Establishing Values, Baseline, & Reverse
Okay, so now you know how to find the deals, and you have a baseline for what we are looking for.
In this module you will get a better understanding of how to buy right, and the basic outline of how to build the passive income through these deals (which we will go over in more detail later on).
Okay so you went out and marketed for sellers, someone called one of your signs, and they sound really motivated. You schedule an appointment to go see the home, and do your walk through.
How do you know if this is a good deal or not?
Clearly, this is very important. How do you determine what this thing is really worth!?!?! The MLS is about 95% useless for the kind of properties you will be pursuing.
No one really lists their homes with realtors, and if they do, they are normally nicer homes in really nice parks and extremely expensive. They also sit on them forever! These are not the homes we are after. We want the quick and cheap, burn and turn deals!
So how do you figure out the value?
Important factors in determining value:
- 1. Determine the type of park it is in
The quality of the park plays a huge role in value. You have to drive through the park and get a feel for it.
Is there a ton of foot traffic around? Run down abandoned looking homes? Everyone’s out in the yard being loud, etc? People drinking 40s on the front porch at 10:00am on a Monday? Is there even an on-site park manager?
You see, the same exact mobile home dropped in 2 drastically different parks could change the value of that home literally tens of thousands of dollars!
I rate my mobile home parks on a scale like in school. A, B, C, F.
I buy in all 4 categories because I know my market like the back of my hand. At first, you may want to stick to mid-grade parks, though.
Determine what you consider the park to be, and start comparing all the parks against one another so you have a baseline. Some things to consider:
- Are the streets paved nicely or is it a dirt road?
- Are there street lights?
- Nice entrance/ curb appeal?
- 2. What year and model?
The newer the home, the more potential is has to be higher in value. 80’s are better than 70's. 90's are better than 80's and 2000 or newer is very good.
It’s rare to get homes in the 2000’s at cheap prices because there’s usually a loan still in place on the home.
That’s why the sweet spot is 1980's and 1990's…they’re almost always owned free and clear.
Remember earlier, I said that in 1994 most mobile homes changed from metal siding and metal roofs (“metal-metal”), to vinyl siding and a shingled roof? Well this plays a big role in the value.
If the home has vinyl siding and shingled roof, it looks nicer and it’s going to command a higher price.
Sometimes, homes that were metal-metal, have been upgraded to vinyl siding (maybe even a shingle roof). If so, this definitely adds value.
Models: Model type isn't a huge factor really but it is important to know who the big dogs are: Clayton, Fleetwood and Redman are typically the best and most popular.
- 3. Condition:
Obviously this plays a vital role. It may be a 1999 but if it needs $5K in rehab, it may not be worth the time and headaches. But this is pretty self explanatory really. We’ll explain the main factors in determining condition later on, in Module 4.
- 4. Lot Rent
Lot rent can drastically affect what someone is willing to pay for a mobile home. If the lot rent it unusually high, this can be a turn off for buyers because it becomes too pricey.
It also affects your cash flow. As a rule, the higher the lot rent, the lower your cash flow.
I know parks where lot rent is so high, people can’t give away their homes. Because whoever takes the home is the responsible for the outrageous lot rent. This is something to really keep in mind.
Now, you need to get a baseline for what you can pay. There aren’t usually accessible records of comparable sales, like with traditional real estate. So this process is a little less straightforward.
So back to the question at hand, how to establish a baseline?
Drive the parks! This really is the only way to get a true baseline for starting to determine what your prospective home is worth.
Go to the park office and get their list of homes for sale (and build rapport at the same time!).
Drive the park and look at these homes. Even go inside and walk through them. Remember that they are likely priced for retail buyers, not investors. So this is an indication of what you could RE-SELL for, not what you should be purchasing for.
In my experience, even the homes listed with the park are normally high.
The best test is to market your ass off, and visit your leads’ properties, see what they are asking and what condition the home is in, then compare that to the others that are actually listed for sale in the neighborhood!
***Most of the sellers that call you will never have a for sale sign in the front yard. They don't really want people in the park to know they are selling because it typically means they are in some sort of financial pinch. And these parks gossip like none other!***
9 out of 10 times no one knows its for sale but you.
***This is where you have the distinct competitive advantage, and why you can snag homes at prices WAYYYYY below those listed in the park.***
Point is, do your homework, do your research, and compare your leads to others in the park.
Also ask the park manager what homes are being sold for in the park
Have any sold recently?
If so, what were they and what did they go for?
Hell, even ask their opinion! (WARNING: be careful disclosing particular deals to a park manager/owner before you have a contract, many will try to steal the deal from you)
Third way to find value is…. FIND OUT WHAT YOUR BUYERS WILL PAY!
Basic common sense. You should be building a buyers list. Call up the buyers who may be interested, quote them a price, and see if they’re interested.
Value in this game is very subjective. While one person will pay $4,000 in cash for, someone will pay $14,000 on a note.
While one person is willing to pay $4,000 in cash for, someone else is willing to pay $8,000 in cash. It’s all subjective and opinionated based on each individual buyer.
While one person won't even step foot in it because its filthy, barely livable, and needs serious repairs, another person will fall head over heels in love with it and buy it!
Seriously, its crazy! That's why we call this business the “wild wild west”. 🙂
So it is absolutely VITAL you talk to your buyers and qualify them extensively.
By screening them, you are finding out exactly what they are willing to pay, for a certain type of home, in a certain type of park.
So build that buyers list, know it very intimately, and this is a huge factor in determining YOUR values on a property when trying to buy it!!!
Let’s give a basic example of running the numbers on a deal:
We buy a cheap-o mobile home, put some lipstick on it, raise the price significantly, and sell it via seller finance with an interest rate comparable to what major credit cards would charge people with poor credit (legally, we can’t tell you how much interest we charge, or how much you should charge, but use the credit card angle as a baseline).
With this set-up, our “worst case scenario” is doubling our money over time. Normally we triple it or better within a few years.
Purchase price: $4,000
Holding costs: $300
All in for: $5,500
Based on our market research, we’d bump the price up to $13,900 and offer financing. We’d get roughly $2,500 as a down payment, and monthly payments between $300-$500 a month for 3-5 years to come.
• Our goal is to receive as much money back up front as possible to recoup our initial investment.
• The buyer will pay lot rent, taxes, and insurance!!
• They are also responsible for all repairs and maintenence
• If they don’t pay, the home gets repossessed and the buyer is evicted.
**Our goal is to have all our investment back in the first 6-10 months**