-- Note Course Bonus Lesson
Published: Tue, 06/10/08
In this Note Course Bonus lesson, Lonnie Scruggs tells us about his
"perpetual money machine." It's quite a story!
The PAPER SOURCE REGISTRY OF NOTE INVESTORS 2008, Print Edition
will be published in May and sent to all PAPER SOURCE JOURNAL
subscribers. Over 10,000 copies are in circulation. For 17 years
the Registry has been where note buyers and sellers meet. It is
the most accurate list in existence of note investors and what
they buy, because it is constantly updated on the Internet.
The Internet version features direct links to investors' e-mails
and websites for on-line submission of notes.
If you or your firm buys notes -- or offers a product or service
to the industry -- you should be in the Registry.
A form is at www.PaperSourceOnline.com/reg-form.htm Or call
1-800-542-2270. THE PRINT EDITION DEADLINE IS FRIDAY, APRIL 18.
Cheers,
Bill
W. J. Mencarow
www.PaperSourceOnline.com
www.cashflows.org
*******************************************************************
A Perpetual Money Machine
by Lonnie Scruggs
Just how much 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
mon*ey machine. Every time I think the loan will be paid off,
something happens and I get the home back and sell it again.
I first 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. (There's always somebody that will
mess up your bookkeeping).
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?
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).
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 12-14 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, 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.
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
that 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.
Lonnie 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 books. For more information on his books,
see
"Deals On Wheels":
www.PaperSourceOnline.com/dowinfo.htm
"Making Mo*ney With Mobile Homes":
www.papersourceonline.com/mmwmhinfo.htm
and Lonnie's latest, "Taking The Mystery Out Of Money":
www.papersourceonline.com/mystery.htm
"If you haven't read Lonnie's books you're doing yourself a HUGE
dis-service. His books should be on the must-have "classics" list
for real estate investing. You won't find a better value for the
money anywhere. I'm buying a set for every member of my family.
They're that good." -- Paul Horn, North Carolina
"I am looking at a very big new year doing more Lonnie-style
mobile deals -- buy cheap, sell high with financing. I only deal in
the older metal units and never pay more than $1000, and always
sell for at least $12,500 with $500 down and $200/month. I have a
waiting list for my fixed up homes...nNever have more
than $2500 invested at sale time...I make far more than I ever did
as a high-tech mechanical engineer." Steven B. (e-mail on file)