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Making Money by Breaking the Rules

by Dan Bowman, Raleigh, NC   

Thanks to Lonnie Scruggs, Ernest Tew, Bill Bronchick, Terry Vaughan, and lots of others for an education I couldn't have bought in school. I've been using ideas from all of you for several deals.

Here are a couple examples of how I'm making money with mobile homes even though I'm breaking most of Lonnie's rules. First, I must explain that most of the mobile home parks in town have enacted strict age restrictions--two or three years old, and you're out. I chased the classic "El cheapo" deal for several months without success.

Then I stumbled on an older park gone to seed by way of tracking down a Greentree repo, a 1987 14 x 80 in okay shape. I gave Greentree the $5,000 they were asking because they have a list of eager investors, and this was my turn.

Now, here's the dumb part. I rehabbed/reconditioned the whole thing, inside and out, and spent another $4,200. A little advertising, a month's rent, and I'm up to $9,500 invested. I'm starting to think, "Lonnie would not approve!"

But here's the catch. I lease optioned the home for six years (three-year lease, three-year purchase contract) at $395/month plus lot rent, with $1,500 down as option consideration. I give them $50/month credit.

Never mind all the details, the almost-bottom line is a 57% return. Good enough? Not yet. I borrowed $5,000 at 18% from a relative, with payments of $114/month (much better than their 5.4% CD). I'm left with $3,000 invested and have a deal paying $281/month for 72 months. That's about $17,000 net, 112% return, and--good enough.

And a side benefit buying from Greentree is that some of the other lenders now think I'm worth talking to. I got a call from a big bank this week wanting to get a bid on a 1993 14 x 70 Redman, perfect shape, just needs moving to a new park. I inspect it and verbally offer $5,500, knowing it will take another $3,000 to get it moved and set up.

They balked, saying they need $9,500. Too much? Yes and no. I find out they'll finance. I want to get this going, so my new offer is $8,600 if they'll finance at 10.8% for 24 months. My payment will be $400/month. If they accept, I move it, lease option it for $400/month, 72 months, with $1,500 down and wait until month 25. I then collect $400 for the remaining 48 months. Net, 17,700 on $1,500 invested.

The return? Assuming the time value of my investment during the first 24 months at 25%, around 195%. Good enough! I'll find out this week if they'll take my offer, but somehow I think they will. The point is, for those of you in markets where things don't quite fit the mold, break the mold. And then go break some rules. There's still money to be made!

 
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