Posted by Randy -IL- on April 20, 2000 at 20:22:36:
When someone stops paying for something that they still owe money on, they leinholder will (should) repo the property. Then the process can then be started all over.
A bank will certainly not let someone get away with not paying for a home, mobile home, car, farm, or anything else for that matter. They will come and collect the collateral. The investor who is selling the mobile home becomes the “bank” when they sell.
For example (a very simplistic example):
Carl buys a mobile home at a wholesale price of $2500. Carl is a decent negotiator. He knows that the retail price of the mobile home should be about $5000.
When he sells the home, he gets say $1000 down. Which then only leaves him with $1500 invested in the mobile home. The agreed payments for the home are $200/month. All he has to do is collect 8 months of payments to collect all of his investment back. The rest is gravy.
Perhaps, the buyer pays 5 months of payments and quits paying (skips town, moves out, whatever). Carl repos the home as a good lender should. So then, Carl only has $500 left invested in the mobile home. So he sells the house again for $1000 down. He now has made $500 instantly plus a note for $4000 (Free of Charge). His rate of return just went through the roof and out into space.
Of course, this is a very simple example that does not reflect multiple variables like: repairs, lot rents, repo costs, etc. But still, all of these costs can be passed on to the next buyer.
But why would they pay such prices for a mobile home? or continue to pay monthly? Most people that reside in mobile homes in my area don’t have $2,500-$10,000 to buy a home outright. Those folks welcome (with open arms) the idea of buying a place of their very own without having to beg a banker for money. People around here love to stay away from banks and bankers.
Is there still risk to the investor? Of course there is. Life is full of risk. But I would rather risk my money in something I understand (real estate) than something I don’t understand (stock market).
Hope this helps,