Close your eyes and think again… - Posted by Dr. Craig Whisler CA
Posted by Dr. Craig Whisler CA on March 17, 2002 at 19:31:16:
This is a potential KILLER deal, but you will need to reshape it just a little.
We are taught to look for (or make) great deals. What is a great deal? Well, its supposed to be a deal with either great terms or a great price (or both), right?
Well most of the time that is right but not always. Maybe I just think differently from most folks, but, I see another element in this case that could be of great value to you, Bill, if you structure it correctly. Don’t be afraid to think out of the box. Where is it written that you have to accept or reject this deal exactly as it has been offered to you by the seller?
Clearly everyone else is right in telling you that this is a bad deal AS OFFERED, but you don’t need to do it the way it was offered. You should make your OWN offer.
Half of this deal is horrible (the mobile home half). The other half of this deal looks VERY good to me from where I sit in CA. I admit that I have no idea of land values in your area, so you need to determine for yourself what the land part of the deal is worth. It seems to me that 4 acres with all of the utility improvements already installed would be a good deal for $203/mo with nothing down. Try to buy the land ONLY and rent it to whoever buys the mobile.
Here is how I would structure my offer, and how I would present it to the seller. I would approach the seller with an offer to buy the land only. Offer to just take over the land loan, with nothing down, to get it off his back. I would tell him that the total price for the land mobile combination is very high. I’d say that it will be nearly impossible for him to sell both at once in this market. Remind him that most mobile home buyers around the country buy mobiles in parks and just rent their spaces. It is easier for them to get into a mobile purchase that way. Tell him that they will have a much lower downpayment that way. Say that this is probably the easiest way for him to sell his land and mobile in this market. Say that you would be able to buy the land now and start making the land payments immediately to relieve him of this responsibility.
As the owner of the land you would have a much easier time managing your rental lot than if it were a lot and mobile combination. Tenants can’t do so much damage to land only (though I’ve have had a few who have tried).
You wouldn’t care what happens to the mobile. If the downstream buyer of the mobile chooses to rent your lot or to pull it off your lot, great. You win either way. If he pulls it out you could get another similar one for maybe about $15k.
If the buyer of the mobile home later defaults on his payments to the lender, so much the better. Let the bank repossess it. Remember it will still be on YOUR lot (collecting rent or accruing storage costs that could later be offset against the purchase price if you want to buy it from the lender).
After a repossession, the lender could pay you lot rent (maybe at about $350-$450/mo or what ever the market will bear). Raise the rent a little above market to the lender but not so much that he is FORCED to pull it off, though that is ok if he wants to pull it off. Either way you win. Remember it is VERY costly for the lender to move the mobile, resell it, and then move it somewhere else and set it up again. Chances are good that it will just sit on you lot for a couple years while the lender goes through his reality check of trying to sell it for more than it is worth. It should probably sell for about $15k. After the lender softens up as they usually do, in time, I would offer $15k or so for the mobile (with full credit for rent/storage). If and when they accept, ask them to finance it, with no due on sale clause in their note. You could then, if you wish, resell it Lonnie-style by wrapping the existing note with your new one, if this is permitted in your state. Check with your lawyer first though. If you resell the mobile Lonnie-style you could still rent the land. In deals like this you tend to have a captive tenant who stays and stays, and pays and pays, because it is so expensive to move big mobiles. Either way you win.
If the lender does not make any payments for a year or two (this is good)then just write to them and say you have a “storage bill” on their mobile for
$8-$10k or so and offer to take the mobile off their hands for the amouunt owing to you. Remember how much it will cost them to move it. You could always sweeten your offer a little but don’t do it if it isn’t necessary. If you go this route, I would not press the lender for the monthly payments for about 2 years if you want the mobile. Just let the payments accumulate to the point where the bank will have to write a BIG check to you. Banks don’t like to throw good money after bad. I suspect that this expenditure would have to come before the lenders board of directors for approval. The bank officer who made the loan originally might not want this to happen and draw attention to the fact that he has name a bad loan. He may prefer to just quietly send you the title to the mobile, free or very cheaply, hoping the board doesn’t even notice. Lenders are notorously tight (about losses like this) and they might decide to just give you the title free and clear for space rent or storage charges owning.
I have done a couple of deals like this in CA and they were VERY profitable.
Good Luck, doc.