Posted by Marty (MO) on July 13, 2005 at 17:09:03:
I could’ve used a lot more education than Latin could ever provide! I’m one of those guys that should’ve had a personal board of directors advising me before I did anything…
If you decide to visit MO, let me know and I’ll buy you a beverage of your choice.
Good luck with your investing and keep us posted on what you’re doing-
Ready to get off the couch, no $$$… - Posted by Kevin P. (TX)
Posted by Kevin P. (TX) on July 11, 2005 at 13:38:09:
Ok, here is the situation.
I have read Lonnie’s books twice each and every article
and success story on the mobile home section of this site.
I am READY to get going with this but have no money to get started. Everything is used up on bills, I am cutting back what I can on this, i.e. cancelling cable, back to dialup internet instead of DSL, etc…
I applied for a loan through Citifinancial and was approved for $7000 with my pickup as collateral. Ok, great. That’s what I was needing. But, the catch is that with my current credit, the interest rate for this is 22 %. Ouch!! The payment would be $220 for 48 months. I don’t think that sounds too good after all.
Would anyone here consider doing this loan with these terms if you were me? I don’t see much potential with this particular situation.
Sweat for the Note… - Posted by Jered (WA)
Posted by Jered (WA) on July 12, 2005 at 22:55:15:
You don’t need money. You can use sweat to get the first few deals. It is easy.
Find a few MHPs with parked owned homes that need work. Talk to the PM and tell them that you will fixup the homes and find buyers to help them start generating lot rent. If you need money for materials (these can often be bartered for), then arrange for the PM to buy the materials and you pay them back when the home is sold. The buyer’s down payment should cover it. Then, you keep the note.
This does a few things for you:
- Builds up your relationship with the PMs.
- Gets experience with home repairs and rehab costs.
- Allows you to practice on getting buyers for the first few homes.
- Gives you a note with very little out of pocket.
Next, go sell a partial of this new note to an investor to get cash. Take this cash and plow it back into the business. Buy more homes at low, low costs and get more notes.
And the cycle repeats…
Re: Ready to get off the couch, no $$$… - Posted by DSmith
Posted by DSmith on July 12, 2005 at 07:35:13:
I started with $5000 (from an equity line) a month ago and am now the proud owner of 3 mobile homes, each a better deal. Now I just need to sell them.
Home #1: $900 1972 3/2 that needs about $1500 in work. This one wasn?t a great deal, but it put me in good with the park manager. I should get 4000-5000 for it.
Home #2: $800 1980 3/2 the central air needs to be fixed, other than that this one is immaculate. It was a park referral that was never listed for sale. I should get around 8000 for it.
Home #3: FREE 1985 2/2 that needs about $1500 in work. This one is in better condition than home #1 (a mistake in hind site) and I should be able to get 5000 for it.
I?m still working on Home #1 (if I had to do it again I?d sell it as a fixer upper) and I just got the others this week. I hope to have them all sold by the end of August, #2 by the end of July. So that initial 5,000 will then be turned into around 20,000. From here I hope to get enough in down payments to get one or two more homes. Then I?ll either borrow more money or sell a note or two to keep it going. I?ve already got friends offering to either buy notes or front money for a split of the profits. Though my goal is to totally finance this business myself, it?s nice to know its there if I need it. Anyway the point is, you just need to do what you need to do to get started. In the one month since I talked to my first park manager, my phone has been ringing off the hook and I can already tell that this business is going to keep feeding itself. Just take the first, most important, step and go talk to a park manager. Maybe they?ll turn you one to a deal like Home #2. I?m sure you could come up with $800 if you had to. Or like #3 which I could probably just clean out and sell as a fixer upper for $1,500. All three of these deals came from the park manager, none were listed.
Slippery Slope off that Couch. . . - Posted by Sailor
Posted by Sailor on July 12, 2005 at 06:13:12:
Your loan isn’t 22%, it is 22% PER ANNUM for 4 years, which means that it is only 22% if you pay it off in full the 1st year. Your total interest nut for 4 years would be $3560, more than 50%. Oops. How much profit are you planning to make w/that expensive seed $$$?
Recommendations: (1) Have a garage sale for your seed $$$; (2) Clean up that credit; it’s simply making you too vulnerable. (3) Take an inexpensive RE class @ your local community college (4) Read additional articles on the math & evils of interest. It is my believe that most interest arrangements, simply because of lack of math skills & due diligence on the part of the borrower, takes $$$ out of your pocket & food off the table of your family. Heck, a truck loan doesn’t even give you a piddly 15% tax deduction. Unfortunately, most scandalous interest payments are made my those who can least afford it. Knowledge is power, kid, so go get yourself some–
look into financing your purchase - Posted by JD (IL)
Posted by JD (IL) on July 11, 2005 at 20:18:42:
IF you can get an agreement up front with the park, you can sometimes buy the homes on terms for close to the prices we pay cash. But if it comes down to this is your only source of cash do it, AFTER you have buyers lined up and homes lined up you can buy. Don’t dig yourself in a hole to buy a place you’re going to be paying lot rent on for a few months. That money is irrecoverable.
