Posted by Ryan_MO on July 09, 2003 at 17:46:03:
Thanks for the follow-up Lyal.
Ryan
Land/Home Package Question - Posted by Ryan_MO
Posted by Ryan_MO on July 08, 2003 at 21:39:29:
I have a little question here pertaining to land home packages. Say hypothetically, I could acquire a lot for $15,000 and $3,000 down, and it would rent for $300/month. If the seller would seller finance it, my payments would be $100/month for 10 years. I’d rather do it for less years.
Does this look like a normal spread between cost to aquire a lot and rent and is there a better way to structure buying them making payback terms shorter? I have a contact of an older man who owns 52 lots that he rents to those with theyre own MH’s and he is getting ready to start selling some, they are for his retirement and he’s getting old. He agreed to do seller financing for soem but we havent talked terms yet.
It just looks like my cash flow would be pretty thin buying lots by themselves to rent rather than buying L/H packages and renting them section 8.
Thanks for any input.
Ryan_MO
Re: Land/Home Package Question - Posted by Tony-VA/NC
Posted by Tony-VA/NC on July 09, 2003 at 10:51:04:
I am with Lyal on this one.
If you can invest $3k and get the owner to finance the $12k balance for $100 per month, and the lot will rent for $300 per month, you have a “Good N’uff” deal.
A $200 a month positive cashflow on a property that provides you no traditional landlord maintenance concerns, you are doing quite well.
Yes, you could bring in a home and rent the package but I would suggest that the opportunity cost would be painful.
For example, let’s say you have to come up with $9k cash to buy, move, set up, connect utilities, skirt, decks etc.
How much more rent will you receive? Maybe a couple hundred? But now you have the maintenance, insurance etc. costs to figure in.
Now if you bought 3 more lots from this seller at the same terms using that $9k, you would have a positive cash flow of an additional $600 (adding to the original $200) making you a nice $800 per month WITHOUT the maintenance concerns and costs.
You also diversify your assets over 4 properties vs. one land/home package.
Tony
Re: Land/Home Package Question - Posted by Lyal
Posted by Lyal on July 09, 2003 at 08:54:07:
Ryan,
Why do you think this is thin?? If you have 3k invested and you clear 200 a month, your cash-on-cash return is pretty hefty (don’t have my calculator handy). You’re only looking at one angle.
I’d do this in a heartbeat and no I wouldn’t make the term any shorter. I’d make it longer if possible. that would incease your monthly cash flow and, in turn, your cash-on-cash yield.
All the best, Lyal
Re: Land/Home Package Question - Posted by Ryan_MO
Posted by Ryan_MO on July 09, 2003 at 11:49:42:
Thanks for your response Lyal. The only reason i was thinking about different terms is because the guy is old and retired and im not too sure how long he would really want to finance the lots.
As far as the deal being to thin, i didnt really think it was, but if the terms had to be something like $169/month for 84 months, and I was receiving only $250/month for rent, would you guys consider this too thin?
Thanks for your input.
Ryan_MO
Re: Land/Home Package Question - Posted by Lyal
Posted by Lyal on July 09, 2003 at 13:03:11:
Ryan,
With the new terms (250 rent - 169 payment), the cash on cash return is still 30% per year or so and after the lots are paid for, it’s infinity! Yep I’d still do it. Important point made by Tony, the maintenance costs on something like this would be VERY low so any surprise impact to your cash flow would be low probability.
If the owner hesitates about owner financing, offer to refinance and cash it out in 3 or 5 years. Still go for the long amortization to preserve cash flow. You have plenty of time to shop banks etc for refi terms and you’ll have decent equity by the time you need to pay off.
All the best, Lyal