Posted by Tony Colella on April 24, 2006 at 17:44:06:
Bob,
Not here to argue with you on this.
If you think it looks good then go for it.
Hope that helps.
Tony
Viable business model? - Posted by Bob Smith
Posted by Bob Smith on April 23, 2006 at 22:14:44:
- find a cooperative street dealer
- offer a fee ($250-500, as low as you can get away with) if he’ll buy and sell mobiles for you in his name (you will finance it)
- find and qualify a buyer
- dealer sells to buyer
- satisfy his debt to you in return for the note he took back on the sale and a portion of the cash down. his net profit will be equal to the agreed upon fee.
Why would I want to do this?
- deferred taxation comparable to a lease/option, but it satisfies PMs who won’t let you do them
- I don’t need to get a dealer’s license, which I could never qualify for anyway
- save sales tax on the buy == more profit
Why would the dealer want to do this?
- more income
- the opportunity to do business with me
Re: Viable business model? - Posted by Lin (NC)
Posted by Lin (NC) on April 24, 2006 at 19:49:23:
Bob,
FWIW, I can recall somebody posting here several years ago claiming to do essentially what you suggest.
Go talk to some dealers and see what you both come up with. You never know. As always, this business (any business) is a work in progress.
Good luck.
Lin
Re: Viable business model? - Posted by JeffB (MI)
Posted by JeffB (MI) on April 24, 2006 at 07:37:55:
I agree with Ruben, and will add that in my state it is not permissible for a licensed dealer to process deals for an unlicensed person. If I did this (and got caught) I would lose my license (or worse). Not to mention an absolute nightmare of accounting/bookkeeping for the dealer.
Re: Viable business model? - Posted by Bruce
Posted by Bruce on April 24, 2006 at 07:15:50:
This in my opinion has bad written all over it. First off I am not clear just exactly who is the money behind the purchase. If it is you then I would rethink using my money and putting the home in someone elses name. It is now their home no matter how you slice it. As far as sales tax,in my state their is no sales tax on MH purchases. Third and most interesting to me, who is going to claim the profit on the sale of the home? There are many more problems with this scenario and i am sure others will chime in but for my 2 cents. Bad idea all around.
Re: Viable business model? - Posted by Ruben (KCKS)
Posted by Ruben (KCKS) on April 23, 2006 at 23:05:46:
Just walk me through this. First you are asking the “street dealer” sell to your “qualified” buyer for a $250-$500 commision. Then you get the note. This in a park that does not want Lonnie deals in the first place?
What I am not understanding is where your profit comes from. If you are buying from a “street dealer” you are paying at or near retail. If they are buying at a killer deal price why pass that on to you? They can make a lot more money selling it themselves and finding a different financing source. Our business is based on the premise that the profit is when we buy at wholesale. You want to use his license and pay him almost nothing to do it.
If you do buy at a really good price (wholesale). Sell at retail. The street dealer did not screw you over and you sell the home out from under you (it is in his name after all) Now you have the note. A couple of months down the road you take the home back. Now you have the home back in a park where the PM does not want you doing Lonnie deals in the first place. Time to move the home (big expense) to a park with a friendly PM (where you could have started in the first place), fix home to resell (expense and a big headache), got carry costs. Now it sounds like your home is near retail price again.
I am very new with only five deals to my credit. After much research and personal mistakes I have found that Lonnie’s model is the one that works the best. Buy cheap, sell at fair market value and finance the home in parks with a friendly PM (I have worked in parks with both types belive me go with the friendly).
Let me answer the questions you posted:
1 Find a park with a friendly PM no if’s and’s or but’s
2 Why can you not qualify for a dealers license and do you even need one? Many of us do not have them and there is not issue with it for us.
3 Taxes are part of the business either factor them into the buy cost or do the lease option to buy route.
For the Dealer:
1 You are right they may go for this easy to move a home with little risk to them (if they do not get greedy at the purchase price you have). You have no control over the deal. They buy in their name and have the title in their name.
2 No offense but few people due business just to do business unless there is a fringe benefit in it for them.
I do not mean to sound harsh but I do not see the upside that you do. I am just being real. I like the outside the box thinking.
To put a spin on it why not partner up with someone who can get a dealers license and just use them in the same way to do regular Lonnie Deals in a park with a friendly PM who likes what you want to do. If the dealer does not know the business and just is using his name you run less risk of them taking a great deal from you. I would work with a close friend or family who you trust but does not want to get involved with the buy and sell part. That person would take an “easy” $250.00 just move the home. Even this sounds like a lot of hassle for more risk to save a little bit of money to work in a park you should never be working in to start off with.
Just my loooooonnnnnnngggggggg 2 cents
Re: Viable business model? - Posted by Bob Smith
Posted by Bob Smith on April 24, 2006 at 12:38:52:
Who’s the money? I am. I can hardly ask the dealer to take only $250 in profit and use his own money. As for the home being in his name, I have both a lien on title and a demand note. I can repo any time I want (on demand not just on default), and he can’t sell without my cooperation. What’s he going to do, forge a lien release? Trash the mobile for the hell of it? Lease it to a pal for $1 a month (my foreclosure wipes out the lease)? As for profit, it’s mine. He takes part of the cash down as his fee, gives the rest to me. That’s what we agreed to up front. If he breaks his word, I repo the mobile and find somebody else.