Re: Ready to get off the couch, no $$$… - Posted by Gary
Posted by Gary on July 11, 2005 at 19:37:59:
Well your problem is the high rate from mistakes you’ve made in the past. I can remember the times years ago when I lived on a busy street and would carry furniture out in the yard to sell to do a deal. My two sons never knew if there would be a TV in the house or not when they came home from school. They actually learned to read during those times though. You look hard enough and you will find a way. I,ve missed some big deals because I couldn’t think of a source to gather money quick enough. As any one here doing deals will tell you,it’s not the money, it’s the TIME. Like these posters say,dig for it. Until you are known to do deals no one will come knocking with that deal of a lifetime. On the wife’s support thing,I USED to have one that couldn’t stand prosperity or having a dollar set aside to be used for deals. I should have cut my losses on that mistake much earlier. You young single guys heed my advice,if that honey’s parents live from week to week and the whole bunch are employees with no guts,imagination,or ambition to do their own thing,don’t walk,RUN the hell out of there.
Re: Ready to get off the couch, no $$$… - Posted by Tom (WA)
Posted by Tom (WA) on July 11, 2005 at 17:23:09:
Let’s see. Borrow at 22% - use the money to make 62%. Sounds like a 40% spread to me.
the hardest thing to understand - Posted by Marty (MO)
Posted by Marty (MO) on July 11, 2005 at 17:00:40:
is that money isn’t the important ingredient. If you find the right deal, the money materializes. You need to get in the way of the money. Start looking for deals, meet pm’s, etc. Join a local re club. SELL BEFORE YOU BUY. You don’t even know if you need a line of credit. Find out what someone will take for their home, contact a buyer off your buyer’s list, and put the deal together. I’ve bought homes with downpayments, then created notes from thin air.
I’ve seen too many people run out and get a line of credit, overpay (just to get that first deal under their belt), and end up burdened with more debt. One guy did a decent Lonnie deal with money from his 401- instead of paying back the 401 or rolling it into another deal, he bought his wife the furniture she "had to have."
Make sure you’re ready to become financially responsible and that your wife is on board with what you’re trying to build. Lonnie has JoAnne and she’s on board. He emphasizes how important that is because his first wife wasn’t on board. That’s a big reason I’m divorced.
Look at what you have to sell… Steve launched his business by selling his Harley. Like you, we’ve cut our personal expenses to nothing. I don’t even have rabbit ears on my TV…
Know where you’re going and how your’e going to get there before you burden yourself with another loan. If you know what you’re doing and create a 150% deal, then 22% on a loan is a no-brainer.
Re: Ready to get off the couch, no $$$… - Posted by Nate-WI
Posted by Nate-WI on July 11, 2005 at 14:39:18:
I hear and feel your pain…Well I did but not anymore. I was in the same boat as yourself. So…I took money out of my 401K to get going. Then I started networking on the Net and now have a nice credit line to work with. It starts to snowball and you just pick up steam as each deal is done. I started 3 months ago and have done three deals and looking for a fourth. Don’t get desperate Kevin. Just get after it and dig. Ask banks, ask credit unions, ask family members, find private money. You’ll get there,
Re: Ready to get off the couch, no $$$… - Posted by osupsycho (OK)
Posted by osupsycho (OK) on July 11, 2005 at 13:56:06:
I would say that if it is your only option (which I doubt) then it might be worth it. If you run out the numbers you pay $10,560 ($220 x 48) to get access to $7000. That means your operating costs before you ever get started is $3560. Not good but not horrible either if you can make a deal(s) that will cover this and still profit. I am still on my first deal and it looks like I am going to make $5000 over 60 months on it (and this is after all expenses including the tax hit). I have made quite a few mistakes that have cost me $$ so I know the next one will be better. So it is possible. By the way I have used $4500 on this deal so you would have enough for another (smaller $$) one if you do one identical.
Here is the trick though…what will you do after you have done that one (or 2 or 3 depending on how far you stretch the $7k). You will back in the same place you are now but with a loan that must be met even if your buyers default. I would find some friends with spare money to invest in “you”. Just like Lonnie talks about in his books. It worked for me as I have several sources of $$ for my next few deals (and even more if those go really well). I wanted to do one on my own to prove (both to them and to me) that it would work though. If that is your case as well then the loan is worth it.
On a side note I bet you can “create” more money out of what you are already making. If you haven’t read the “Richest man in Babylon” for a guide and put a budget in place. One other tip I that has worked for me is to pay myself (investment money) first. By this I mean I have a separate bank account just for investing that I have a portion of my paycheck automatically go into every pay period. I never see this money when I cash my check and it is surprising how you don’t miss it.
