Posted by Tony Colella on February 13, 2011 at 07:38:03:
I like these type of deals for several reasons.
When you can create an income stream for the price of a used car, you have something to think about.
Also when you can pay off that investment in about a year’s time from the rent you have something to think about.
It is hard to get hurt in ths deal Celeste.
I like the idea that you can be debt free on this deal (if you had to leverage it entirely) in a very short period of time. As other posts discussed, let’s say rent rates do fall, you will still be safe on this deal and likely sitting in position to pick up more via foreclosures from others who were over-leveraged in their deals or upside down on their owner/occupant loans.
While I am not sitting in this position just yet, I believe that the way to not only weather this economic storm but capitalize upon it is to have deals like this the provide us income assets with very little to no debt and allow us to wait for the fruit to ripen on the looooooow branches!
Land/Homes following the Lonnie deal model - Posted by Tony Colella
Posted by Tony Colella on February 11, 2011 at 10:03:10:
We so often read and hear about how bad the economy is that fear permeates the real estate investor?s mindset all too much. We got into this game because we knew how to control the variables. The recent economic crisis and government legislation has changed many of these variables but we know that the market is fluid and cannot operate in a vacuum so when one thing changes unfavorably then others must change favorably. Time marches on and most of the ?old timers? tell us how many tax law changes alone they have witnessed and the massive exchange of wealth each change created.
I firmly believe that the land/home properties are the Lonnie deal of real estate right now. Let?s delve into this a little. Lonnie discovered that used mobile homes in parks sat unsold because buyers who wished to live in the homes were unable to obtain financing for these homes. In essence the mobile home lending industry experienced it?s credit crisis a decade or more before the stick built market of today.
With little lending on land/home properties these seller?s are finding the same problem. They have to sell for all cash and in order to do so they must drop their prices dramatically. Those who do not end up in foreclosure which means the investor can either choose to buy a land/home property from the seller for a good price or they seek to buy foreclosures for pennies on the dollar from the banks.
With the continued high rate of foreclosures of stick built housing and the anticipated high foreclosure rate of commercial properties beginning in 2012 (due to balloons coming due) it would only seem logical that as prices on commercial and stick built residential properties drop the mobile home related properties will be of even less value to lenders who are left holding them as Real Estate Owned (REO).
This downward pressure on land/home pricing should make it the buyer?s market many investors had hoped for. Yes you may need cash or access to cash through private money. The more people I talk to the more private money is mentioned by people seeking to put it to work. Regular mom and pops are no longer happy getting less than 1% return on their CD?s. People who would not previously considered lending money to investors are now asking to do so. Partnering with folks like this might be another option on deals like these but that decision is up to you.
If you can buy mobile homes properties that will rent well and you are paying about what people pay for a new or nice used car then I believe you are making a sound investment. How the numbers work out is going to vary by location but logic would seem to dictate that prices will continue to fall. Even if rents remain low buy you have bought for so much less you may have a decent cash flow now that may result in a great cash flow as the market re-establishes itself.
Personally I would recommend paying off all debt on these properties as quickly as possible to limit your exposure to risk and to increase income. This for me would mean fewer properties with greater focus but to each their own.
Please pick my assumptions and conclusions apart so that we can create a better model and approach in 2011.
Re: Land/Homes following the Lonnie deal model - Posted by Shawn Sisco
Posted by Shawn Sisco on February 11, 2011 at 14:34:49:
Tony your post has me thinking of land/home packages that I developed and sold using the nationwide MH lenders of the past. I would say that as a group those loans performed pretty well, not too many repos. I bring this up because it does seem that a higher level of satisfaction with the home purchased is something of a game changer in deciding whether to resell a property creating a payment stream, without property maintenance, or to lease the property and manage its upkeep.
My SD IRA holds a couple of notes on Land/ homes and (so far) the buyers have never been late on payments and really seem to have psychologically taken ownership. They keep their homes maintained, even have been paying the homeowners insurance and property taxes without any prompting on my part.
I have been able to create some 12 year notes that yield 30% and the deals seem to be holding together. While these are great rentals ? it appears that they are outstanding for creating notes with too.
