Lonnie Scruggs' books, 2 serious pitfalls - Posted by Dennis Mahoney

import · February 29, 2000, 5:27pm

Posted by David Alexander on February 29, 2000 at 21:13:27:

I guess what one person sees as a problem another sees sees as money.

Costly repairs after the people leave. Most of the homes after you get them back are in better shape, not worse. Occasionally you get one back that needs some more work, but to fix a MH up is to say the least not very costly. You also should be selling them based on two prices which leads me to wonder if you have ever read Lonnies books. You should on an As Is price and a fixed up price.

As far as the negative rent, yeah it happens and you just have to make sure your in good with park managers so that you resell them fast and get another down payment to cover your costs.

It’s hard to believe that your complaining about a system that often creates 100% yields or better.

As far as saturated markets, come on. More MH’s are being built everyday, which means that there will always be more homes to buy and affordable is harder and harder to come buy.

How are you marketing to find homes?

Acquiring a park, hey I’m with you, but dont discount doing those little note deals.

David Alexander

import · February 29, 2000, 5:27pm

Lonnie Scruggs’ books, 2 serious pitfalls - Posted by Dennis Mahoney

Posted by Dennis Mahoney on February 29, 2000 at 18:27:21:

I have read both of Lonnie Scruggs’ books several times and they offer many great money making ideas using mobile homes. A number of my friends and I are doing the traditional “Lonnie deals” where you sell a
mobile home and take back a high yield note, and, as in many things, it ain’t quite that easy. There are 2 serious pitfalls which stem from the vacancies endemic to lower income housing. The first is costly repairs when the occupant leaves. The home is usually a mess. I have
been totally unable to rent or sell a home that needed substantial work. Even the sloppy people want to move into a clean home (but they will trash it in a month). I admire Lonnie if he can sell a home as is;he must operate in a very tight rental market. The second problem is the lot rent. Lonnie says to negotiate a deal with the park where you do not pay when the home is vacant. No way, at
least not for anyone I have ever met. This causes severe cash flow fluctuations, as for example, when an occupant paying you $200 a month & the park $150 in lot rent moves out, your cash flow goes from +200 to
-350, not counting utilities. Because of this my strategy has now shifted to acquiring a small park where I will control the ground & other residents. But Jimmy & Lonnie have so well publicized mobile homes and parks that there are very few bargains left out there. Neither I nor any of my friends have been able to really solve
these problems; we just endure them. Since they are both caused by vacancies, this seems to imply that “Lonnie deals” are much more sensitive to the local market than anyone suspected. (Just like any other real estate.)

Dennis Mahoney

import · March 1, 2000, 7:30am

Re: Lonnie Scruggs’ books, 2 serious pitfalls - Posted by Bill K. - FL

Posted by Bill K. - FL on March 01, 2000 at 08:30:00:

Dennis,
Every investment has it’s risk and reward. What makes LDs so attractive is the high rate of return on a minimal investment. Sure, it has a downside, everything does. But don’t you think the upside is worth it? Do you know of any other types of investments so readily available with this kind of return on such a small investment? I think we all need to maintain a positive attitude which can be difficult at times. However, by maintaining a confident, positive attitude our business will grow quicker and be stronger. Learn from your experiences and make changes where necessary. Be flexible and creative. That’s what we get paid for.

import · February 29, 2000, 9:03pm

Re: Lonnie Scruggs’ books, 2 serious pitfalls - Posted by stampeding

Posted by stampeding on February 29, 2000 at 22:03:53:

Without a doubt, the two pitfalls are legitimate concerns. However, rather than discounting Lonnie deals, we should be “creative” in dealing with these concerns.

For the first pitfall, the condition of the home is a concern, but it can be overcome.

First of all, as already mentioned by others, repair costs aren’t that bad and profits are still very satisfying.

Second, again, as already mentioned by others, have one offer to sell as is and another offer after repairs.

I would like to add one more solution: before closing on the purchase, get an estimate on the cost of repairs. Then use that to re-negotiate our original purchase price with our buyers. In this way, we “save” some repair costs by lowering our purchase price.

As for the second pitfall, we can’t totally avoid it, but, based on the experience of Lonnie and Dirk, defaults are not common (please correct me if I’m wrong). Even if we have to pay some months of lot rent, in most cases, we have already received quite a bit of income on that mh so that we’re not actually “losing” money, but having lower profits due to extra costs. Even if our rate of return drops from 150% (only 25% of my deals fall below 150%) to 100%, I’ll still take the deal. Wouldn’t you?

So far I’ve had great success in doing Lonnie deals. After only a few months since my first deal, my income from Lonnie deals is 50% of my regular job. That is 50% of extra income. I still can’t enjoy the extra income because I need most of it for future deals, but I’m on my way.

For those who lack faith or courage to do Lonnie deals, let me just assure you that I am no genius. (I’ve lost money trading stocks during the most bullish market one has ever seen in history) I am not rich either; I had to use credit card in buying my first mh.

Lonnie deals may not be right for everyone (I don’t know why not), but it works for me.

import · February 29, 2000, 8:33pm

Re: Lonnie Scruggs’ books, 2 serious pitfalls - Posted by Mike McBride (FL)

Posted by Mike McBride (FL) on February 29, 2000 at 21:33:52:

Reminds me of the old Bob Allen Quote: “You can either make money or you can make excuses, but you can’t make both”.

As for negative cash flow. When a $200/month occupant moves out and leaves you with $150 lot rent, your negative cash flow is $150; not $350.