Owning a mobile home park has many benefits, but one of the best is having a direct line to tenants looking to sell their mobile homes.
A difficult tenant recently decided to purchase a mobile home in another city and needed to sell his home fast to generate the down payment. The 1974, three-bedroom, 16 X 80 home was in unkempt but fair condition, and could turn into a high-rent property with some repairs.
Replacing the tenant and improving the home appearance would greatly help our mobile home community, but I wanted to make the deal work financially as well. Three-bedroom homes were in demand in my area. After spending about three hours inspecting the property, crunching numbers, and negotiating, here's the deal we made:
Purchase price: $6,000.
Terms: Payable $1,000 down, $1,800 at closing a week later, and take over 12 payments of $285 from the prior owners who had sold these tenants the home. Since these prior owners were the same people I bought the mobile home park from, they happily allowed me to take over payments.
Total cash to buy the home: $2,800. This was exactly what the seller needed for the down payment of his new home.
Repairs: $3,000. Using my own park maintenance staff, repairs included interior and exterior paint, new carpet and linoleum, repair decks, fix windows and screens, add gutters and downspouts, and a substantial amount of cleaning. Repairs were completed in one month and the unit looks great.
Total cash outlay: $5,800
Note I assumed: $3,420 (12 X $285)
Total in deal: $9,220
Within a week of completing repairs, I rented the home for $550 per month on a 24-month lease. This will generate $13,200 over the next two years. The new tenant's rent is paying those twelve $285 payments I assumed so my actual cash outlay was only $5,800.
Value of home now: $20,000. I base this value off prior successful Lonnie Deals I've made selling other mobile homes in my park and offering seller financing.
This deal allowed me to replace a difficult tenant, upgrade the appearance of my mobile home park and after 17 months, my investment will pay for itself. I gain $380 per month ($550 rent minus the $170 lot rent I was making before) forever from then on if I choose to continue renting the unit. Plus I will own a dwelling "free and clear" that can be sold for $20,000 later and then collect my additional $170 lot rent forever.
I could have taken a more hard-line approach to the negotiations, since I was the seller's only likely cash buyer. But I wanted the tenant to feel good about the deal, too, so he'd move on. Like Lonnie Scruggs says, "Pigs get fed, but hogs get slaughtered."
I'm not sure how to calculate the yield, but nearly quadrupling my investment in 17 months and generating an additional $380 per month is "good enough."