Starting MH note buying business - (long) - Posted by srb (Tx)
Posted by srb (Tx) on July 10, 2006 at 17:11:06:
Based on my (limited) experience in doing Lonnie deals and attempts to find note buyers, I am thinking of starting a mobile home note buying business. Let me know what you think about this plan:
I will offer 80 cents on the dollar for partials that meet the following simple criteria:
I will buy the next 24 payments
The note should have at least 36 payments remaining
At least 3 month seasoning required (preferably no late payments in that period)
Remaining face value of note should not exceed 60% of “as-is” retail value of home
Home should be less than 15 years old
Example:
Assume $300 monthly payments for the next 36 months (present value of the next 24 payments is $6373.02 at 12% interest).
I will buy 24 payments for $5126.57 (giving me a 35% yield).
Therefore, I would be paying him 80.44% ($5126.57 divided by $6373.02) of the face value.
I will borrow $5894.40 from an investor (at 20% interest) that will provide him 24 payments of $300 per month. This is an investor that has already lent me money at 20% interest to invest in mobile homes. So, he understands this kind of risk.
I will make $767.82 ($5894.40 - $5126.57) as my spread.
Benefits and risks for all 3 parties (myself, note seller, investor):
Note seller:
Benefits - quick cash to do more deals, ability to sell income stream for 80% of value
Risks - must add investor or myself as lienholder to mobile home title till 24 payments are made
Investor:
Benefits - makes 20% yield on investment, protected by lien on mobile home at less than 60% of value (good LTV)
Risks - credit history of MH buyer (note payor), possibility of repo if payment stream stops, note payor has to pay taxes, lot rent and maintain insurance
Myself:
Benefits - quick, upfront cash ($767.82) for my efforts to match two interested parties; provide MH expertise in valuation and repossession to investor
Risks - I assure a steady income stream to my investor. So, I am responsible for repossession if the payment stream is jeopardized.
Miscellaneous issues to consider:
- Fees to add lienholder to title and release of lien once payments are made.
- An amount equivalent to 2-3 monthly payments would be held in a separate account (escrow?) to guard against default. They will provide a 60-90 day cushion to complete any legal action if payments stop or are late.
- Note payor to provide proof of insurance coverage & property taxes paid
What do you all think about this plan?
Survey question - would anyone here be interested in selling their notes if I offered a service like this?
Thanks,
B.