Posted by Steve-WA on May 26, 2007 at 09:30:24:
its not really a $0 down - that was a misspeak.
Yes I would take this buyer even without the investor.
the good, the bad, and the profitable - Posted by Steve-WA
Posted by Steve-WA on May 25, 2007 at 21:22:26:
whew! what a week!
During MHM, an investor friend who has big money contacts was interested in financing a Lonnie Deal, to use his contacts’ money, and show them the potential. I had recently bought a nice 2/1, quick sale potential, for 3K, so with repair bills and fees, the investor ponied up 4K. (Note: the point here was to tap into big money - I can afford a 3K deal, but this shoulda been a fish in a barrel).
Well, my quick buyer flaked, and it has sat. Tomorrow, about two months after the investor gave up the cash, I have a zero down buyer, at 350/mo. Sales price is 14,500, works out to 55 months. (NOTE: since her credit sucks, and she has zero for a downpayment, this 10K house is costing her 14.5K) The investor gets 2/3, I get 1/3 for management. It’s OK for me, pretty good for the investor. BUUUUUUUT it is not the seminar-hyped, holy moley lookit all the money! deal that the investor was hoping for. They are making a good percentage (whats the yield on $233/mo for 55 months off a 4K investment?), but they are “turned off of” financing Lonnie Deals, and are focusing on parks(?)
you know what? The return is pretty good to me, even if I had to wait 60 days for it to bear fruit; that is, a commitment. The investor will actually start receiving $$ in June/July. . . c’est la vie.
On the other hand, i got a lead from a PM and bought a 'puff 3/2 SW in an expensive park for 3K, very nice/no work, and had a contract for sale in ONE WEEK for 3K down, and 43 payments of $325.
No investor in that one, too bad.
Point being, sometimes it may take awhile, but if you buy right, your profit is already built in, even if it takes 1, 2, or 3 or more months to find a buyer.
OTHER point being (and this may be the bigger point), attending events of MH investors can open doors to money. I got my initial investment back immediately with the first described deal, and I will get 55 months of free money at 117/mo.
Everybody wins.
Motivated seller? - Posted by Karl (Oh)
Posted by Karl (Oh) on May 26, 2007 at 24:00:48:
Steve,
A zero down buyer with bad credit? Are you crazy? Have you read the book? That 10k home isn’t costing her 14.5k, its costing her a handful of monthly rent payments before she skips, cause she’s got no skin in the game. And you put that deal together with someone else’s money? Wow.
Time to hit the archives for a refresher. Search for Karl(OH), I’ll hold your hand and get you back on track, my brother!
Karl
Re: the good, the bad, and the profitable - Posted by Anne_ND
Posted by Anne_ND on May 25, 2007 at 23:11:20:
Steve,
I’m just curious- if your objective was to impress the money (and I think I know the money you’re talking about), why didn’t you pay them from the word go?
Whenever I’ve borrowed funds secured by either an underlying note or a vacant MH I guarantee payments to my lenders whether or not I get paid. Only once, at the very beginning of my borrowing career did I set up a deal where the investor got paid when I did. It took 2 months to sell, and they were very irate about it. Even though their return was something like 40%. It almost soured them on lending me money (but luckily they hung in there and are thrilled with 13-14%, payments starting with month 1 regardless of whether I have someone paying me- go figure).
I know you know what you’re doing, just curious about why you set it up this way.
Anne
Re: Motivated seller? - Posted by Ruben (KCKS)
Posted by Ruben (KCKS) on May 26, 2007 at 09:26:45:
This is what I love about this site. The free flow of ideas and the response to different points of view.
I agree with Steve and I use the no down with skin in the game as my guiding point when selling my Lonnie deals. My park is expensive to move into. $600 to the park for first month rent and deposit, $115 to the city for all utilities except for gas. $45 to the gas company for a deposit and then they pay insurance which ranges from $250 to $350 for a year. By the time they can make a down they have already shelled out about $1,110 just to move into the park.
To me that is having skin in the game and depending on the overall picture of the buyer I will and often do take a no down payment if they are coming up with the move in expenses themselves.
I am making it more of a point to find out where the money they are using for the move in or down payment came from. This is a bigger consideration than the down payment alone (unless the down is enought to cash me out and then some). Then again I am only dealing with the older homes 15-20 year range. If I was dealing with newer homes like Karl I probably would require a down over my move in costs for a newer nicer home.
Just thought I would add my 2 cents since it was both you Steve and Karl that I learned these points from.
Ruben D Flores
816 918-9041
what’re you doing up so late? - Posted by Steve-WA
Posted by Steve-WA on May 25, 2007 at 23:44:25:
they wanted to follow it through, beginning to end. The objective was not to use OPM and give them the return, they wanted kind of a hands-off, hands-on experience . . . LLC is set up with the investor as sole member, with me as registered agent, and the company formation agreement details the compensation structure. they get the photos, the sales agreement, he note (copy), the lead paint disclosure, the title paperwork . . . all of it, so as to get involved from a distance.
Weird, yes. Non-standard, most definitely. But htis is what was asked for, so this is what I gave. This was not really borrowed funds as much as a test.
BTW, I calculated it out - its a 66% yield to them. Would they finance another deal? Probably not, but if I guaranteed them payment from month 1, perhaps.
Again, this is NOT the standard OPM arrangement.
why sleep when you can be making money? - Posted by Anne_ND
Posted by Anne_ND on May 26, 2007 at 07:46:28:
Steve,
If the investors got a 66% yield and they are so disappointed that they wouldn’t fund another deal (using only $4K!), then the presentation made to them was flawed.
You should have a disclaimer on your post “Lonnie wanna-bes, don’t try this at home!” - not the part about using OPM, which is a great idea, but taking $0 money down.
Your message is a good one, though- it can take longer to sell, yet you still make an amazing yield, and you can depart from the book and still do the deal, BUT (and you’ve made this point many times) when one first starts out, stick to the book. Don’t deviate unless you know what you’re doing and why.
Am I right in thinking you took this buyer to satisfy your money people? If it had been your home, you would not have?
Anne