Any other way besides yield? - Posted by Ryan B (KS)

Real Estate Investing Mobile Homes & Mobile Home Parks
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Posted by Jen on June 14, 2007 at 21:37:27:

Tye,

I certainly agree with you on the cost of medical care in this country. It simply is outrageous. A person without medical insurance can be quickly overwhelmed be a rather “small” health problem. Being without health insurance is a risk I am just not willing to run. I pay nearly 1000.00 a month to provide health insurance for my family, insure my home and autos. No one is forcing me to pay for health insurance or for insurance on my autos other than state mandated liability because my autos are paid for. I do this because I want to protect not only my current assets but my future assets. I am not rich so that 1000.00 a month is a good chunk for me. I pay this to protect my family and be a responsible adult. If I chose to go uninsured I could drive better cars, take vacations, and work less. But I put my priorities in order.

Yes, insurance is high. Most medium to large employers still offer health insurance at only a fraction of what I pay for I am sure a much lower deductable. If you can’t afford private,get a job with insurance. How many people currently have jobs that they hate, but are working to have insurance?

Suppose you cannot work due to disability issues? Uncle Sam picks up the tab! If your income is just too low there is some type of state or fed program that will help you out. I commented to a social worker recently about some changes in our state welfare insurance. Many people were screaming about being kicked out of the program that claimed that they really needed it because of prexisting serious conditions. I said that it really is a shame that these people are being denied the care that they need. This social worker, that handles these very issues, said, “These people will be provided for if they just ask about it the right way. No one has to go without medical care”.

As far as medical collections go, I have insight there. I also have received large bills that were not covered by my insurance. (I carry a 5000.00 deductable) When I explained to the doctors and hospital that I could not pay it all at once they were glad to set up a repayment plan pretty much on my terms. People get turned over to collections when they ignore their bills or fail to follow the repayment plans. I know there are exceptions and I am sure there will be many that will chime in with them.

I know that I may be coming off to many as negative and aloof to others suffering, but I am merely exposing the truth. In my own life I have certainly have made many mistakes, and looking back I can see where many problems I have encountered in my life were a result of actions I took or failed to take. Most people are where they are in life because they put themselves there or failed to take steps to get out of their situation. I am just as flawed as the next guy, even probably more, but more people need to take personal responsibility for themselves. If we really want to help our customers perhaps we should give each of them a copy of TAKING THE MYSTERY OUT OF MONEY!

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Any other way besides yield? - Posted by Ryan B (KS)

Posted by Ryan B (KS) on June 13, 2007 at 08:40:01:

I’m trying to figure the best way to sell one of my LDs, and I was playing around with my calculator a bit. Since this is a fixer-upper in relatively rough condition, I was thinking about some different ways I could sell it with no down payment, like Ruben and others do. I’ve got $1325 into the home and I’d like to sell it for $4000. But I was considering different ways I could structure the deal, etc, playing with my calculator and I noticed the yields on the following three deals:

#1 - $4000 @ 13% = $145 for 33 months = 127% yield
#2 - $4000 @ 15% = $130 for 39 months = 114% yield
#3 - $3600 (10% down) @ 12.75% for 38 months = 147% yield

Now, I’m under that impression that yield is a calculation of the percent return on an investment over a given period of time. What I don’t understand is the relationship of yield as a measure of value. For instance the $ value of each deal is:

#1: $145 x 33 = $4785 - $1325 = $3460 value
#2: $130 x 39 = $5070 - $1325 = $3745 value
#3: $115 x 38 = $4370 + $400 - $1325 = $3445 value

So while the yield of deals #1 and #3 are about 20%different, the value of either deal in terms of real dollars is essentially the same. Similarly, while deal #2 has the lowest yield, its actualy cash value is about $300 more than the other two.

So which deal has the most value? Is there another calculation I could use besides yield to figure the value of each deal relative to the others?

Of course, I understand that when your yield is sky high, you should probably just say ‘good enough’ - there is little substantive difference between any of my 3 scenarios. I guess I’m asking the question out of curisosity more than anything.

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Re: Any other way besides yield? - Posted by kelly

Posted by kelly on June 20, 2007 at 09:24:37:

I always figure it on what has the highest net present value to take into consideration the time value of money , deal 2 has the highest dollar on dollar return, but it also takes the longest to get the money back, just from eye balling it #3 probably has the highest NPV because the capital is returned sooner and and you re-invest it quicker.

