Dan Leighton: And you looked good in that Spiderman suit, by the way.
Dan Paton: It was that whole crawling-up-the-wall thing, though, that was..
Dan Leighton: Yeah! I don’t know how you did that!
Dan Leighton: Welcome, everybody, to EZ Homes University. In this episode, we’re going to be talking about Mobile Home Investing 102. We’re going to be talking about the different kinds of investments you can make in the mobile home world. We’re going to be covering five different points and different topics here. So, the first one is notes. And this is how we got started, right Dan?
Dan Paton: Right.
Dan Leighton: So, what do you want to share about the pros about notes?
Dan Paton: Well, the pros of notes are you get passive income. You get monthly cash flow, and that’s a great thing to have. You kind of do the deal, and then it just starts producing monthly cash flow – month after month after month. And you add another investment, you do the same thing, and you just increase your monthly cash flow. So, the pros are, you can hopefully get into the black quickly, and now it’s all positive cash flow.
Dan Leighton: Yeah, and you can also charge a little bit more for the home, because you’re selling it for retail. So, we’ll get into some of the other wholesale conversations later on, but you can sell a home for thousands of dollars more, and the other thing you get is the interest. Every mortgage that you might have on a home, or a condo, or what have you, you’re paying interest to a bank. So, the vernacular or slang is called “juice” on a deal, is what you’re going to be able to make on this. It can be anywhere from 6% all the way up to 10, 12%. Got to be careful of the usury laws, there’s laws that you can’t go over a certain percentage, so you definitely look at that so you don’t get your hand slapped. You don’t want to get into that realm.
Dan Paton: Right. So, I think you can sell these homes for more when you’re offering financing to a buyer. A lot of times, buyers aren’t looking at the total cost of the home; they’re looking at what their monthly outlay is going to be. Will it fit into their budget? So, whether the note is forty-eight months long, or sixty months, or five, or six, or seven years long, the buyer is instinctively looking at what their monthly outlay is going to be, and can they afford this home on a monthly basis. So, you’re able to typically sell these for much more than you usually would.
Dan Leighton: Good point. We had, fifty, sixty plus notes at one time, and people used to say, “Well what happens when you get them back?” And I used to chuckle and say, “Well, then you got another opportunity to clean them up, sell them again, make another down payment, and have another four, five, six years of streams of income. So, it is, sometimes, the gift that keeps on giving when you get them back. I think one of our homes we’d sold six or seven times. If you were to add up all the revenue that we gained on that four, five thousand dollar investment, it was probably forty, fifty grand on a small investment. That’s a heck of a return over the years.
Dan Paton: Now, some of the cons on carrying notes: one of them is back in ‘09, ‘10, a new law came out, a federal law, and it was the Dodd-Frank, and it became a safe act. So, now to originate a mortgage, even on chattel type of notes like these, there has to be someone who’s safe-act certified. There are people around who can help you with that part of it, but that has become kind of a con in the business. The other one I’ve seen is you can have people default on you, and in some cases you can get the home back and just start all over again, but it can be a little bit of a stressful type of headache situation and it’s probably one of the reasons we started going into the flip business.
Dan Leighton: So, number two of the five is rental and lease options. So, for people who are investing in this, this is a good opportunity, because number one, with a rental, you don’t need a license. I would definitely check your state ordinance to verify that, but in Michigan, where we’re at, you can buy and lease homes with no license, and that’s something that you can do. It’s a great opportunity, because you can buy a home, rent it out, just like you would with a stick-built home but for a lot less money. To get involved in a land-home deal, you’re going to need a lot of money; so, with mobile homes, you can buy a home for five hundred bucks, like we said before, or five, ten thousand, and literally have a stream of income that you can get into the black real quick.
Dan Paton: Right, and that’s important. Getting into the black on your deal quickly is important, because if you want to go out and do another deal, you’re going to need some cash reserves to go out and buy the next property. So, what would be some cons to rental and lease options? I think some of the same ones with notes, you can get some customers with notes that default on you, cause you some headaches. We always found the more you can get on a down payment, the more that buyer is committed to the property and they’re much less likely to default on you, so you can overcome some of those cons that way.
