by Joshua Kaufman
Why buy and sell mobile homes? It is safe and very profitable if you own a mobile home park. You have to own a mobile home park for this to work most effectively. If you don’t, you might want to buy one with this in mind as an extra revenue source.
What is the value of a mobile home? That depends on several things. You might think that the biggest factor influencing the market value of a mobile home is how nice the home itself is, but often this comes third, after location and ease of purchase.
In Durango, Colorado, for example, an old mobile on a rented lot might sell for more than $ 40,000. Why would it sell for more than many new mobile homes? Because it’s a town many people want to live in, with high rent rates and houses starting at $ 180,000. Also, due to zoning, they aren’t building any more mobile home parks.
In other words the biggest part of that price is paid for being allowed to live in that particular mobile home park in that town. Drag the mobile away and it might lose 80% of its value. Location, then determines value. But you can’t move your park, so let’s look at what you can control.
Create Value By Making Buying Easy
What is a mobile home worth? One important determinant is how easy it is to buy. Let’s look at an example.
A young couple wants a nice mobile home. They like the new ones, which cost about $ 30,000. With the required 10% down payment the available financing is at 14% on a 10-year amortization. This means a payment of $ 420 per month, plus lot rent of $ 280 per month. That seems too high for housing costs, but then rents in the area are that high, and they would rather own something.
The problem they have is that they don’t have the $ 3,000 needed for the down payment, nor do they have the money needed for moving the home to a park, and to pay the various other expenses, like the deposit for the park. They only have about $ 1,000 in the bank. A common scenario these days.
They decide to start looking in the mobile home parks. They find many nice used mobile homes that are selling for $ 12,000 or less. The problem is that nobody wants to finance older mobiles, so they have no way to buy one.
Then they come to your mobile home park. You have a mobile home for sale. The previous owner had a job transfer, and after trying to sell the home for $ 8,000 for a couple months, he was desperate. He was still paying lot rent, after all. You offered him $ 5,000 and he thanked you for resolving his problem.
You paid $ 100 for someone to clean up the home and put a price of $ 12,000 on it. Why so high for a mobile that might be worth $ 8,000? Because the price isn’t just about the mobile.
The young couple like it. You tell them that you won’t budge on the price, but you will take just a $ 500 down payment, along with the first month’s lot rent. They can afford that. They will pay the balance at $ 160 per month, with interest at 12%. It will take a little over 10 years to pay it off. They buy it.
Now lets look at this from their perspective. They have a place to stay that they own. It will have some value once paid off. How much? It doesn’t really matter. Their housing cost is a couple hundred less per month than if they rented an apartment or bought a new mobile. That means that in ten years they will have spent almost $ 30,000 less for housing than if they took one of the other alternatives. How could they be worse off. Also, this may be their only option if they want a mobile home, since they have so little cash saved.
How did you do? You made a profit of $ 7,000 on the mobile, plus you get 12% interest not just on your $ 5,000 investment, but on the whole balance owed ($ 11,500 to start). That’s a great return on your investment. Now do a dozen more of these.
These opportunities will arise regularly. The owners of the homes need to sell quickly to avoid paying lot rent for months while also paying the expenses in their new home. Selling a home can be a lot of work too. If they hire a sale’s agent they’ll pay a commission. You can tell them honestly that you buy mobiles to make a profit and can’t pay much, but you’ll pay cash right now. Many will be happy that you resolved their problem.
On the other end, you can help buyers without cash. As the owner of a mobile home park, you get to say who stays and who goes. That gives you a good degree of control. That control makes it relatively safe for you to sell a mobile home with a small down payment. Remember that in the above example you only have $ 4,600 invested after your $ 100 clean-up and receiving the $ 500 down payment. Even if the new buyers trashed the place and walked away a year later, you will still be able to resell at a profit.
I read a true story about one owner of a park who bought and resold the same mobile home in his park a half dozen times. With interest and capital gains, he figures he eventually made $ 35,000 off an investment of $ 4,000. Does that motivate you to try buying and selling mobile homes in your park?
Copyright Steve Gillman. For a Free Real Estate Investing Course, and to see a photo of the home we bought for ,500, visit: http://www.HousesUnderFiftyThousand.com
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