Posted by BamaRoy on November 17, 2005 at 08:57:43:
Can you say 1,200 water bill one month. It averages about $250. I am still paying that puppy off… That is why you need an onsite manager!
Please explain this basic Lonnie deal concept - Posted by Mike
Posted by Mike on November 16, 2005 at 11:23:10:
I understand the basics of the Lonnie deal. Buy a mobile home, re-sell it for at least 2x your cost. Finance the buyer and collect payments. Do it again and again and create a passive income stream.
Here’s what I don’t get. Let’s say you have $100,000 to work with. You go out and buy 20 MH’s at 5k per home. Sell each at 10k. Over 5yrs, the buyer’s payments should be around 200/month. So, total monthly income should be about 4k/month. At the end of 5 yrs, your total income would be 240k. I think that works out to be about 28% ROI annually. My question is this. Let’s say you decide to live on that 4k/month. At the end of 5yrs. you have nothing left. No doubt as a passive investment, it’s a great return. But I don’t see how this strategy can support someone indefinitely.
Obviously, I’m simplifying the numbers to some extent. Please let me know what I’m missing here.
Thanks.
Re: Please explain this basic Lonnie deal concept - Posted by Brian (UT)
Posted by Brian (UT) on November 22, 2005 at 14:29:48:
Mike
For starters your ignoring the first rule of business, never, never, never touch or spend your working capital on anything but business! Sounds like you want to buy an annuity, talk to your insurance agent and forget investing.
Brian
Re: Please explain this basic Lonnie deal concept - Posted by Gary
Posted by Gary on November 16, 2005 at 22:32:39:
You expect to find 20 deals say in a month and then do what for the next 5 years-nothing? You reinvest every dollar you don’t need to survive back into more deals. The successful investor must constantly be looking for the next deal. And why? It’s his or her passion,it’s like a hunting dog on the trail,we need that rush we get when we find or create a deal. Or we may need to keep buying and improving property just to keep the IRS from taking all the profit.
Re: Please explain this basic Lonnie deal concept - Posted by Joe-WA
Posted by Joe-WA on November 16, 2005 at 15:55:21:
Suppose you received 10% down on each of the homes. Then you have enough cash to buy approximately 5 more homes. Since you don’t need the money to live on you have about $1000/month to grow your business.
Re: Where you start depends on where you are - Posted by Daphne Lowe
Posted by Daphne Lowe on November 16, 2005 at 15:48:23:
You’ve hit upon why LD are just a beginning, not an end. How appropriate it is depends on your situation, its not one size fits all. A truck driver struggling on 30k/year needs different financial tools than an attorney making 300k who’s fiscally disciplined. The truck driver might scrape together a couple grand, and a few LDs later, she’s making enough to replace the income earned by a job, and can then focus full time on the next rung of the investment ladder. It would probably not be time efficient for the aforementioned attorney to go driving speed bumps creating 250/mo income streams. If you have the resources, use more sophisticated tools. For example, 100k lump sum could be used as downpayment on a 500k park that would generate 2k monthly cash flow (CF = gross - expenses - debt service). This is indexed to inflation, and goes on in perpetuity.
Re: Please explain this basic Lonnie deal concept - Posted by osupsycho (OK)
Posted by osupsycho (OK) on November 16, 2005 at 14:45:17:
You bring up a very good point but remember that the #s you give a good starting point but you can do much better. I try and sell for triple what I have in a home and am starting to look at longer terms than 5 years.
Tony had a great post about this very thing when he was talking about good investing being like a three legged stool with a leg for cash generation (flipping houses or a regular job), a leg for using that cash to work in the short term to generate even bigger sums of cash (Lonnie deals), and a leg to provide long term cashflow to retire and live off of (rentals, and MH parks). I am doing that by memory and am sure I am not doing Tony justice so I will try and dig up his post.
Re: Please explain this basic Lonnie deal concept - Posted by Barry (GA)
Posted by Barry (GA) on November 16, 2005 at 13:22:48:
Mike,
As someone has already stated, you would need to reinvest some of that income to generate more deals. I remember a post from Doc, I think, about how he met a guy doing quite a lot of deals a month as a retirement income.
