Financing For MH REO?
Anyone have experience financing a manufactured home? This one is on a full finished walkout basement 3/2 about 1500sq/ft sitting on 3 lots(0.5acre) in the city. In quite good condition but apparently is scaring away other investors due to the fact that it IS a MH. LP started at 78K now is down to 39k and will go lower. I've heard that the bank is requiring 20% down and the home needs about 7k in remodeling/cleanup. My mortgage broker can probably find me more attractive financing, maybe private if possible and incorperate the 7k for rehab. Am I looking for trouble here? Will I be able to find financing for my buyers or T/B's?
The main issue here is that you are certain the home is PERMANENTLY attached to land, and taxed as one piece of real estate AND that you are certain about its value as is.
Mobile homes depreciate, even though the land the trailer is attached to may stagnate, appreciate etc.
It would be useful to get an idea of a depreciation schedule on the home, perhaps in the similar way one would do that for an automobile.
As far as your exit strategy, you can take as little as 5 or 10% down, and sell with seller financing, and then sell the first lien at close for cash lump sum. You would have to take back a small second for cash flow, but between the DP and the sale of the new note, minus any purchase price, closing costs, and repairs, you woudl have your profit at close, and if this number works for you, you do not have to fret about lenders, because the lender community is drying up for these trailers, especially used ones, and want to see strong credit and 20% down, which is wildly out of whack when compared to the buyer profiles that are attracted to these kinds of homes.
Hope this helps, Dave
Thank you, that was right in-line with my thinking. At what rate would you depreaciate a MH? This one is 10 years old - still in very good condition(excellent condition considering it is an REO) Here are the numbers:
As-Is MV=60,000
Repairs= 7,000
ARV= 70,000+
LP 39k after 124 days
My MAO 33k
20% down =6600
SP=72,500
Sell note for 68,875
Leaves 28,875
This seems TGTBT. What is wrong?
Factor in 5k for misc and I still walk with 23k
It's fairly easy to sell with owner financing and fairly easy to find a discounted note buyer so why is this still on the market?
You presented the financing options and the numbers seem largely inline (I did not get a calculator out).
You then ask why this one is still on the market.
It is really had to answer that as there is not that much info on the property. The numbers do seem to work so either there is a fundamental problem with the property or the location is an issue. In either case I would then think the estimate value is wrong.
It could be that MH deals are not something that folks are looking for. Lots of other 'dumb' reasons. Sooner or later someone will discover this 'deal' or the price will drop to the level needed to deal with the unstated problem (if there is one).
Can you say anything more about the condition?
John
[addsig]
The condition: Postitive factors: Master bath w/whirlpool, skylight and shower, walkout full finished basement (poured wall) central air, on 3 lots, wooded in back, large kitchen w/skylight, public water, public sewer, poured slab for garage off walkout. Interior walls and ceilings are in good condition, only need some paint. ADT security system. Good roof, vinyl siding and some landscaping. SEV = 33544
Negative factors: Its a MH. Carpet is gross, 2 broken (cracked) windows in front, ugly bright green porch, small deck off back w/broken steps and loose railing, rear entry (door case) broken. Kitchen counters need replaced, as well as two hand sinks in master bath. Basement in good shape, evidence of past leaks present below kitchen sink and master bath (stained and broken acoustical tile) some more tiles missing and broken (.99 cents for tiles) also need new carpet. Neighboorhood is fairly poor but not warzone full of crack houses. Out of 10 I would give the neighboorhood a 3.5 for desirability.
Good discussion here.
I do not know of ANY note buyer of land/home paper that will do a full buyout with nothing down on a ten year old trailer at 95 cents on the dollar, unseasoned, with no history of payments. Aint gonna happen, not even close.
This discussion is to educate you on some expectations, and the reality is, you will need to take at least 5% down, preferably 10% (but 5 is fine), and you WILL need to carry back a small second past the closing table, though you will be able to sell the first lien at close for cash.
Typical structures, depending on condition, credit profile of buyer, etc. range from at best 80/10/10 down to 70/25/5.
The program I work with will pay you 89 cents on the dollar for any new unseasoned first lien note secured by a mobile home that is permanently attached to land, as long as the note is $50k or higher.
Now you can do the math, and you have a benchmark. Sure, you could find a private investor locally that might do better than that, but most people would rather do more deals, then spending a lot of time looking for someone who wants to buy paper on a mobile home in a tough neighborhood, in my opinion.
With a $72k sale price, you gross about $55k, which puts you in a profit position at close of about $10k, given where the price of this home is dropping to, plus you get cash flow on the second. This is more realistic.
Hope this helps, Dave
What happens if I carry back a larger note myself, then the first lien holder forcloses on the buyer. What kind of position does that put me in? I know there is some risk involved with financing my profit but as long as I can walk away with some cash and a note with a good retun for cash flow I would be satisfied.
If you "wrap" the existing note, by creating a larger note from your buyer, it'll be up to you to deal with the existing note and keep it current.
If the existing lender did foreclose, because of your having violated their DOS clause by selling it without their permission, you'll lose any rights you might have in the property and the buyer might sue YOU for having lost the property.
Several "flippers" around the country have been prosecuted criminally for just such transactions...selling on note, while they, the Sellers, did not then pay their underlying notes and allowing the RE to be foreclosed by the original lenders.
As D Hayes said, you'd want to make sure the title to the MH had been surrendered and that it is now part of the RE itself.
Mneoguy
First you are using the incorrect terminology by calling the property a "mobile home MH". You stated the home is 10 years old ... then it was built around 1994.
The proper industry name is "manufactured home" and sounds like the home is on "permanent foundation". It is completely different than the mobile homes in a park and on a park set.
Most lenders that loan on a residential house and also loan on manufactured homes on land.
Here are a couple of lenders that I have worked with:
-U. S. Financial Network, 800-655-9044
- Deleon Alternatives 248-236-9682
Be sure to inform any lender that you talk to about this property to mentioned it is a 1994 [5] manufactured home on permanent foundation on 3 city lots (0.5 ac).
Rather than simply calling it a mobile home.
Good Luck
Cheryl Lopez
Thank you, though I never said it was a mobile home, I did abbreaviate manufactured home with MH. If you look at my first post I did clearly state that it was a manufactured home on a permenant foundation (I would consider a full-finished walkout basement a permenant foundation anyway) sorry if I mislead anyone. Everyone was very helpful-thank you all.