Re: Land/Homes following the Lonnie deal model - Posted by Bernd Hanak
Posted by Bernd Hanak on February 11, 2011 at 14:29:07:
Tony, as usual, a most realistic, excellent post. To validate and to elaborate a little, I offer our more or less completed project as the practical manifestation of your thoughts. Although most of our lots are contiguous, they are separately titled and therefore provide a desirable exit strategy. A single family home is much more liquid and is easier to acquire than an apartment complex. Nevertheless, I do believe that smaller parks, in desirable locations, promise a better future than their mega-size counterparts. As our economy continuous to deteriorate, so will the asking prices of most real estate. We are still in the relatively early stages of the Greater Depression, and I firmly believe that the time to back up the truck to purchase any real estate is when nobody, but nobody, wants to hear the word ?real estate.? I find that most sellers are still in denial of the present and the future but will see the darkness as reality continuous its therapy. The cycle is in motion and is unstoppable.
You suggested that rents may be low, and I would like to add that rents are destined to decline: the actions or inactions of our leadership guarantees continued destruction of our economy, unemployment will reach new heights, wages will decline further, programmed inflation is part of the recipe, and consequently, the average family will have less money available for housing. I do not know how bad it is going to be, and I don?t know when we will hit bottom, but logic tells me that there will be a bottom and subsequently the beginning of a new era.
Re: Land/Homes following the Lonnie deal model - Posted by Tony Colella
Posted by Tony Colella on February 11, 2011 at 15:39:33:
As I have held my land/home properties as rentals I am glad that others are able to chime in with their experiences selling, lease/optioning and owner financing.
Owning the land can give greater control over the deal and if you can get the property paid for then you have even greater control, flexibility and less exposure to risk. With prices declining this seems more and more viable every day.
This also may allow the investor to use the Lonnie approach to create larger and longer term loans that may be considered better collateralized because of the land involved.
Posted by JeffB (MI) on February 11, 2011 at 15:35:50:
Hi Bernd,
I have always enjoyed your posts. You have made mention several times now of this doomsday scenario which sounds plausible to me, but makes me ask the question “what can we do about it?”
I read a lot of Peter Schiff’s stuff and there seems to be a growing number of bears out there seeing a similar future – one fraught with inflation, big government, national depression, joblessness, hopelessness, riots, looting, etc.
I do believe that inflation is inevitable but not sure how that will play out in my daily life. How does one prepare for a catastrophe when there are so many unknowns? Does it even make sense to do so? Does the preparation for a “maybe” cost untold fortunes due to forgone opportunity when the “maybe” doesn’t happen like we thought it would?
If I convert every asset I have into physical gold or silver what do I live on in the meantime? If I buy all the real estate I can get my hands on now, at bargain prices, then what happens if doomsday indeed occurs? My point is there must be a balance between preparedness for disaster, while not missing opportunities that are currently before me.
The one thing I have learned in my short time on this planet is all the best planning inevitably fails to account for some unknown factor created by external forces. For those in the RE game for a while now, the plan was to wait for the housing crash and buy tons of real estate when nobody else wanted it. But who could have predicted the subsequent household consolidation, falling rents, and otherwise unfavorable environment for doing business that followed?
I don’t mean to be argumentative, I like what you’re saying and I don’t disagree. So now that we all understand the prophecy, what are we to do with that information?
Posted by Bernd Hanak on February 14, 2011 at 18:08:26:
Jeff, I apologize for not answering your post expeditiously; I was out of State. The questions and concerns you raise are most appropriate. Briefly, for the past fifty years most western countries have lived far beyond their means. Excessive credit-- debt-- fueled the unsustainable lifestyle of governments, large corporations, banks and individuals. Realistically, the debts cannot be repaid. Individuals’ debts are responded to with repossessions, foreclosures, and bankruptcies. That is deflationary. Large corporate debts are socialized by government bailouts. Unimaginable large government debts are camouflaged by creating more debt and the printing of fiat monies. That is inflationary. For governments and the private Federal Reserve to reverse their ?business model" by 180 degrees is possible but not probable. They would all lose their jobs. Actions have consequences. Most people seem to look to government, which is the cause of our problems, for a solution to their personal situation. That is not reasonable. The responsibility for the individual rests of course with the individual. I grant you that the future is uncertain, but with the present momentum it portends some very nasty finalities. I have no idea what future social and political structures will replace our present system, but it will be different from today’s. In 2008, at Tony?s seminar, most of us could easily outline today?s situation and discuss reasonable preparations an individual might want to consider, all of which, in retrospect , proved to be valid. I propose that our general expectation for the future is just as self-evident. It may be interesting for you to read some older posts on MHU under the title ?the gold lining.? Be aware that it is not all ?doom and gloom,? and that prophecies are in the realm of a Nostradamus, the Mayan calendar, and the Bible. This is reality based on cause and effect. I know that I did not offer any business strategy or possible private preparation germane to meeting the future successfully head on , because only you know what you want to preserve and what your risk tolerance is presently. When you are young, then you can always start again, but would you really want to do that? If you want some valuable information for your personal affairs, you might ask Tony for an invitation to his annual meetings in N.C.
