As I discussed in my last article, most of the major lenders on manufactured housing dropped out of the market in the early 1990s. Today we are beginning to see the benefits of that corporate retreat. Most of the mobile homes sold after the major lenders dropped out were sold by the seller creating "seller carry-back" notes. Many of these notes can now be purchased at a very nice discount.

During the last financial crunch, it became popular to create interest only notes or to stretch the payments out over many years, to help lower the payment and make the purchase affordable. In this article we will look at both.

Remember, when talking "discount" with the holder of one of these interest only notes, you will find they look at a balloon payment as if they will finally get their money when the balloon is due. They are therefore reluctant to discount the note at all.

Offer to purchase PART of the note

Here's a possible solution for them that creates a nice yield for you. Offer to purchase part of the note, not all of it. Example:

Face amount	$20,000
Interest	12%
Term	5 Years (60 Months)
Payment (Interest Only)	$200.00

Let's assume there are 36 months of payments remaining ($200 x 36 = $7,200), plus the balloon of $20,000, a total of $27,200. You offer to purchase the next 24 payments and half of the balloon. If the seller goes for the deal, you would receive the next 24 payments of $200 each and, when the balloon is paid, you will receive $10,000, or half the balloon.You offer $5,500 to make the purchase. The seller receives:

Your Cash Price	$5,500
Payments (last 12)	$2,400 ($200 x 12)
Balloon	$10,000
Total	$17,900

Remember the seller has already received the first 24 months ($200 x 24 = $4,800), so add that to the total for the seller. The seller receives a total of $22,700 over the full term of the $20,000 note. That's an amount most sellers can live with.

Make sure to walk the seller through the numbers to show how they still receive the original amount of the note and an additional $2,700 in interest. Remember the only reason the seller is selling the note in the first place is because he wants or needs the money. But what about you, what kind of yield will you get?

What a deal! You get back:

Payments ($200 x 24)	$4,800
Balloon	$10,000
Total	$14,800
Less Your Investment	- $5,500
Cash Profit	$9,300

Cash on cash return = 169%. What if you sold your interest to an investor or note buyer at an 16% yield? Here is the result:

When you buy "partials," remember to get a complete assignment of the note until you are paid off. Your local attorney will help you with the contract. Always make sure you do the research necessary to protect your position to insure you have an adequate loan-to-value ratio.

One of the great thing about partials is the LTV is dramatically reduced. In the above example, it could be as low as 28%. This is a note player's dream because it's like owning a small first with a big second as protection. The original note holder will want to protect his remaining interest in the note, so if the payor stops paying, you have the original seller as a back up.

Fully amortized notes

Now fully amortized notes can be just as exciting. They offer the note player an opportunity for a larger discount because of the longer term. (These notes also make great "trading material.") Example:

Face amount	$20,000
Interest	12%
Term	15 Years
Payment	$240.03

Let's assume 36 payments have been made and there are 144 payments remaining. You offer to purchase the next 60 payments. That is, if the seller goes for the deal, you would receive the next 60 payments of $240.03 each, and the seller would receive the remaining 84. You offer $5,500 to make the purchase.

Your Cash Price		$5,500
Payments (last 84)	$20,162 ($240.03 x 84)
Total	$25,662

Remember the seller has already received the first 36 months ($240.03 x 36 = $8,641.08), so add that to the total for the seller. The seller receives a total of $34,303.60 over the full term of the $20,000 note. Now you have three choices:

1. Flip the note partial for a quick profit.
2. Trade the note for something else.
3. Keep the note for the yield.

Flip the note for a quick profit

Let's look at the first option, the Quick Flip: If you sell at a 16% yield, the numbers are. . .

If you sell at a 16% yield, your cash profit is $4,370. Nice quick profit. Do that a couple times a month!

Trade the note for something else

You can always trade your interest for something else you might want. Maybe a car? A boat? A house? If the value is there, you can make the trade. First multiply the number of payments you purchased, 60 X $240.03 = $14,401.80. Now you know how much trading power you can start with.

Next, go find something you want. The best trade will be for a "depreciating" asset. A car? A boat? An airplane? A MOTIVATED seller will gladly trade his used Mercedes for close to his asking price, especially if it's cash coming in every month. On top of that, the collateral for the note will be worth a whole lot more than his car. It's a better deal than if he sold the car on payments.

Let's say his car is worth $14,000, and you make the trade. You trade the notes for the car. What did you pay for it? Why $5,500 of course! The cost of the note is your real cost. There are so many things you can trade these notes for, I can't begin to scratch the surface.

Read this Success Story by Jim Galt and find out how he traded notes for a house. He made $100,000 and the whole deal cost him $1! [How I Made $100,000 for One Dollar]

Keep the note for the yield

The ultimate goal is to make our nest egg grow for retirement or other future use. What kind of yield would we make if we just kept the partial we bought? The answer is 47.20% annual yield. Not a bad rate of growth. And the beautiful thing is, if you do it right, you might just get those last 84 payments at the same yield.

This article is an illustration of the potential profit you can make buying partials. Once you learn the principals of the mobile home paper market and the note market in general, buying notes to achieve your investment goals will become as easy as going to the supermarket to get more sodas for the fridge.

As you can see, buying mobile home notes, especially partials, is extremely rewarding. I hope you can get started while we still have this little-known market to ourselves.

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