.

Tony

import · February 12, 2005, 8:51am

Re: How big is too big? - Posted by Bob

Posted by Bob on February 12, 2005 at 09:51:47:

Why can’t they (and you) flip doublewide land/home packages for cash? I thought they were easily financeable, and a flip or two is part of your three-legged stool.

import · February 11, 2005, 2:22pm

Re: How big is too big? - Posted by Mike/nc

Posted by Mike/nc on February 11, 2005 at 15:22:09:

Tony, Most of the flipping going on around here is being basically owner financeing deals I believe. I’ve talked to a couple of realtors that say they have clients that buy and resale but the prices I see there sure isnt much wiggle room. I’ve got a bid out now for a land home they were asking 20K for and with a tax value of 64K. Sounds good till you walk into it. The previous owners had five dogs liveing in the house for five years I was told. And by the way it looks the dogs werent house broke they were YARD broke if you get my drift… And I sure did when I walked into the house. I figure If I can get it for about fourteen to sixteen Ill be in good shape if it takes me another 8K - 10K to fixup. If I can winde up with maybe 25K in it Im going to test the flipping market. The worst that can happen is I cant sell it and have to rent it for the next X years…I did have a realtor tell me today that late model DWs in this county usually sold in less than a month, so we’ll see.

import · February 10, 2005, 6:59pm

Re: How big is too big? - Posted by John

Posted by John on February 10, 2005 at 19:59:24:

Tony - I own the park and am trying to fill 60 vacancyies by buying rent to own or units to rent. My area is no longer allowing mobile home parks to be built. Land-home packages start at $80,000 and go up. I do have a lender who finances immobilized homes- single wides but it is a small community bank with a limit on the maximuum amount of loans.

import · February 12, 2005, 9:03am

Re: How big is too big? - Posted by Tony Colella

Posted by Tony Colella on February 12, 2005 at 10:03:28:

Doublewide land/home packages can be flipped for cash. I was simply pointing out that in my area, the market for doing so is not as strong as other areas such as Florida appears to be.

Lump sums of cash are a part of the 3 legged stool but you don’t have to sell the home to access lump sums of cash, in fact it is the worst way to access cash. When you sell, you have to pay taxes on the deal.

If you buy wholesale and refinance after say 12 months (or sooner if your bank will allow) you can pull the same cash tax free, still have an income producing property and a growth in net worth remaining on your balance sheet.

The cash can then be used to buy more income producing assets that will produce greater cash flow.

Tony

import · February 11, 2005, 3:30pm

Re: How big is too big? - Posted by Tony Colella

Posted by Tony Colella on February 11, 2005 at 16:30:22:

When I see owner financing, I don’t consider it flipping in a true sense. The resort to owner financing is likely a symptom of just what I described, the ability to flip to a buyer who will obtain 3rd party financing is limited, thus investors are resorting to the owner financing. Nothing wrong with that. Certainly a ton of money can be made that way.

I think where people get hurt is when they assume the can flip the property for cash and go onto the next deal, only to have the home sit for many, many months until the either decide to cut their losses and sell for less than they need, owner financing for a higher price (but little cash for the next deal) or hold and rent.

Tony