Posted by Auctioneer on February 11, 2011 at 18:46:46:
Jeff, I found your reply to be very well said and thought provoking. You are correct the devil is in the unknown variables. Personal case in point: Just like you mentioned, my plan for this eventual downturn was to buy big bargains but the one variable I failed to factor in was that lenders would actually not want investors and their properties as part of their portfolios. I once had lenders begging me for business and have closed 10 properties at a time. It was a little over 3 years ago that I was about to close on five at once when the banker called and said she had just received a directive from on high that said regardless of being approved and set to close the deal was off and to remain so indefinately. I had (and still have) a near 800 credit score. No one has ever said no, until now. I had already paid for the properties and needed this cash for the pipeline of properties coming through. I learned real fast what the true meaning of ‘cash crunch’ was. I managed to make some adjustments, sell some of the lesser performing properties and properties with unfavorable terms. And I’m still adjusting, but needless to say I haven’t purchased properties like I had planned with the exception of a few MH lots and MHs to turn for notes.
With that said, let me also say their is a silver lining. It has caused me to really look at which properties are worth keeping and to maximize rent and income potential. Personally, I’m a bit more optomistic about the future. Those of us who keep our wits will come out smelling like a rose. The falling of rents will be short lived. Inevitably, inflation will increase rents and values of real property and even better dimenish our leverage in terms of percentage.
This is my third major recession. The first was stagflation of the early 80’s and is what interested me in Real Estate as I noticed those with RE holdings seemed to fare the best. The second was spawned by the S&L crisis. People were saying gloom and doom things such as “it will never be the same”, the country and economy has gone to hell in a hand basket, etc. All I can say is that I made my millions right after that recession. It wasn’t the same at all. It was better!
I think the key to answering your question, Then what? is balance and moderation. During the hey day Leverage increased our rates of return but that same leverage bit us as values decreased. So maybe not so much leverage as a percentage to equity is the way to go. Maybe holding some cash for REALLY good bargains is a good idea even though during inflationary times cash is not a good hedge. Speaking of Hedges, you mentioned the precious metals. Sure some in the portfolio would not hurt but Real Estate my friend is the best hedge. For starters, it is useful. It can be lived on, farmed, grazed. Try eating a gold coin or laying your head on a silver bar. The metals will plummet in value just as soon as recovery shows it’s light at the end of the tunnel. Real Estate will just begin to increase in value.
Posted by Rick Ewens on February 15, 2011 at 15:42:51:
Fantastic Post
I love the different opinions about where our economy is headed and how we all try to structure investment plans accordingly. I personally am only worried about what I can control.
Individual risk tolerance is also very interesting to me and how it effects what we actually do in life.
I know this might be a little contrary to some of the before mentioned thought, but I am a firm believer in properly and responsibly utilized debt. I have borrowed millions and will continue to do so as long as the asset I am buying is purchased at the right price and the cash flow is big with upside. With the constant news about countries, corporations and individuals going broke all around us it is no wonder people fear debt. Debt has been misused massively around the world and was given to people that should have never had it anyway. Responsibility and integrity are the key words in my world when it comes to borrowed money. Personally if I didn?t owe money on cash flowing real estate somewhere I might think I was dead. Do your homework spread your risk and invest millions I say. No matter if it cost one dollar or millions of dollars due diligence is king and as mentioned before you make your money on the buy anyway.
Auctioneer I don?t believe I have ever met you but I will say we definitely went to the same investment school. Your post follows 2 or 3 decades of my own life as a real estate investor. I am long on real estate too and always will be.
Best To All
Rick Ewens
Posted by Tarheel T on February 12, 2011 at 07:42:32:
Very good post!
I have always been low leverage, so i didn’t see the upside some had. Just continuing to look for “fifty cent dollars” lying on the ground, as always. I think it is dangerous to be too gloom and doom, just as it is to be too optimistic.
America has always come back strong, regardless of the leadership. There has been no depression. There will be no depression.
I also agree with Tony that prices are still falling, however they have not fallen to the level I had hoped to see. Maybe they will if the improving economy causes interest rates to rise as I believe is happening. I will be ready!!
Posted by Auctioneer on February 16, 2011 at 09:23:37:
I also find it fasinating to learn peoples different outlooks given their personal Risk Tolerance and Investment Goals. We are all diferent in many ways but with the common denominator of investing at some level.