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Re: Any other way besides yield? - Posted by Jen

Posted by Jen on June 13, 2007 at 12:26:03:

Ryan,

I would recommend that you forget the concept of yield. A rough trailer with a “buyer” putting no money down is just a glorified rental no matter what you call it. Based upon my experience there is less than a 25% chance it will go the distance anyway. Make your payment about what the trailer would rent for plus a few dollars, less lot rent.

So many people post on this board about what unbelievable numbers they are getting out of their financial calculators. I would like to hear back from these people in a few years after they have been beaten out of several payments and have to remodel the homes. What is their real return. These deals can and do make money but it is unrealistic to even bother with figuring gains when we are depending upon financially and emotionally unstable people to produce them! After all, if these people didn’t have problems they would not be living in these trailers. Sorry for the rant, but the cheerleaders on this site conviently ignore the truth or have been very lucky!

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Re: Any other way besides yield? - Posted by Tim

Posted by Tim on June 13, 2007 at 09:53:20:

Maybe I’m pointing out the obvious, but in deal 3 your capital will be returned quicker than the other deals. To me that means a slight reduction of risk.

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Bullwhacky ! - Posted by John Merchant

Posted by John Merchant on July 14, 2007 at 08:37:41:

If I buy, fix and flip an old trailer for $3500 and sell it for a decent down payment and 3 year note @ 5% interestm, for total sales price of $7500, I’d call that a pretty good yield.

I don’t know where you’re coming from or why you’re not getting this but I challenge you to point out to me any better or higher yielding investment.

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One of the Cheerleaders !!! - Posted by Ruben (KCKS)

Posted by Ruben (KCKS) on June 13, 2007 at 15:23:47:

Jen,

I agree with you that figuring out yields at the start of the loan is sometimes good and sometimes bad because you do not know if you will get the home back. You are way off base with saying someone is finacially and emotionally unstable for living in a mobile home. Just because you may have never lived in one does not mean there are not some very smart and financially realistic people living in mobile home parks across the country.

I have a couple of buyers who put down large down payments and pay on time every month. One is an older widowed lady who I am right now trying to find a larger home to sell to her so I can keep her as a customer. She is in a 14X70 3/1.5 which she shares with 2 other older ladies. Each one of them only pays $200.00 a month each for the home payment and lot rent (total is $300.00 to me and $300.00 to the park). The room together to keep company and save money. These ladies are not what you call either finacially or emotionally unstable and that home yielded me…infinate return. Got all my money back from the 5K down and the remainder of the 11.5K purchase price will be paid off in another 11 months. They have paid 13 payments all on time or early. If I find a lousy 20 or 30 percent yield home I would sell it to her in a heartbeat.

While this type of buyer is 1 in 3 for me that means I need to sell a “bad” home 3 times to get to my good buyer. If I sell a home 3 times and they stay in the home at least 1 year each time at $300.00 a month how much money or yield did I make…I don’t care I purchased a used trailer, provided affordable living for someone and got paid good for solving a problem.

BTW I am friends with a Lonnie dealer who has been doing this over 4 years. He has done at least 65 deals and most of his went the distance. The trick is in the screening which is something I am just learning. So screen better and the notes will pay off. Do not screen and use them as a glorified rental. The choice is the investors.

So for me I will just end this post with RAH RAH RAH.

Ruben D. Flores

816 918-9041

Just for you Berno

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Re: Any other way besides yield? - Posted by Sailor

Posted by Sailor on June 13, 2007 at 14:20:49:

In spite of the fact I’ve taken some heat for it, I have always advocated that if calculating yield, to not forget to also calculate the dollar$. It’s $$$ that goes in my bank, not yield, & I write checks in dollar$, too. Note that even if your yield is a gazillion %, but you only get it for a week, it may not result in enough $$$ to be worthwhile.

Just like there are 3 different ways to calculate “average” (mean, median & mode), there are various ways to calculate profit. Each measurement is a statistic, a way of describing a deal. I used to use the “Rule of 7,” to make sure I doubled my investment in 7 years, but now that I’m getting closer to Medicare I use “Tye’s Rule of 4” to make sure I’m the one that gets to spend it.

