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News
Of The Note/Cash Flow Business For Brokers & Investors |
, mobile home notes are one of the least-known
methods of making tremendous yields. Of course, there are risks. In this issue of The Cash Flow Express, veteran investor Del Ashby reveals some of those risks and rewards. If you want to know more, I highly recommend "Deals On Wheels" (see the link at the right).
I couldn't send these valuable articles to
you without corporate sponsors. This one comes to you
courtesy of Quantum Business Solutions -- NoteBrokerTools.com
Check out their services below and give them a try!
The Risks And Rewards Of Mobile Home Notes
By Del Ashby, Author of "Make Money Trading Mortgages"www.PaperSourceOnline.com/mmtinfo.htm
One of the ways to find "good notes" is to generate them through business transactions of your own. The mobile home business has been touted as one good way to do that. As with most good things, they also have a downside.
I have chosen not to get involved with the individual home on someone else's lot but rather to look at the possibility of buying an entire park. Let's look at some of the methods of creating
paper with mobiles and what some of the considerations should be.
INDIVIDUAL HOMES
You can purchase the individual home at wholesale, on a rented lot, and resell it at retail. The resale profits can be held on paper with some or all of your acquisition costs being recovered through the down payment you get from your purchaser. The yields on this type of transaction can be quite high. I would not discourage you from doing these transactions as long as you:
1. Take the time to learn what you are doing, as you would with any business.
2. Recognize that this paper is not real estate-secured but is UCC paper.
3. Understand that you must be able to carry the lot rent, insurance, utilities and other expenses if the buyer defaults.
4. Make certain that the lot owner or park management would allow the unit to remain on the lot when bought or sold. Also check to see that they would permit youto rent the unit if you couldn't resell it right away.
5. Recognize that these units are often sold to less than first-class customers. Check your buyers/tenants out carefully, and note the need for significant repairs. Repairs can be very
expensive, and more importantly, they can delay the selling or re-renting of the unit.
6. Understand that while yields are high, the small size of each transaction severely limits the profit or cash flow spread possible on each transaction.
7. Account for the value of your time. The fact is that in addition to your financial investment you also have an investment of your precious time. You can attribute some value to the learning experience, but in small deals watch that your loss of time doesn't turn all your efforts into a $5 per hour job.
To me, this could be a good part-time, weekend way to learn the business with minimum capital invested, but with the recognition that you will probably want to graduate rather quickly. You might be able to build a little portfolio of these notes and sell them as a
package to get operating capital for something larger.
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If you want to get yields so high, relatively safely, that if you tell your
friends they will think you are lying, go to:
www.PaperSourceOnline.com/dowinfo.htm
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CONSIDER A PARK
I am currently looking at several parks for possible purchase. In the process of evaluating a 29-unit park, a subtle situation surfaced that you should know about.
The most common method of evaluating commercial property is "NOI" or net return on investment (before debt service) where the term "investment" does not mean your cash into the deal but rather the total purchase price.
In this case there were 29 lots with lot rent set at $155 per month. Of these, there were 9 shown as lot and mobile home combinations. Those combinations were rented at anywhere from $175 per month to $425 per month. Thc total monthly rent for all 9 mobile/lot combinations was $3,250 per month. On the surface, that gives an income of $3,100 (20 X $155) plus thc $3,250 for a total income of $6,350. Expenses were reported to be $90,635 per month. That leaves $5,443 per month net. Annually, that computes to $65,323. Based on an NOI of 10 or a ten percent return on investment, the property should be worth $653,230.
Let's look at what's wrong with calculating it that way. The lots that the 9 rented mobile homes are on would ordinarily contribute $1,395/month (9 x $155) to the income statement. If we deduct the $1,395 lot rent amount from the $3,250 for the combined rents, we
find that the mobile units without lot rent are contributing $1,855/month. Annualized, that's $22,260 of income. On an NOI basis that says the rent from the mobiles alone is adding $222,600 to the "value" of the park.
Would you pay $222,600 for 9 used mobile homes? Especially when two of them are 1989's and the rest are 1970's vintage junkers that should be hauled away? The removal and disposal (what are you going to do with them?) would of course be at your expense.
If you were looking at buying a note on the park itself, what would that $200,000 difference make in the loan-to-value? Somehow I don't think you would want your money secured by those old junkers.
If you evaluated the park with the trailers included you almost made a $200,000 mistake. The moral of the story is that you should always evaluate the park (or any business) without inventory, and then evaluate the inventory as a separate item. Obsolete inventory,
equipment, parts and supplies are often used to pump up the reported value of a business. Don't fall for it.
Del Ashby has been investing in and brokering notes for about 40 years. He is the author of "Make Money Trading Mortgages," the best book on the basics of note brokering. Del's book is now an E-BOOK for only $19.95, and you get it immediately. To order, go
to:www.PaperSourceOnline.com/mmtinfo.htm
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In This Issue |
The Risks & Rewards of Mobile Home Notes
New Tools To
Take Your Note Brokering Business To The Next Level
And Beyond |
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