Re: Need expert advice on quandrum of selling MH - Posted by Mark Haugsten
Posted by Mark Haugsten on August 21, 2005 at 03:05:31:
I suggest you look at more than those dp numbers, since that is where you are in the first deal. To whit the dp/trade is not the only issue.
You want $3-5k, and he is offering a commodity, but bidding it into the deal at $9k. I’d be tempted to suggest that cash is king in this deal, and you would prefer $3k cash. He should be able to sell a $14k MH for $3-6k! Take the cash instead. This will only affect his payment, which I think is important in the deal, see below.
In the abscence of a cash sale to the public in the $3-6k range , why should you 2 consider it worth more than lowlow wholesale, just as Steve suggested.
How long has his home been for sale, also? I gather he has some idea it is worth $14k, but where did that number originate? Why did he drop over 36% right away? That is a steep discount for tradeins.
Remember, we are trained to see tradein ledger entries as discount areas on retail prices, so his suggestion could have been for $17k, just as easily as $9k. If he had a $14k automobile, and wanted a $32k automobile, he would not go into any dealership and say, “give me $9k”, would he? He’d start probably 35% over $14k. I think he is using $9k becaue he accepts it as too high, and not something that the market will give cash for, just credit, such as the dp proposal.
I would point out to him, that as a (licensed?) dealer/investor you can buy 3/1 SW repos all day long at $1-3k. They are in parks, or on bank/finance repo lists.
In a park, and at $300 a month, a park is going to take the owner to court to get abandoned/claims liens/titles in about 5 months. He is simply too high to compete with your professional sources. Remeber Steve’s ‘deflate their expectation’ program? “I can take $3-5k cash, and buy another 3/1 SW, fix it up, and have cash left over!”
He is too high, obviously, in valuing his home to you for this deal. He would take a deep cash discount, and pay you just $3-5k down if he could get $9k cash in a heartbeat, and he’d gladly pocket $4-6k. UNLESS he wants lower payments, I think. So…
That brings up the critical element you don’t explain, the $350/mo payment. I am guessing that is the #1 critical number to him, not so much the dp? Typically, just 2 numbers are critical to mh buyers, and those are dp, and monthly payment.
Why not structure the deal as 32k, $2500 tradein. $29,500 financed at 12.75%, for 198 payments (dont say how many years, but remember this is a DW, and the dealers sell 240 month minimum financing at this price range), of $357.54?
I think the variable element in the deal to try to work with is the time he will be making $350 payments. If you consider a $4k, $6k, or $9k tradein credit, adjust the payments number up or down to keep the $350+/mo. The interest rate can fluctuate as well.
You asked about Return On Investment, or ROI.
Your ROI is simple. At $660 a month, and $7920 a year, divide by 160 (1%of 16,000) to get (7920/160) 49.5%. Since a LD starts at 50%, I suggest you drop the whole thing. 
If you want to get seperate ROI, then I would prorate your 16,000 to 11,000 and 5,000 in each respective deal. That means ROI of (4200/110) 38% on the DW, and (3600/50) 72% on the tradein.
Return Of Investment…(a different ROI)
Your $16,000 with $1,000 down, returns in 22 months, at $660.
$16,000 with $3,000 cash down returns in 37 months at $350. So, you get a quicker return with the 2 mh deal by about a year, and a quarter.
At $5k down you get $16,000 returned in 32 months. Your 2 mh deal is not that much better than a good cash down payment, in my opinion, since the deals extend over a decade.