Re: Viable business model? - Posted by Bob Smith
Posted by Bob Smith on April 24, 2006 at 12:31:35:
>This in a park that does not want Lonnie deals in the first place?
No, it’s a park that doesn’t want me to sell via lease/option, which I prefer but most PMs won’t play.
>If you are buying from a “street dealer” you are paying at or near retail.
The dealer is buying and selling for me. That is, I say “buy this mobile for $2500”. “Sell that mobile for $7,500, $1k cash down + $6,500 note”. I finance his buy and take a lien on the title as security for a demand note (I can call it due at any time). He can’t take the deal and sell it without forging a lien release. When I ask him to sell, he gives me $750 cash and the note, keeping $250 cash for himself. I release his title so he can sell, and secure the note he gave me with a lien on the new buyer’s title.
>Why can you not qualify for a dealers license
The mandatory office and lot, for one. As intended, it’s cost prohibitive for a Lonnie dealer.
>few people due business just to do business unless there is a fringe benefit in it for them.
Other than a few bucks off my Lonnie deals, there’s also money to be made selling me new wholesale double-wides and repos. Plus it’s always nice to do business with honest people.
Re: Viable business model? - Posted by Tony Colella
Posted by Tony Colella on April 24, 2006 at 13:26:52:
Not making any particular comments regarding the plan itself as viable but a few particulars that might need reconsideration.
The dealer will incur a tax for selling the home (treated as ordinary income). In your case, they show a $5,000 profit per deal but they only receive $250. While I realize it is the dealers problem and not yours I suspect the dealer will catch on if they keep things above board (not all do) or they will try and work something under the table. Either way just know going in to the deal what is the best and worst case scenario for each side.
They may prefer to do the deal and have you buy the note at a pre-arranged discount. This will cost you more but would cover their tax concern and your dealer license concern.
A comment on your other post. Just to clarify. The mobile home is personal property and not real estate and thus you would repossess and not foreclose.
If, in your example, you repossesed a home that the dealer leased to his buddy it would NOT automatically wipe out the lease or the tenants rights. You would still have to evict the tenant. The same holds true for foreclosures.
Tony
Re: Viable business model? - Posted by Ruben (KCKS)
Posted by Ruben (KCKS) on April 24, 2006 at 13:25:14:
To address your points again.
What do you do when you get the home back? You still have to sell on a lease option which is what the park does not want. Now you have the move issue again or will your dealer be taking the home back to sell again? If the dealer keeps doing this don’t you think your PM is going to catch on or are you addressing your business model with the PM first?
You have not explained a couple of important factors. Who is responsible for the lot rent? Is it the dealer who is on paper the “owner” of the home. Sounds like a good deal of risk for him now. Also if you need to repair the home who gets the write offs for that. You or the dealer. Who pays the handyman for the repairs. If someone is hurt who is liable. Once again sounds like a lot of risk for the dealer and an accounting nightmare for both of you. All that risk to the dealer for $250 to $500 bucks does not sound like a good deal to me if I was the dealer.
I agree that lot and office is not cost effective. How are other Lonnie Investors in your are getting around this? Maybe they are just working in parks who allow them to do deals their way with a lease option. Why do you want to get around the PM’s that do not want to do lease options so bad? Just buy in the parks that will allow it.
I agree with you and I to make it a practice to only deal with nice honest people. Being in the professions that I have been in before I always trained and prepared for the worse. I like more control over my deals which is why I like them to go in my LLC’s name.
It sounds to me like you are very defensive of your business model. When I post here I hope that my ideas get shot full of holes. That is what I want so I can refine my idea and make it better. I see that you did not respond to the post of JeffB (MI). I would be interested to hear what you have to say about the point he brought up. I look forward to reading that post.
Ruben D. Flores
816 918-9041
Re: Viable business model? - Posted by Bob Smith
Posted by Bob Smith on April 24, 2006 at 17:38:25:
>In your case, they show a $5,000 profit per deal but they only receive $250.
Not really. He bought a mobile for $2500. He sold it for $1000 cash and $6500 note. He then gave me $750 cash and a $6500 note to pay off his $2500 note. His gross income is $1000 cash plus the $1750 I paid him for the note ($1750 of debt relief is treated like cash). $2750 (gross) - $2500 (cost of goods sold) = $250 profit. There are no hidden tax gotchas here, if he doesn’t screw up his books.
The reasons why I didn’t just have him do the deal and buy the note afterwards for a pre-negotiated net profit to him are:
-
Perhaps erroneously, I was thinking it’s probably more expensive for me to let him use his own money.
-
If he buys it with his own cash defection is too easy. A smart and far-sighted person will immediately see that stealing my deal makes it his last, but so many people are not (far-sighted). Just the control freak in me coming out.