Dan Leighton: One of the things we used to always do is we would hold the titles; if your state allows that, that’s a good option, because that way, when they finally fulfill on that agreement, you can write off, or if you want to put a lien on it, you can do that. But another one, other than rental, is a lease option, which is another way that – I don’t really want to call it a way of getting around the Dodd-Frank act – but it is considered a legal option – and that’s basically where you’re going to take a down payment, that’s the option part, and then you’re going to hold on to that. And then basically, you’ll be leasing the home for a monthly fee, it might be two years, three years in, that’s the option period, where now they’re going to have to pay up the home, you know, pay the balance up, and if they don’t and if they leave the home, prior to the lease being terminated, you keep the option money. Obviously, the bigger the option, the better. If someone’s going to give you five thousand bucks, three thousand, whatever it’s going to be, and they walk from the deal, you get to keep the money, so that’s the good part.
Dan Paton: Right. And we’ve exercised this lease option on a few deals here within the last twelve or eighteen months; these were homes we were trying to just flip for cash, and get out of them and move on. When we couldn’t get them moved as fast as we wanted, we had some opportunities to sell them on a lease option, and the deciding factor for us was, they could put down a really hefty, large down payment, the down payment being almost to the point where it almost put us in the black at closing. And when you can get in the black at closing, all the rest of those payments in the future are really just gravy at that point. It makes it a lot easier to make that decision.
Dan Leighton: It does. Not to mention all the interest you’re going to get too. Now, number three is retail flips. We’re talking about retail flips as in you buy a home in a community or park, and you’re going to sell it in the park and it’s going to stay there. Now, to do that, obviously we talked in earlier episodes that have an agreement with the park, that you’re allowed to do this. But the big thing is you’re selling it for market value in the park, a lot different than wholesale. Like, you could buy a home for five thousand dollars, but the retail value of that home in that community might be fifteen, twenty, twenty-five grand. And what you’re trying to do is get that home run. In this business, Dan and I, we’ve had many deals that well exceed ten thousand dollar margins on flips. And usually, you look at the retail flips, that’s where you’re usually going to find them. So, you’ll make more money, that’s a pro. Some of the cons? You’re going to have to wait.
Dan Paton: Yeah, you may have to sit on that home, for thirty, sixty, ninety days, maybe even up to a year, and that’s a long time, and if you’re paying lot rent on a home you’re trying to retail, that’s really starts to add up on your basis on the home. You start to get a little worried, it gets a little stressful. But if you buy it right, and you’re in a park that you’ve become familiar with, you know that market, and if you’ve got an arrangement with the community, the park owner, where they maybe waive your rent, your lot rent, that makes those decisions a lot easier.
Dan Leighton: Yeah, exactly. There’s been many times we’ve had free lot rent kind of verbatim until the home sells. And there are communities where that doesn’t work for them, and then it’s like “Well, what does work?” “Well, I’ll give you the first two months free, and after that you’re going to go full amount.” And we’ve agreed to those, because it’s got to be a win-win. If it’s not, then the park’s going to feel like you’re taking advantage of them, and they’ll eventually just ask you to stop doing what you’re doing and you won’t have that opportunity. So, the key is, buying them right, having partnership with that park, maybe even enroll that park into helping you sell it, because they are the gatekeepers, and people are coming into that community always looking to buy, and if you have them as your liaison, your interviewer, they’ll guide you right to a purchase or a sale.
Dan Paton: And don’t be afraid to offer some compensation to that park manager to help you sell some of your inventory.
Dan Leighton: Yeah, we’ve done that, but to be on the safe side, we’ve always asked their regional managers if that’s appropriate, because it can look a little sly if you’re doing that. So, we go to the regional managers and tell them up front, “This is what we like to do, are you okay with that?” And if they say “Yes,” you can do it, if they don’t, don’t do it. Just honor your word.
Dan Paton: We have one community, they can’t take cash compensations, but they suggested we donate to some of their parties for their community residents. What was one of the last things we did?
Dan Leighton: During this last year, in 2018, they requested a couple of bikes to be brought up for kids. They were going to give them away for a boy and a girl in several communities. So, we partnered with them, along with other people who do business with them, like concrete people and haulers, and we just donated some bikes as a contribution. Or that Halloween party, Spiderman showed up and was taking pictures with the kids, and it just went over magnificent. I mean, who doesn’t like Spiderman?