Rick, we haven’t met and I have only recently been reaquainted with this forum. It was 7 or 8 yrs ago that I first stumbled up on this forum after purchasing my first MHP. Back then I posted as Karl (TN) but I chose to change to Auctioneer as there was/is a very knowledgeable Karl with a “K” … Karl (OH) already on this site. I have made a few good friends here that I still remain in contact with. One being Marty from MO who I don’t see on here anymore but we still communicate via Facebook (the devil, lol). Marty once rode his motorcycle from MO to SE TN to see my operation and I was glad to show him around and answer all his questions. In fact I was honored.
Another recent friendship occured when I asked Tarheel T specifics about a detail in his post. It was a simple yet genuis idea. In fact he also commented to my above comment and I laughed out loud as I read his description of his investment style. …Prefers to “Find fifty cents on the dollar lying around on the ground”… I laughed because this is truly him and reitereates the “make money when you buy” philosophy that is the often forgoten foundation of this business. I love little sayings like this and try to use them to teach my kids and others instead of words such as Arbitrage and Opportunity cost…
Which brings me to the reason I became an Auctioneer. Not only do I love to buy and sell but it gives me the opportunity to learn values and to meet people. I enjoy helping others as I believe most on this forum do. Unfortunately, some ask questions but don’t like our answers. Unfortunate because that is exactly how I started investing is by asking seasoned investors and listening to their stories and sometimes having to hear what I didn’t not want to.
I actually find the exchange of ideas in this setting to be a very valuable benefit!!!
Posted by Tony Colella on February 16, 2011 at 07:15:01:
Rick,
This is why I like this forum and these lines of questions because we can see responses from folks playing the investment game at different levels and from different perspectives.
I don’t like to see one sided advice as it limits people and discourages creativity. On the other hand I don’t like pie in the sky, get rich quick hype either.
As I mentioned some years back to the Morganton seminar Ryan held, there are people making money at every level according to their risk tolerance, experience and knowledge. The limiting factor most often is risk tolerance. My risk tolerance is higher than many but by the standards of many others I have little tolerance at all.
Thanks for sharing your perspective so that others can see that no one size fits all.
Posted by miket/nc on February 12, 2011 at 08:29:26:
I’m not so sure that the price of land/homes is coming down any time soon. For two reasons.Cash investors,at least around here, are keeping prices up. The competition won’t let prices drop but so far. And secondly, much like single wides, the availability of L/Hs is being squeezed from both ends. Fewer new ones are being sold that could go into foreclosure. And many of the bad no money down deals sold to risky owners have already matriculated through the system. All leading to less inventory. Of course if we do indeed have a total financial collapse as some have predicted then all bets are off.
Posted by Auctioneer on February 16, 2011 at 09:32:39:
Yes. One size fits all and get rich quick advice should immediately be flagged by new and old investors as that someone usually has an agenda and it’s not to help others. Sure It’s OK to make a profit, but not by hyping up falsehoods. But there will always be the Snake Oil salesman… Buyer beware!!!
Posted by Tony Colella on February 12, 2011 at 15:39:47:
While the size of the foreclosure “inventory” in any given area will vary from another, I still believe that the cash investors in most areas will not absorb the entire inventory and if they do we could be among them if the prices are that good.
I see more and more traditional land/home investors peaking over the fence (with their cash) to the stick built foreclosures that are hitting low low levels.
With the continued downward pressure on that market (it seems that there are still a great deal of foreclosures that have yet to be acted upon or have been improperly acted upon and halted) I think the land/home inventory will continue to decrease in asking price. As cash buyers exhaust their cash the prices may drop to levels that us little guys can grab some low hanging fruit!
Posted by Celeste-fl on February 13, 2011 at 24:11:53:
Not only banks are slashing there prices. I have not been looking for any deals for months now. Last month I get a call from a woman that heard I buy mobiles. She had a single wide with a porch 2/1 on land in the area I have six others. She is a older woman who moved out of it two years ago and into a house. She had to evict two times and had handy men rip her off. The last straw was when she left it empty for 6 months and went to see it and found the front door broke in. They stole the a/c,ceiling fans,light fixtues,stove fan and stove. There was a leak in the back bedroom that caused some ceiling to come down. She wanted 17k for it and I told her to give it to a realtor. She then said 12k and I said ahhhhh. She then looked me in the eye and said 6k. I said ok.I just rented it last week for $500 a month with taxes and ins at $50 a month total. I put $1900 into it. So I have $7900 in it. I will take these all day long.
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