Posted by Jerry Freeman on March 07, 2002 at 06:24:44:
Posted by Jerry Freeman on March 07, 2002 at 06:24:44:
OK I’ll be nice - Posted by Trey
Posted by Trey on March 06, 2002 at 22:58:21:
Reading some of your responses I have come to the conclusion that most of you are starting out and really don’t know. Some of you have checked with local officials and gone the appropriate routes to finding information on the legalities for the sale of manufactured housing. Some haven’t. Mobile home dealers have felt the crunch of the reccession for over 3 years now. The ones that are still in business have to deal with new laws every year and headaches you cannot imagine. It cost thousands for bonds, general liabilty insurance (in most states 500,000.00 minimum a year), state education classes (required in several states for dealers) and license fees. If you are to sale just a few a year, and I mean just a few. I wouldn’t worry about it. The only thing I don’t understand is if you are going to do it. Why not try and do 10 or 20 or 30. I have always gone for the gold so to speak. I have made over a million dollars in the manufactured home business in just the past few years. So yes go for the gold. I read a few messages on the board before that struck me as people trying to get around the rules. Rules are in place for a reason. I don’t agree with them all but never the less they are rules. After reading more of the postings (which I should have before) I have found that most of the postings here are from honest people trying to make a buck. If I can help in any way. I’ll be glad to.
Beacon Bandits and Lonnie Deals - Posted by Tony-VA
Posted by Tony-VA on March 10, 2002 at 07:24:44:
I just picked up this thread, so I don’t know your background as far as investing in these older mobile homes via “Lonnie Deal” format.
But it sounds as though you have had a lot of experience, and success in the sale of new manufactured homes (and likely repo’s and trade ins).
As a new MH Dealer, chances are your concerns were monthly overhead, % of Gross Profit for commissions, and finding consumers that could pull off a decent enough Beacon score to make it all worth while.
In order to cover the lot overhead and commissions, the dealer has to have a decent market up and steady volume of sales.
It can be feast or famine for a dealer in this market.
Where Lonnie comes in is addressing the market that the new dealer simply cannot. Those buyers with Beacon scores that read more like shoe sizes.
Those buyers who have a decent enough job but cannot qualify for 3rd party financing.
As a private investor (Lonnie Dealer) we are able to find homes for say $3,500 that need work. We market these homes to the Beacon Bandits who provide say $1,000 down and agree to make 36 payments of $250 a month.
By selling “As Is” we keep our costs down. Our Buying Market is typically from a blue collar family that has at least one plumber, dry waller, painter or general handyman who can fix the home up for far less than we can contract it out. (Though we can fix things as requested, and compensated by the buyer).
A Traditional Dealer may have a $6,000 trade in but in order for them to move the home, set it up and provide for a decent enough Gross Profit for commissions, they have to price the home in the teens. Then they have to find a Buyer who wants such a home AND can qualify for financing so the dealer can cash out.
The Lonnie Dealer simply lowers the price, sells the terms and collects payments. It takes longer to put all the cash in their pocket but that one deal provides them a $250 paycheck each month for 3 years.
If the Buyer defaults…GREAT! We repossess the home, sell it and take another $1,000 and 3 more years of payments.
In a nut shell, we are investing in a niche that is left outside the market. The Traditional Dealers are not designed to address this market, nor do most of them care to. (Although there are no doubt exceptions).
Ironically, a few of these Lonnie deals on the side would provide a nice cushion for a commissioned sales agent or manager to weather the storms and keep a regular cash flow coming in. Most sales people I have talked to get a bit more stressed during the storms (as they live on standards not covered by the draw). They become motivated Sellers. They start cutting profit % on options so as to make a sweeter deal yet in reality they are compounding their own problem by giving away commissions. Good for the Buyer but hard on the Seller. I would argue that a few side Lonnie deals would provide the confidence to make better deal routinely. Confidence always seems to translate into better sales. The position of strength in negotiating may only be in the mind, but it is the deciding factor in my opinion.
Thanks for the input . Now about Lonnie deals… - Posted by Jerry Freeman
Posted by Jerry Freeman on March 07, 2002 at 07:11:33:
You’ve done a service to all of us who follow the CREonline Mobile Homes forum by forcing a thorough discussion of the licensing issue. The information that you flushed out from the various posters who responded gave a very good overall picture of the regulatory climate and the things that each person needs to consider. I thought that JHyre (who’s an attorney and does Lonnie deals himself) gave a good summation.
You’ve raised some questions about financing and expressed some doubts about the general business model that most of the people posting are pursuing. If you haven’t already done it, I would suggest that you order a copy of Lonnie Scrugg’s books, Deals On Wheels and Making Money with Mobile Homes. They’re $60 for both ($30 ea.) and are available at CREonline. Even someone with 20 years in the MH business will probably find something in those books that will more than repay the modest price.
You are correct – financing is one of the issues that comes up frequently in setting up a business doing Lonnie deals. However, the financing that’s important is finding financing to buy the homes for cash. Lyal Powell has developed a relationship with a local bank after doing enough deals to demonstrate that the business works and writing a business plan. He’s being straight with you when he says that financing hasn’t been a problem for him. Others use private investors who fund the cost of purchasing the homes, equity loans or credit cards.
Financing the sale of the home isn’t an issue because by definition, a Lonnie deal is one where you hold the note yourself and receive monthly checks. This opens a huge market of customers who don’t qualify for institutional financing but have enough income to make payments. Lonnie addresses all the “what ifs” of doing business this way in his books (and yes, he’s writing from experience, done it himself hundreds of times). A typical yield on a Lonnie deal is 50% to 150% per year on every dollar invested (This is true, you can check it out.), so there’s serious money to be made by marketing to this niche that conventional MH businesses overlook because of the difficulty getting the customers financed.