Down Payment & Monthly Payment - Posted by Ray Woodard

Posted by Biz Burnett on February 15, 2002 at 13:59:55:

Thanks to all who posted to this thread, especially to Eric C., for sharing your experience with buying auto paper, which I had also considered.

Down Payment & Monthly Payment - Posted by Ray Woodard

Posted by Ray Woodard on February 06, 2002 at 19:47:15:

Been reading this board several months. Got Lonnie’s books, read them constantly. Getting ready to do some deals. I have found a couple homes with good potential.

But one of the fundamental points of Lonnie’s system is that buyers are interested in the down payment and monthly payment, with little concern for the sales price, interest rate, or term of the note. That’s perfectly understandable. I was there once myself.

Now I see lots of ads that say 0 dn pymnt, 0 interest, bad credit, no credit OK. Monthly payments are listed in the $200 to $400 range. Of course these are long term notes, but the down and monthly are pretty attractive to a paycheck to paycheck buyer. Anybody getting squeezed by this? Is it impacting the Lonnie Deal Business?

Re: Down Payment & Monthly Payment - Posted by GerryH VA

Posted by GerryH VA on February 07, 2002 at 11:17:54:

My immediate comment to you is dont worry about it. Most of the homes these guys are selling are way overpriced and way overmortgaged. 6 times out of 10 the buyers will end up trying to sell the home 3 years after they purchased it to anyone who is willing to take over payments. The reason for this is they are upside down (ie they owe more than it is worth). I always make a point to let my future buyers know that when they bring up the financing from the competition.

This is just future business for us. When the seller gets real motivated, we can buy usually at a loss to the seller or finance company.

We are different as we are selling reasonably priced used homes at reasonable financing. It is simple, they are trying to sell unreasonably priced homes at unreasonable financing. (it is unreasonable to us as investors becuase it is too risky and the yeilds arent very high). Remember, we want to sell something BUT we are looking to maxmimize our yeilds. You can sell anything to anyone if the financing is ridiculous but you are left with the question of whether you can make money on it.

You need to have something down from everyone. This proves they are serious both in staying there and paying the loan off and that they have some fiscal finesse. It also increases your overall yeilds.

Good Luck

Gerry H

Re: Down Payment & Monthly Payment - Posted by Dave(WNC)

Posted by Dave(WNC) on February 07, 2002 at 02:35:17:

I agree with Scott. The problem I have found is not finding enough buyers willing to plunk down $1000-$2000 and $2XX per month rather I don’t have enough trailers to sell them. I have a couple of ads still running and get an average 3 to 5 calls per day. I’ve got 18 messages right now I haven’t gone through.

The fact is, you’re not really competing with dealers just complimenting them with services they are unable to provide. I have tons of people that call me looking to buy after calling those “fishing for perfectly qualified buyer” 0 down 0 interest ads.

As Lonnie dealers it behooves us to accept higher risks but only if we demand higher returns. Only you can decide what that risk ratio should be. I would strongly suggest increasing the amount of down payment they originally said they could pay if questionable items come up on their credit report.

For example, if they originally said they could put $1,500 down and $220 payments, get them into the home. As an old friend of mine and longtime car salesman used to say when I sold new cars one summer during collge. “You gotta get ‘em lickin’ the paint off the car.”

This technique allows the buyer to slowly but surely take ownership of the home, investing time, thought, and personal expense (credit app fee). During this time they will drive around and picture themselves in the park, check out the park’s amenities and talk about with their friends and family who will usually reinforce their decision to buy YOUR home as opposed to some other house sitting on blocks in a dealer’s lot.

Get them motivated to take action and fill out the credit app with the PM. I have my buyers sign a document allowing the PM (who is already doing a report) to share the app with me so I don’t have to get them to pay for another report from me. I go over every single item with them and listen patiently to their reasons/excuses for unpaids and charge-offs. After all of this, I then tell them I CAN provide the financing but ONLY if they increase their down payment by $500 or $1,000 and immediately ask if they know someone they can borrow from. After all if a total stranger is willing to lend them $5,000 to $6,000 then a friend or relative ought to be able to cough up a few hundred bucks so you can get a better nights sleep. You have essentially approved their loan but ONLY if they can get Aunt Edna to strip search her bungalow for some extra wooden nickels. If they hesitate I may tell them, “Heck, I’ll even drop the monthly payments down to $200 a month for an $950 down payment.” Incidentally, that extra $950 up front is what boosts your yield from the 50-60% range to the 80-90%.

Moreover, if the credit report comes back with recent inquiries from other MH lenders, i.e. Conseco you’ll know you’re the last man on the totem pole.

In short, the larger the down payment you get, the less likely they’ll walk on the deal in a few months. Personally, I try to go for high down, low monthly, and 3 to 5 years.