My initial question on small deals is “Can I triple my $$$?” If not, can I double it in a short time?"

The more ways you measure a deal, the more accurate your assessment.

Believe me, I know we are dealing w/financially & emotionally unstable folks. That’s why we take a lot of precautions & why we put our eggs in a lot of different deal baskets. One of the advantages of trailers vs. stick-built is that we can afford to have some deals go south–& miraculously, we often make even more $$$ when that happens.

Jen, I think we’ve told enough sad tales here to give a fair picture of this type of investment. If we need one more, today’s paper published the address of one of my L/Hs as the site of an arrest (not the 1st time this has happened, which is why I read the criminal column every week). Evidently my property has been the site of a theft ring. I’ve spent the past 2 days searching for arrest warrants, doing research & filing papers, & dealing w/HUD. Sooner or later, most of us end up dealing w/such problems. However, it comes in spurts & sometimes I go a coupla months w/out such fun. When it does happen, though, I try to remember that what I do sometimes makes a positive difference in lives. That wasn’t real easy the week I spent $1,000 on 3 plumbers because some yo-yo flushed a condom into my septic tank, but I know I posted that. Oh well, there are more boring ways to make a living–

Tye

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Re: Any other way besides yield? - Posted by Ryan B (KS)

Posted by Ryan B (KS) on June 13, 2007 at 13:48:40:

My question is about the concepts of yield and value, not really about the merits of taking or not taking down payments. I’m interested to know how you would go about analyzing your Lonnie deals if not by yield? Is there a different/better method, or a method that could be used in conjunction with yield?

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Oh boy… - Posted by Berno

Posted by Berno on June 13, 2007 at 13:27:26:

I sure hope some of the successful folks respond to your post, Jen. I haven’t done any Lonnie Deals myself but I know several people who have and have been quite successful. A deal ‘not going the distance’ has in some cases turned out more lucrative for many dealers, so I wouldn’t always say it’s a bad thing.

As a side note:
I know very few people without problems…and not all of the people ‘living in these trailers’ are beneath you, I’d wager.

-Berno

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Re: Any other way besides yield? - Posted by Ryan B (KS)

Posted by Ryan B (KS) on June 13, 2007 at 10:41:40:

#1 - $1325/$145 = 9 months
#2 - $1325/$130 = 10 months
#3 - $925/$115 = 8 months

To me its a negligible difference at best. It seems like in order to say there is more risk we’d have to be able to show statistically that my buyer is most likely to default in months 9 or 10. We’d also have to show that the risk of default in precisely those months has a value equal to the difference in money ($300) between the least value deal and the best.

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Re: One of the Cheerleaders !!! - Posted by Jen

Posted by Jen on June 13, 2007 at 15:50:08:

Ruben,

You bring up some very good points! Not all Lonnie buyers are financially illiterate or unstable, but a large portion are. Why would a financially savy person pay 13% interest? Lonnie deals are basically for people who have somewhat limited options.(usually)

I congradulate you on your deal with the widow. Tell us about the other two deals. Losers can drag down winners!

Check out my post under “should I work this park”. I am trying to call attention to a much overlooked factor of the suitability of a park for Lonnie Deals other than the park manager’s approval. I made some mistakes early and now I am wiser. Lonnie deals don’t “work well” in every park. I stand firmly behind that. A very good living can be made in this business. But how many newbies that will never post to this board again, were discouraged because they started in the wrong park?

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Re: Any other way besides yield? - Posted by osupsycho (OK)

Posted by osupsycho (OK) on June 13, 2007 at 14:32:53:

Ryan,

I have been in your shoes and used to care about yield and things like that but I haven’t even calculated it on any deal I have done in a long time. For me it is as simple as Lonnie says:

“how much down can they afford and how much monthly payment?”

I have a target sales price in mind (usually around nada value and with my other formula - see below) and work my calculator to get near to it with the down and monthly that they can afford. The interest is usually set at industry standard and that just leaves the length to fluctate. Someone wiser than me once posted a formula they used on here to analyze their deals and I have tried to stick to it with great success.

Sell the homes for triple what you have in them and get all your money back in 10 months. Do this and you should be good.

