Posted by Karl (Oh) on August 13, 2003 at 21:56:25:
Just to add a few comments to your post.
I always jump at the cash. Today I sold a '94 3/2 14X70 for cash. I had about $5k into it, was planning on getting a couple grand down and selling for around $15k on a note. A cash buyer showed up, waved $10k at me if I replaced the carpet and the front door, and I jumped at it. I’ll take the money and buy a '99 3/2 14X70 bank repo that I’m getting for $4600.
I operate under the assumption that there are an unlimited number of deals out there. If its ever a choice between a quick cashout with a little profit, or a note deal for a lot more profit, I’ll always take the cash, and reinvest in the next deal.
Posted by Lin (OR) on August 10, 2003 at 22:11:59:
I’m working on my second deal. I have $3900 into it. It’s a 1965 10X50 2/1 that’s been completely fixed up with tile, new plumbing, wiring, windows, sheet rock, furnace, water heater - everything. It’s near the university, and it is immaculate. I advertised it for $11,950 with financing and have shown it a few times, but school is starting up, and I know I won’t have any problem selling.
My questions are: Do you folks do lots of cash deals? Do you prefer them? Hate them? Think they should comprise a certain percentage of your deals? Does it depend on the home? The park? The total invested in the home?
I suppose I’d just like to hear different philosophies - notes versus cash sales. When do others opt for a note over cash? In my case, I’m not really cash starved. I have plenty of cash to fund as many deals as I’m comfortable doing right now.
I’d like to start carrying the notes, and my first deal was an all-cash sale where I made $2750 (paid too much, but STILL made money). For this second home, I have a qualified buyer who offered me $9750 cash. $5750 profit in three weeks and less than 6 hours invested.
Should I just take the fast money, quit asking questions and just find my next deal?
Posted by Tim (Atlanta) on August 12, 2003 at 07:08:41:
I am not sure why this question would even occur to you. Tell me when you would want a note over cash? If the amount of cash is anywhere close to the amount of the note, this is a no-brainer. Always, always and I mean always TAKE THE CASH.
The only advantage to a note is that the pool of qualified buyers is larger. Most buyers don’t have the cash and can’t get it.
Posted by Phil Pelletier on August 11, 2003 at 19:48:32:
That’s right. It’s all about YIELD on the investment. The only reason we hold the notes in the first place is because there are few qualified buyers with cash in the market. There is nothing better and more pure than buying a home and selling it for more than you paid for a few weeks later. If we could all take cash for every sale, we would, but the market does not support many cash transactions, so we hold notes, and bare all the risk that holding a note entails.
Think cash FIRST, then offer the note second.
Obviously, the way to get the phone ringing is to offer financing, but I always offer a HUGE discount (50%) on the home if they pay cash. The last one I sold was a home I had 6 people want to pay me $12,000 for over 4 years, but no one could meet the park qualifications, so I sold it for $6,000 in cash and RIPPED it out of the park. It was beautiful, man! (Sorry, I jumped to my war movie lines). Anyway, they moved the home and set it up on their own land. They got a loan from a relative and paying cash now got them a great discount, so the term of the loan is short.
I was pleased because the YIELD on my investment of $2,000 was huge over the three months I had the place. Your’s will be even better.
Think CASH first, Note second.
Think aboout how many deals you could do with that cash? You would have over $100,000 in cash inside a few months at that rate. Not a bad way to spend your time.
Phil Pelletier
PS- Do I see you are in Oregon? In Corvallis, near the school?
Think of how many more deals (two? three?) you could do with that almost $6k you just made.
Looking at it the other way, you stand to make a few more bucks over the next few years from a note–but couldn’t you make more over the next few years from three more notes?
Posted by Lin (OR) on August 12, 2003 at 17:21:19:
Tim,
I take it from your response that you think I’m either crazy or stupid.
In “Making Money with Mobile Homes” on pages 36-40 or so, Lonnie explains that he would rather have the note than cash. For my particular deal a note would get me a yield of about 121% each year for six years, with a $2000 down. Selling for cash gets me 147% once, which is a pocketful of cash that I have to put to work again. What’s my yield for years 2-6 on a cash sale? Unknown. Maybe my sale proceeds sit in a money market (I accidentally typed “monkey” market - maybe that’s what it should be called) in years 2-6 and earn a hefty 2%. Was the cash sale still the right choice? Yeah, I know, I shoulda been out there getting more deals, but I’m a busy mother of three. Now I’ve got to hustle and re-invest that money, again, or take it in the chin, when I started with such an advantage! Granted, it?s better than doing nothing with the money in the first place.
Also, if taking the cash is always preferable to a note, then why is there a market for notes at all? What are these note-buyers thinking?
Maybe I’m looking at this differently than some of you other folks. I am a landlord, and have been for almost ten years. I look at MH investing as being similar to being a landlord, but much, MUCH better. The yields are incredible. I want the passive income. I don’t want to worry about finding a new place to put my money. I don’t want to do deals full time. I’m a mom full-time. My other job is to invest our family’s savings so that we have money working for us while we sleep.
I guess it all comes down to how hard you want to work at this, and how much money you want to make. I want to minimize my time commitment while getting incredible yield. And I can certainly do that whether I take cash or carry a note. That’s the beauty of this method of investing.
Thanks for your response.
Lin
BTW - cash buyer backed out for now. He found out from the assessor’s office how much I paid and it “worried him” between that and the assessed value of $2000. Even though every single thing in the place is brand new and works perfectly (50 gal water heater! air conditioner, fridge, furnace, windows.) Darn engineers! Can anybody tell me how to close the sale with an engineer??
Yes, I’m in Corvallis. You’re in the Portland area, right?
…Tim is right. You are NOT getting 121% on your note. For financing the deal you are only getting the 12% or so stated in our note for investing your money. Why would you want to invest your money at just 12% or so, by carying the note if you could cash out? You made your BIG profit from the markup and the expremely short time period, not from the interest you might charge.
We don’t think you are crazy or stupid. Quite the opposite. If you are smart enough to present this confusing issue for open discussion, you are smarter than 99.9% of the people who never show up here to learn anything.
The correct answer is as was stated . If you can get nearly the same amount, ALWAYS, ALWAYS, ALWAYS take the cash. What is your rate of return if you have the mobile home a couple of weeks and sell it for such a big profit, in cash? It is virtually INFINITE. Tens of thousands of %, NOT 147%.
Re: cash vs. notes - Lonnie?? - Posted by Tim (Atlanta)
Posted by Tim (Atlanta) on August 13, 2003 at 06:11:29:
Sometimes my responses come across a little more agressive than I intended. I certainly never meant to say that you were crazy or stupid.
My main point is that cash deals don’t happen very often. I think experienced investors on this board would agree that note deals come along much more often than cash deals.
If you take the cash, then yes, you should take that money and re-invest it. If you are too busy, then maybe you should buy some notes. Letting the cash sit in a money market is not a good idea. Even if you are busy, couldn’t you find 3 more deals within the next year? What would your yield be then? Your post implies that you won’t be able to find another Lonnie deal for 6 years. Are you sure about that?
This business will require some time. More in the beginning and less as you become more efficient.
BTW, there is a market for notes because there are people (like me) who are too lazy to get out and find the Lonnie deals. As a note buyer, I am willing to exchange a lower yield on my investment dollars for more time to spend doing what I want to do. That is a personal decision that you may need to examine as well.