Re: Down Payment & Monthly Payment - Posted by ScottS(NC)

Posted by ScottS(NC) on February 06, 2002 at 20:46:31:


Hi, I was worried about this as well when I first started out. What I have recently learned from a dealer friend is, they almost always say bad credit ok or no credit ok but they still have to qualify for conventional financing. Prove it to yourself run a test add just like Lonnie says to do. 3bd 2bth 14x70 OWNER WILL FINANCE. See what happens I bet you answer some phone calls! In my local classified add paper all the big dealers fill up page after page with a million diffrent sales schemes. But I still always have more buyers than sellers. HTH Take Care ScottS(NC)

Re: Down Payment & Monthly Payment - Posted by Biz Burnett

Posted by Biz Burnett on February 07, 2002 at 12:07:01:


Your comments about some note makers causing the buyers to end up upside down after 3 years reminds me of how the “buy here, pay here” used car dealers operate. I’ve been wondering if Lonnie’s “negotiable if reasonable” strategies would help take business away from those (what I consider sharks) dealers. Lonnie says his methods work with anything we’re willing to finance and accept as collateral. I was thinking of trying it with not-so-new used cars wholesale-priced at $500-$2000 and fair market valued at up to, say, $4,995. But, when I suggested this to my husband, he said it probably wouldn’t work because the used car buyers could just leave town with the cars we sold 'em. What do readers here think about this?

Good Post Dave! Newbies Read This!(NT) - Posted by ScottS(NC)

Posted by ScottS(NC) on February 07, 2002 at 15:56:50:


Re: try it… - Posted by tang-0-rang

Posted by tang-0-rang on February 08, 2002 at 15:27:12:

Why dont you try it- if it doesn’t work…stop doing it. I think you could stil “pull in” a few thousand in the meantime. This reminds me of the days when I would sell life insurance…they use the “Law of large Numbers” which really isn’t a law, but it means that occasionally you will have to pay a death benefit (remember I’m talking life insurance here) but the odds are still in your favor, with all the hundreds and thousands of other folks that continue to pay their premiums. try to adapt this to cars- sure sometimes you may have to hire a P.I. or repo man or even loose a car here and there, but are you loosing to much out of your pocket…maybe…maybe not, but if you buy right you will just loose potential profits OCCASIONALLY. And if you have enough of these out there… will it hurt as bad each time? I think you can make it work.
just my thoughts
Todd Williamson (CO)

Re: Down Payment & Monthly Payment - Posted by Ray Woodard

Posted by Ray Woodard on February 07, 2002 at 19:24:13:

I know a guy in the car business. Goes to auctions about three nights a week. Doesn’t even own a lot. Pays other lot owners $100 per sale to put the car on their lot, and their people do the title transfer paper work. But this is a risky business and you must be very very knowledgeable about the whole business and the local market.

I once rented office/warehouse space next to a repo man. The stories he told were pretty interesting. He was just about always swamped with business. Hired a private detective to help him find the cars. I don’t think you’d have that kind of a problem finding one of your mobile homes.

Re: Down Payment & Monthly Payment - Posted by GerryH VA

Posted by GerryH VA on February 07, 2002 at 16:25:55:

I would agree with Andy and Tom. Too much risk, you would have to hire a repo man. No need in the mobile home business as it usually costs over $1,000 to move a home.


Re: Down Payment & Monthly Payment - Posted by Andy

Posted by Andy on February 07, 2002 at 14:53:29:


I think the lack of outside financing is the key to what makes lonnie deals work. As far as I know their is not a lack of available financing for used cars. This is just my opinion and I am no expert. Good Luck!

Re: Down Payment & Monthly Payment - Posted by Tom (WA)

Posted by Tom (WA) on February 07, 2002 at 13:32:55:


Your husband has a very valid point and I’m not sure why you would want to jump into the car market where there are tons and tons of car dealers that do exactly the same thing. Too much competition and they are very good at what they do.

Re: Down Payment & Monthly Payment - Posted by Biz Burnett

Posted by Biz Burnett on February 11, 2002 at 13:13:12:

I appreciate everyone’s reply re using Lonnie’s note-creating strategies with used cars. It’s obviously risky, and that’s how the “buy here, pay here” used car dealers can justify their high interest rates (up to 29%, I’m told, depending on the buyer’s credit rating).

So…besides older used mobile and non-mobile homes, what other collateral does anyone think Lonnie’s note-creating strategies could work with?


Meant to address this to Biz, not Tom… sorry (nt) - Posted by Eric C

Posted by Eric C on February 11, 2002 at 19:19:06:


Re: Down Payment & Monthly Payment - Posted by Eric C

Posted by Eric C on February 11, 2002 at 19:16:44:

Hi Tom -

I think you’re going to find there are many, many markets out there that use financing as a tool to enhance sales. You were just unaware of them.

Computer systems, water softeners, alarm systems, high-end stereo equipment, vinyl siding, storm shelters, appliances, outdoor sheds, …

How long a list did you want?

Although financing is a key element, it’s not the only one.

Used cars are a good point. There was a time (about twenty years ago) when I used to buy a lot of auto paper from dealers. I made good money from the more honest ones and lost a great deal of money on the others.

Each time I would implement new strategies designed to either enhance my profit or minimize my risk; and they included seasoning, credit scoring, pass-throughs, partials, repurchase agreements, etc.

Again, I made excellent money, but I haven’t purchased anybody’s auto paper in years and have no future plans to do so.

Too much work.

And please don’t confuse interest rate with yield.

29% interest is not nearly enough (my opinion) in the case of collateral about which: the original value is questionable, it current location is unknown, and the quality (creditworthiness) of it’s “owner” is a complete mystery – although not for long – they have a tendency to forget that second payment.


Eric C

PS - in point of fact, when set up on weekly payments(yes, weekly – monthly payments give them too much of a headstart), seasoned properly (I didn’t purchase them until after the customer had made several of those payments and those payments were properly documented), and with a well drafted (and enforced) repurchase agreement in place, auto notes weren’t half bad. Still too much work though.