Just my thoughts,
Jad

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Re: Any other way besides yield? - Posted by Tim

Posted by Tim on June 14, 2007 at 09:22:57:

You might notice that I said “slight” reduction in risk. The risk I was talking about was either the possibility of buyers letting the insurance lapse without your knowledge & the home burning, or default with major damage to the home. I don’t consider default the only risk, in many cases it can be a benefit.

I don’t think there is a “calculation” you can use, after you figure yield it becomes a matter of opinion & comfort level.

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Re: One of the Cheerleaders !!! - Posted by Mike (Seattle Wa)

Posted by Mike (Seattle Wa) on June 14, 2007 at 11:32:25:

Good point. I tried to charge someone 12% and they balked. So, I raise the price a few grand and sold it to them at 6%. My yield was better. If you know the math, you can get what you need. Think about car dealships that offer 0% financing or $4000 cash back. Guess what, that 0% financing costs 4K to obtain and the dealership gets their yeild.

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Stories per your request (Long) - Posted by Ruben (KCKS)

Posted by Ruben (KCKS) on June 13, 2007 at 17:43:33:

Story 1: I have a single mother of three kids who put 2K down on a 1997 singlewide that I sold her for 19K. She came to me and advised that she can only pay $200 a month. This made her note 13 years. She does get a large income tax check every year so HER long range plan is to pay a large chunk every year to pay off the home quicker. She was very happy to have the home. This park is in a GREAT school district and she was very happy to get the home. Like the widow on time payments with no issues. I have even considered training her as a salesperson for the homes in that park because she has such a good head on her shoulders.

Story 2: This is a lady who owned her own home in the park a couple of years ago got married so she left the park after she sold the home. She is seperated and needed place to live. She did not want to get over her head buying a newer doublewide and loved the fact she could pay off the home in about 5 years. She put 1K down and pays $300 a month and has been late 1 time. She had surgery and missed work. She let me know 1 month in advance and was a whole 1 week late. She made sure she worked a couple of extra cleanings to bank money to keep her payments current. She is self employed as a house cleaner and works 2-3 jobs a day making a couple of hundred a day. She helps her kids with college and is putting money away for when she retires.

Story 3: Young couple starting out(19 and 20). Living with mom in the park with their 1st kid on the way. Husband is in school full time to get his degree and wife works supporting him. They did not want an apartment because they want something to show for their payments when they move up in about 5 years. They want to sell the home on a note after they pay it off. Only paid 1K down when they had 3 but they knew they would be needing funds when she was out of work. She just went back to work and has always been early with her payments.

Have I had losers. Sure just had to repo my first home. Only got $400 from payments on someone I left in the home who was a renter and I turned them into a seller. Home was purchased at a good enough price to take any loss and I was lucky that the interior was not trashed.

I have another person who has been paying a year who is thinking of just giving me the home back since he thinks he can not afford the home with a 3rd kid on the way. He has NOT been a good payor but has paid the late fees. He paid 1K down and if I get the home back now has paid $3,600 in payments. So I would pocket the $4,600 and then would sell it again. The home right now needs about $500-$750 to get it in a little better condition then when I sold it last.

I agree with you parks are important. The first parked I worked in went bad on me when the PM changed but I bought right, still made money and learned a ton that I use today. That is part of investing. If a newbie does not buy right and walks because of a bad experience then chances are they will never do well in the long run in any type of investment. Investing is like any business YOU make it work or YOU do not. There is no easy money but their is a way to make money following Lonnie’s simple formula.

Sorry to ramble I think you have good points and this is a good thread for anyone looking to get in the business to read. I have been around a little while and this does work. Most of us on the board are honest about both our good deals and the bad ones.

Good luck in your investing and I look forward to meeting you at one of the events you sound like a person I would enjoy having a good conversation with.