Dan Paton: Right. But, talk about creating a really long-lasting relationship with that park and that park ownership. We couldn’t give direct compensation for helping us sell some of our inventory, but we actually created to their community and to their residents in a really special way.
Dan Leighton: Yeah. And you looked good in that Spiderman suit, by the way!
Dan Paton: Yeah! It was that whole crawling up the wall thing, though, that was tough.
Dan Leighton: Yeah! I don’t know how you did that. Anyways, number four is wholesale flips. And this is really our bread-and-butter. We’ve done all these, by the way, every one of these five Dan and I have done, but we’ve really rested in our wholesale flips. So, why don’t you share a little bit, Dan, about what we do there.
Dan Paton: Yeah. We kind of filled in the wholesale flip methodology by accident. We were in the retail flip business, note-creating business, and we were looking for homes – this was probably ten years ago – and we were looking on sites like Green Tree’s foreclosure repo list. And we discovered there were lots of buyers like us that were trying to buy these repo homes, and I also noticed that we had contact information. So, we just sort of did a test one day. We bought a home, we sort of tested it out to that three hundred plus contact list, and it was an overwhelming response. People wanted to buy this mobile home from us. And who are these people? These are other investors, and that was sort of the discovery of our wholesale flip business, and it’s just grown from there. So, we did maybe a few that year, and now we’re doing a hundred, hundred and fifty a year, wholesale type flipping. It’s lucrative, it’s quick, it’s exciting, but I guess the con to it is you have to keep refilling your pipeline inventory. So, we’ve had to develop ways to keep that pipeline full.
Dan Leighton: It has. And one of the other cons is that you’re not getting the retail margin. Like we talked about retail flip in number three, you can get greater profitability. But if you do wholesale, you’re going to sacrifice a pretty good percentage of that. Not awful, but you might sacrifice a five to six thousand dollar windfall if you did it on retail. If you did it on a quick flip, you could get that money quicker, but you’re going to get a little haircut there. The old saying “money now is worth more than money later” is something we’ve both agreed on, but we do both. We do retail and wholesale.
Dan Paton: Yup. And we’ve also sort of become, I wouldn’t say experts, but we know how to do long-distance wholesale flips, and that’ll be another episode coming up. And then our fifth item here is land-home deals. We just did one here recently in Southern Illinois, we used to do a lot more of these back in the earlier days. A land-home deal is where you buy a private piece of land, a private lot, that has a mobile home on it. And basically, you’re treating it like you just bought a mobile home park, a one-lot mobile home park. You own the land, you own the dirt, you own the mobile home. The way we did our deals was, you did a flip on one, but I bought the dirt, bought the mobile home, sold the mobile home to a buyer on a note, and then charged them lot rent for the dirt. And those produce passive income. And again, getting the right kind of tenant in there, getting a good down payment, to get yourself in the black as quick as possible is a great idea. What would you say are the cons on those?
Dan Leighton: Well, usually it takes a little bit more money to buy a land-home deal, typically. The one you bought in Illinois was a really, really amazing deal we bought. But at the same time, if you’re buying land, real estate itself, which is the property that you’re buying it on, that’s usually where most of the value is. The mobile home only has x amount of value; it’s the land. And sometimes, the home will have a title and the land will have the deed. So, sometimes you’ve got to have those separated, or if you buy them, sometimes they’re connected. So, if you’re selling it, sometimes you’ve got some more paperwork, takes a little bit more of a person that has more resources sometimes to buy it outright, if you want to flip it, it’s definitely going to take more money, because you’re looking for someone who has more funds available. It’s another area that you can build your portfolio one home and one land deal at a time, and if you own fifty of these, you’d have a small park, versus having one community where you have to manage everything, you could have fifty mobile homes and have a small mobile home park.
Dan Paton: And the exit strategies on land-home deals, there are some opportunities there. If you’ve got a tenant who’s been buying the home from you, paying lot rent, at some point you can say, “Hey, tenant, would you like to just buy the land?” And then you’d create a whole new note, and sell the rest of that entity on a tenure, and you turn a maybe five-year cash flow into a twenty-five year cash flow. And those are our five points.
Dan Leighton: They are. So, thanks for watching, and we’ll look forward to seeing you at our next episode.