Hope this helps. Also where in TX are you at?
Re: Ready to get off the couch, no $$$… - Posted by Sailor
Posted by Sailor on July 12, 2005 at 09:18:18:
Sounds like you are off to a rousing start. Even though your seed $$$ re-payments are tax deductible & surely @ a much lower interest rate than a 22% truck loan, do make sure that your action plan includes rapid repayment of your equity or your deals w/be less profitable than they should. Gosh, I’m a worry-wart this week!
Re: Slippery Slope off that Couch. . . - Posted by JeffB (MI)
Posted by JeffB (MI) on July 12, 2005 at 14:07:12:
Yes, it’s a 22% APR but that does not make it a 50% interest charge, not the way we talk about yields with respect to Lonnie deals. That’s not comparing apples to apples.
If he borrows money at 22% and earns a 50% yield (interchangable with IRR for this discussion) , he has made a nice profit, not break-even as you seem to be suggesting.
Re: Ready to get off the couch, no $$$… - Posted by JT
Posted by JT on July 11, 2005 at 21:10:22:
Psycho made an excellent point!! What in the world do you need $7000 for? Get out there and hustle. I don’t know what the percentage is but I would be willing to bet the debt service on 2 grand is less than 7 grand. Find that $2000 deal or better yet, use what ever your occupation is to barter if you can, ie. “I will trade you Mr. Seller. I am an (enter profession here) for that ol run down trailer” Does not have to be that exactly but you get the point. Get Off The Couch!!! *
- My very sincere thanks to Steve(WA) for the quote of the century(even if only used on my dogs)
Re: Ready to get off the couch, no $$$… - Posted by Kevin P. (TX)
Posted by Kevin P. (TX) on July 11, 2005 at 14:30:03:
I am in the Lubbock area.
Re: Apples Sliding Down Slippery Slope. . . - Posted by Sailor
Posted by Sailor on July 12, 2005 at 14:43:55:
Apples aren’t relevant–I’m talking about cold hard right-out-of-your-pocket CA$H. With payments of $220 monthly for 4 years, that adds up to a total of $10,560.00 paid on a 7k loan. I went to school long before New Math was invented, but in my bank account $3560 (interest) is more than 50% of 7K. If this 4 year loan is paid off @ an accelerated rate, the total interest paid would be less (but still steep), & never less than 22% per annum.
I think sometimes in our glee to achieve percentages, we forget that we are dealing w/DOLLAR$. I always translate my calculations into real money to make sure I know what I’m doing.
It’s important to remember that you must calculate TOTAL interest paid, not just the PER ANNUM rate. If the terms are longer than 12 mo, the former is going to be incredibly higher than the latter. That’s why lenders are richer than most of the rest of us–
royalty, please - Posted by Steve-WA
Posted by Steve-WA on July 12, 2005 at 13:22:26:
one beer for every use of GOTC or its derivatives. Patent pending
Re: Ready to get off the couch, no $$$… - Posted by osupsycho (OK)
Posted by osupsycho (OK) on July 11, 2005 at 14:42:51:
I’m sorry, no just kidding Lubbock is just not my kind of town. I was wondering if you were in the DFW area because I have contacts there.
Re: Apples Sliding Down Slippery Slope. . . - Posted by JeffB (MI)
Posted by JeffB (MI) on July 12, 2005 at 15:34:32:
I must respectfully disagree. I think it is misleading when we all talk about yield (return), but interest charges as a cold-hard-cash number. Again, it is comparing two entirely different things.
Working your example backwards, if you were to invest $7,000 and accept payments of $220 a month for 4 years, you would be earning a 22% yield (or APR or whatever you want to call it). So borrowing money in this manner does not equate to paying “50% interest”. Like I said earlier, if you can borrow money at 22% and earn a 50% yield, you’ve made money, period. Whether or not the 28% spread is worth the risk is a decision the investor must make.
I do however agree with your earlier comments that there are likely better ways to raise cash, of which you gave some good examples.
Re: Apples Sliding Down Slippery Slope. . . - Posted by Sailor
Posted by Sailor on July 12, 2005 at 16:11:13:
Sorry, but there is no spread on a deal yielding 50% if you borrow 22% per annum money for 4 years to finance it. The only way there is any way to end up in the black instead of the red is to re-pay early. On a 7k deal w/a 50% profit, the investor gets back 10,500 (unless you are thinking of a return of 14k, which would be a 100% profit). If the deal is financed w/a 4 year loan @ 22%, the loan repayment @ $220 monthly is 10,560, giving the borrower a deficit of 60 bucks.
Tye (who is now considering making truck loans instead of buying RE)