A Perpetual Money Machine

Just how much money can you make on one old mobile home? I don’t know, but I’ve got one that won’t go away. It’s like a perpetual money machine. Every time I think the loan will be paid off, something happens and I get the home back and sell it again.

I bought this mobile home for $4,000 and sold it seven days later for $7,900 with $2,000 down and a note for the balance, payable 12.75 %, $157.55 month for 48 months. After receiving 12 payments, I got the home back and sold it again. This time to a military man for $6,250 cash.

He not only paid cash for the home, but then spent another $2,000 having the bathroom completely rebuilt and putting in new carpet throughout. After doing all that, he then found out he was getting an unexpected transfer out of the area. Now he’s got about a month to find a buyer for his home.

So he calls me to see if I would buy it back. Problem was, he had dreams of selling it back to me for the same price he bought it for. After I explained how slow business had been, and how hard it was to find anyone with any money, and how I had several on hand that I couldn’t sell, I told him I wouldn’t be able to buy it.

But, if he would give me his best price, I might be able to help him find a buyer. In the meantime, he should run some ads and put up some signs, which he did. He had lots of lookers that wanted to buy, but nobody had cash, and the banks wouldn’t make loans on old mobile homes. What a crying shame, huh?

The seller had to leave town in a few days

When time ran out and the seller was due to leave town in a couple of days, he asked me if I would pay him $3,000 for the home. (That was my target price all along, but I wanted him to say it.) This was the same home he paid $6,250 cash for six months earlier, and then spent $2,000 for improvements. I paid him his asking price of $3,000 for the home and solved his problem.

Ten days later I had it sold again for $6,500, $750 down and a note payable 12.75%, $229.89 month for 30 months. After receiving 23 payments, this couple wanted to buy a new mobile home. But they couldn’t buy a new home until my note was satisfied.

After trying, and failing to find a buyer with any money, they asked if they could just give the home back to me in exchange for me satisfying the balance of their note. This couple had a bad case of “new home fever.” So I agreed to help them out by satisfying the balance on their note and taking the home back. I’ve never seen anyone so happy to give their home away.

I’m glad I was able to help them solve their problem, so they could buy that new home they couldn’t afford. (About 18 months later, they called saying they were in default and wanted to know if I could buy that home. Sorry, not this time. Guess the bank got another “non-performing asset” on their books.)

Two weeks later it was sold again for $5,500. This time my buyers paid $500 down, and I took back a note for $5,000, payable 12.75%, $237 month for 24 months. So far, I’ve received 22 payments on this note and still have 2 more to collect. So maybe my “perpetual money machine” is finally going to die. If it does, it’s sure been one splendid ride. (Update: It did pay off).

My yield? “good enough”

Checking my figures, I see that I’ve collected a total of $23,747 on this one old mobile home. My original cost was $4,000, plus a little advertising and some minor repairs. I haven’t tried to figure what my yield is; don’t want to take a chance of destroying my calculator. But I feel sure it’s good enough.

When giving talks and seminars and explaining how I create notes by buying, selling, and financing used mobile homes, one of the most frequently asked question is, “But, suppose they stop paying?” My answer: “Rent a U-Haul and help them pack.” It’s usually the best thing that buyer can do for you.

Take this case for example. If my first buyer had paid his note off, how much money would that have cost me? But because he didn’t, I made much more money by reselling the home again. In most every case similar to this one, I’m in a much better position the second time around, than I would have been had the original buyer paid the note off.

So instead of worrying about taking a home back, learn to recognize an opportunity when it’s handed to you. And you might consider sending those folks a thank you card. On the typical “Lonnie Deals”, I usually have all my money back after 12 to 14 payments. So, if my buyer makes that many payments and then walks away, or gives the home back, don’t I have a “free” mobile home?

When that happens, I simply sell the home again, structure a new note with a new buyer, and continue collecting payments. When you can sell a free product, it’s hard to keep from making a profit.

In a previous article [How Good Can It Get?], I told about a mobile home that I sold for $12,900, got a $1,000 down payment and received 37 payments of $237. In this case, the owner got married, bought a house, and couldn’t find anyone with cash to buy his mobile home.

When it was time to move on and still no cash buyer, he offered to give it back to me for $500, (enough to pay for the new refrigerator he had just put in the home) and satisfaction of the balance of his note.

I had the home sold again within two hours (already had a buyer lined up) for $13,900, ($1,000 more than the first time) $1,000 down and a note for $12,900, payable $250 monthly for 75 months. Also, we received approximately $8,500 in lot rent during his stay.

I’m getting another home back this week that I first sold about three years ago for $10,900. In this case, the buyer made a $7,000 down payment and paid the balance off in 22 months. This man has also bought a house, and has tried for several months to find a cash buyer for his mobile home.

After failing to find a buyer, he agreed to sell me the mobile home for $4,000, the same home he paid $10,900 for three years ago. And the home is in better shape now than it was when I first sold it. He’s also paid us about $8,500 in lot rent over the past three years.

Affordable housing with seller financing

There is a big demand for affordable housing all over this country, and mobile homes are helping to fill that need. The demand for used mobile homes with seller financing and affordable payments, have increased tremendously over the past several years simply because of the increased prices for new mobile homes and stick built homes.

New mobile homes still cost about half what a stick built home will cost, but are still unaffordable for many home buyers. And being affordable solves only part of the problem for the person needing a place to live. The biggest problem for that potential buyer is finding someone who will finance the purchase of the home. Many buyers can afford the monthly payment, but can’t qualify for a bank loan.

So if you can offer that potential buyer a good used mobile home, with an affordable down payment, and affordable monthly payments, you will be able to create some very high yield notes and excellent monthly cash flow. And once the deal is done, all you have to do is wait for the mail carrier to deliver the checks.

Let me finish this story by saying that during the entire time my buyers lived in these homes, I’ve never had a call from any of them complaining about frozen water pipes, stopped up drain lines, refrigerators that died, or any of the problem calls I used to get when I was a landlord.

I’m quite sure they must have had some problems, but since they were home owners and not my tenants, they were the ones who had to take care of the problems. I was just the note holder, and note holders don’t fix things that go wrong with the home. Note holders just wait for the mail carrier to bring the checks, and spend the money.

There might be something better, but so far I haven’t found it. And to think, I used to work a “job” to put groceries on the table. Happy investing.

About the Author:

Lonnie Scruggs

lonnie scruggsLonnie Scruggs owned, rented, and managed his own rental properties for 24 years. He became a burned-out landlord, sold all his rental properties and started investing in discounted notes. He soon developed his own specialty in used mobile home notes, with little competition and earning high yields.

Lonnie tells all and shares his inside secrets in his book: Taking the Mystery out of Money