The area of Mobile Home paper (and especially the paper generated on older mobile homes) is one of the most popular in the Cash Flow arsenal due to the exceptional income generating opportunities revolving around the actual financing of mobile homes. And very importantly, this is definitely an area where brokers can venture into lending and make real money. Mobile Home paper has several areas of focus and opportunity:
- Purchasing used mobile homes, rehabbing the home, and then selling the home with owner financing.
- Simply providing financing for older mobile home
- Brokering mobile home paper previously originated
- Some combination of all three
By far, the most popular area here is the full package of purchasing inexpensive mobile homes, performing some minor rehab, and then selling the home with owner financing attached. Investment yields for such owner originated mobile home notes can easily exceed 25% and on occasion, be greater then 50% so its easy to understand the attractiveness of this enterprise.
How It Works
Most practitioners in this cash flow area will monitor Craig’s list or place small ads in local Shopper-styled publications with the intent of purchasing used mobile homes in the sub-$5,000 bracket. This usually means a single-wide home that is at least 10 years old. Investors will work closely with local mobile home parks (since most homes will already be in a park) and there are obvious benefits to not having to move the purchase.
Once rehabbed and made ready for sale, the investor will advertise the mobile home with owner financing attached. The relationship with park owners now provides an added benefit in that a credit and criminal background check will be done to see if the potential new home owner qualifies for the park. If they don’t qualify the sale is not made. If they do, you now have a sale.
Investors will create a close working relationship with park owners to make certain the lot rent is always current. In return, the park owners provide a valuable service in monitoring the property thus creating a win-win situation.
Why Mobile Home Park Investing? (Peter Harris)
Structuring Mobile Home Paper
From the outset, mobile home notes tend to be short-term and high yield. When you add in the small profit made on the actual sale of the home, it is not unusual for the overall yield on mobile home paper to be 25% or greater. Below is a typical example:
Larry, a mobile home investor, buys a used mobile home he located from an ad on Craigslist. The home was offered for $5,000 and through a little haggling, he negotiated the purchase to $4,500.
After investing $500 in some minor repairs and clean up, he resold the home to a young couple for $6,000 with a $1,000 down payment and owner financing. The note was structured as a 30 month note at a 9% interest rate. The payment was $186.74.
| N | I | PV | PMT | FV |
| 30 | 9 | 5,000 | -186.74 | 0 |
Calculating the Investment Yield
The investment yield on the 30 month note will of course be higher due to the profit on the home and the down payment. In this example, the investor has a cost after rehab of $5,000 but then receives $1,000 down for a net investment outlay of $4,000.
| N | I | PV | PMT | FV |
| 30 | 27.93 | 4,000 | -186.74 | 0 |
As you can see after a quick financial calculation, the simple investment above delivers a nearly 28% yield on investment. Additionally, small adjustments in price through negotiation can make a BIG difference in investment yield. For example, had the investor been able to purchase the used mobile home for $4,000 instead of $4,500, the investment yield would have grown to OVER 40%.
| N | I | PV | PMT | FV |
| 30 | 40.20 | 3,500 | -186.74 | 0 |
Brokering Mobile Home Paper
Occasionally, mobile home rehabbers will want to sell a portion of their paper portfolios to generate more funds for buying and rehabbing (creating inventory) and brokering mobile home paper portfolios (much like Buy Here / Pay Here auto paper portfolios) can also present an opportunity for Cash Flow brokers. But, don’t expect to see heavy discounts or large commissions here. Mobile home paper (like auto paper) tends to be very short term paper (under 3 years) and its purchase yields increase significantly with just small discounts to face value.
Find Out More
If a mobile home paper business intrigues you, you’re not alone and its very easy to get some expert advice on this lucrative area of the Cash Flow Industry buy simply purchasing an inexpensive copy of Deals on Wheels by author Lonnie Scruggs.