Ruben D. Flores

816 918-9041

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Re: One of the Cheerleaders !!! - Posted by Sailor

Posted by Sailor on June 13, 2007 at 16:47:27:

I have some financially responsible folks who pay more than 13% for several reasons: (1) poor credit due to medical bills (I’m coming back as a medical consumer advocate) or divorce; (2) they can only afford a used MH; & (3) no one else w/finance a used MH. A Sears credit card is 26% these days, so 13% doesn’t look all that bad to these buyers, especially since the alternative is to pay rent forever w/no equity. I deal w/a lot of tenants w/no hope in their eyes, so it is gratifying to find someone who does dream of ownership as a way of providing a future for their children. Sure, it would be nice if I didn’t have to charge them so much, but if my return was less I wouldn’t be offering this service. My buyers feel they are getting an opportunity + a good deal. The only buyer that bailed on me had been very good about payments. The problem was that even w/both husband & wife working, they couldn’t make enough $$$ to support the family. They made it ok until energy prices skyrocketed. It has affected everyone in ways we still don’t fully understand. Notice the recent prices on groceries, & everything else that has to be transported? It is even a factor in why I’m putting my own home, which I love, on the market. My next one w/not only be closer to medical, but to family & to my investment property. I don’t even fill up my own gas tank anymore (my personal pain threshold @ the pump is $40).

Just as there are rich jerks, there are poor ones, too. However, based on my own experience, I do think being poor puts a different spin on one’s perspective of life. I highly recommend Frank McCourt’s fabulous autobiography “Angela’s Ashes” as an ethnography of poverty. It provides a great deal of insight into the culture of being poor, & you can probably buy it used on Amazon.com. The very 1st paragraph w/grab you, & I think it would be a valuable little text for any Lonnie dealer.

Tye

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why pay 13%? - Posted by Anne_ND

Posted by Anne_ND on June 13, 2007 at 16:34:00:

“Why would a financially savy (sic) person pay 13% interest?”

I pay more than 13% interest to my investors all day long. In fact, I’m currently looking for an investor with $500K who wants to earn 16% and be secured by real estate (for my MHP). Am I going to find that person? Absolutely.

My philosophy (which is not shared by all here) is to buy streams of cashflow using other people’s money. Borrowing money at a high rate of interest (and being darn sure you can pay it back) creates the opportunity to borrow more money without jumping through hoops. NOT having to jump through the humiliating approval process of a bank is worth enough to me that I’ll just keep going back to my people with money and giving them the best rate I can afford.

BTW Jen, I do agree with your statement about parks being a very important part of the Lonnie deal equation- don’t forget that good parks can go bad very, very quickly. My pet park was bought by ARC, and the lot rent has gone up so much that I’ve had to reduce my payments on some MHs to keep my payors in the houses. So, the problem really is that, as Lonnie dealers, we are subject to forces beyond our control with parks that get sold, or sympathetic managers who move on.

just my thoughts,

Anne

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Re: Stories per your request (Long) - Posted by Sailor

Posted by Sailor on June 13, 2007 at 18:21:33:

Ruben, your Story #1 reminds me of one of my buyers, a lovely girl who went to school w/my elder granddaughter. She is a single mom w/2 lovely little girls. I had a creampuff 2002 16 X 80 that I sold to her for 42.9k that was 8k under NADA. She had 3k from her 401k to put down, & she could only pay a total of $550 mo., but she offered to give me an extra 3k from her tax return every Jan. To work the numbers right, I gave her a 25.5 yr loan w/graduated interest starting @ 10%. Neither one of us wants her to pay me for the next qtr century, so I’ve given her some incentives & education so that she w/be inclined to pay me (or my heirs!) off early. My hope is that in the next few years I can find a lot that I can finance for her, so that her girls can grow up in a bit better neighborhood than my park.

My guess is, though, that she w/meet a nice young man & decide to move to a stick-built. If that happens, I’ll help her find a buyer & keep the down payment, & re-work the note. What we’ve worked out together is perfect for her now (her furniture even is a great match for the home), & I’ll keep the deal flexible as her needs change. This is a girl going to outgrow her present circumstances. She’s had 2 promotions in the past few months. I don’t think I’ll get to keep her long, but her needs & mine mesh for now. She makes up for some of the other folks w/whom I’ve had to deal. Oh, & she always pays a few days early, so I send her a Wal-Mart or Target $5 gift card every month.

One of my original tenants told me “You’ll never get rid of the riff-raff!” I took that as a personal challenge, knowing that there are good folks out there. I firmly believe that if I provide decent opportunities, I cannot help but succeed.

Tye

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Re: why pay 13%? - Posted by Jen

Posted by Jen on June 13, 2007 at 16:41:17:

Anne,

I do agree with you that in certain business situations it does make sense to borrow at a higher rate for convience or just getting the job done. But not in a situation where you are the end user.