You may want to read this post by Tony about the “3 legged stool”.
http://www.creonline.com/mobilehomes/wwwboard4/messages/23134.html
Good investing,
Barry
Re: Please explain this basic Lonnie deal concept - Posted by bobb
Posted by bobb on November 16, 2005 at 12:27:06:
Mike,
There is a basic concept that you are not plugging into the equation of your $100K. You have to take a part of your earnings and reinvest it so as to continue the cash flow. If you have not read “The Richest Man in Babalon” you might consider buying it. You can easily read it in one to two evenings and It is a great read with an essential ingredient to lasting success in your business.
Another way to look at it is, if you took the same $100K and invested it in a grocery store would you sell everything in the store over a 4 year period and try to “live on it” without reinvesting in more milk, tomatoes, canned goods, etc.? Of course not. You have to replinish. If you invested in the stock market you certainly would not be able to live on it.
Additionally, the 28% ROI you mentioned is quite low for most Lonnie deals. I think the Lonnie rule is make at least 50% and there are many Lonnie deals that are generating 100% or more.
Good luck to your investing Mike. I hope this helps.
bobb
Re: Please explain this basic Lonnie deal concept - Posted by Bruce
Posted by Bruce on November 16, 2005 at 11:47:35:
I cannot wait to read some of the posts this is going to bring. Here is food for thought. If you took that 100K and just decided to live off of it exclusively, at 4K a month you would be broke in 25 months!!! 60 months just has a better ring to it.
Re: Please explain this basic Lonnie deal concept - Posted by Chris (Ga)
Posted by Chris (Ga) on November 16, 2005 at 11:40:30:
You need to keep doing lonnie deals or buy a MH park in order to keep the money coming in over a longer time than the five years that you stated. As you get the down payments you should be doing more deals to create the long term income stream.
Re: See my post below-nt - Posted by Barry (GA)
Posted by Barry (GA) on November 16, 2005 at 15:05:37:
nt
Re: Please explain this basic Lonnie deal concept - Posted by Mike
Posted by Mike on November 16, 2005 at 13:17:47:
Thanks Bob.
I agree that re-investing is the only way to keep the cash-flow coming. I don’t doubt that Lonnie deals are a great way to create an income stream. The only flaw I see is that it doesn’t create a retirement asset down the road the way traditional rental property would.
I guess having MH’s and other real estate investments is the way to generate a lifetime of cash flow and equity buildup.
Re: Please explain this basic Lonnie deal concept - Posted by BamaRoy
Posted by BamaRoy on November 16, 2005 at 16:30:57:
I am trying to remember the last time I had one of my Lonnie deals fulfill the full lease term and reach the option to buy. Let me think??? Never… I am sure it happens at times, but for the most part, these deals are lease to own to lease again. So in reality a substantial amount of your cash flow may go on for perpetuity. Not to mention, multiple security deposits to boot. When dealing with low to moderate income, people tend to have issues affect them financially that they can’t recover from. Some move out of low to moderate income, but most of our clients stay there. And for any who are park owners it is not hard to see why… It is a great business!!
Re: Please explain this basic Lonnie deal concept - Posted by bobb
Posted by bobb on November 16, 2005 at 16:32:14:
Mike,
Your observations are correct. However I have something for you to consider.
Once you have 30 Lonnie deals bringing in an average of $250 (I have some netting $200 and others bringing in $400 so $250 is conservative)you can consider buying yourself a small mobile home park. With the park you can continue to buy Lonnie deals but you could move them into YOUR park. Then you will be receiving lot rent (dirt) and the MH note for the lenght of the note (say 4 years) and after that you “rent the dirt” as Lonnie would put it. Once you become comfortable with that then buy yourself another park. If you do that you have created a lifetime income stream without going into landlording. Of course landlording is a way to go also and I know many individuals that avenue. If you went that way you would do the same plan as outlined above except instead of doing the Lonnie deal you would rent. If you don’t mind landlording combining it with the classic Lonnie purchase is the way to go.
I encourage you to continue to do your homework and find out what best fits your personality. I think that sounds easier that it really is. There are so many ways to make money in arena that it is mindboggling. Really sit down and determine if you want to be in charge of repairing and fix-up or actually going out and doing the fix-up vs just holding the note.
What materials have you purchased and what bootcamps have you attended?
Good investing,
bobb
Sounds good, but reality? - Posted by Daphne Lowe
Posted by Daphne Lowe on November 16, 2005 at 17:55:36:
“…buy yourself another park. If you do that you have created a lifetime income stream without going into landlording…”
Sounds good, please tell me how.
Just the other night, water started gushing up out of the ground like a geyser- a water pipe broke, I gotta fix it. Some thug shoots out a street light. A resident that’s been evicted takes the electric meter. A neighbor’s dog/child/guest is a nuisance. Cars driving too fast. Domestic disputes. Loud music. Chasing down rent payments. I could go on… Maybe I’m doing something wrong, because being a park owner hasn’t been all that different than being a SFR landlord has been for me. I’m new at this, so I’d love to hear the prospective of some experienced park owners here.
Daphne
Re: Sounds good, but reality? - Posted by Brian (UT)
Posted by Brian (UT) on November 22, 2005 at 14:23:29:
Daphne
Just curious, what percent of the units in your park are rentals? My younger brother is looking at a park that sounds like yours and there is a high percentage of rentals. I pity the landlords and the tenants if he buys it, they will need to increase their medical coverage if they don’t cooperate with him.
It reminds me of an apartment complex I bought, it was a decent area but the good tenants were leaving because of the bad ones and the manager was keeping the bad tenants because of the vacancies and thinking she would dump them when everything was rented. I moved into a vacant unit, she didn’t know I was the new owner, and she would only receive instructions by mail from the new owners company.
I would walk the grounds and look and listen, talk to other tenants as one tenant to another. I picked the worst tenant and started eviction proceedings, sent every tenant a new newsletter and one of the articles mentioned that unit # so and so was being evicted and why. Also started a voice mail box so tenants could complain without identifying themselves, but each month I would pick a new tenant to evict for the newsletter and within 6 months it was 100% occupied and several tenants mentioned to me (still thinking I was just another fellow tenant) that they had planned to move out etc. but now that everything had been corrected they were staying.
Also knew I wouldn’t be in a position to keep good tenants when I started to raise rents if things stayed as they were.
Sounds like something similiar could help you, bad MH owners and bad MH tenants will never do anything to improve a park and sometimes you need to lose for awhile on purpose before you win.
It would be great to hear from some of you that have been through this with a MHP, I would like to relay the info to my brother before buys and starts breaking every bone in someones body.
Brian
Re: Sounds good, but reality? - Posted by Gary
Posted by Gary on November 16, 2005 at 22:14:51:
I can relate to that water shooting up out of the ground issue. Is there any chance that you are sick and tired of your park and want it sold? I like exactly the type of parks you’ve described.
Re: Sounds good, but reality? - Posted by Daphne Lowe
Posted by Daphne Lowe on November 24, 2005 at 11:41:09:
Brian, although my park has few rental units (~10% of occupied lots) it sounds a lot like your apt building. The barrel was mostly empty because of the bad apples. I’ve found that about 5% of the residents were troublemakers, 5% are working with me to cleanup the park, and 90% are watching from the sidelines. By the end of the month we will have kicked out the last troublemaker. Beyond that we’ve taken other measures to improve the quality of living here. There was a lot of traffic from outside the community, we erected and staffed a guard station to control entry to the premises. We implemented community rules regarding loitering, music, etc. Word of the change is spreading, so I hope it will attract better quality residents. Affordable housing here is scarce, and we are the only game in town.
Daphne
Re: Sounds good, but reality? - Posted by Daphne Lowe
Posted by Daphne Lowe on November 17, 2005 at 13:43:28:
Sick and tired? No way!
I’m having the time of my life. I came out of retirement to do this. I was just suggesting the oft quoted ease of management made between renting dirt vs. stick & brick, hasn’t held true for me. For someone wary of being a landlord, I don’t think being a dirtlord would be a satisfactory solution. Maybe my experiences aren’t typical, hence the query. For those who’ve had both, do you find it less management intensive?
Daphne