I love the support and information available in this field of REI, but when cap rates are advertised at 8% I just don’t see how it’s that great of a deal for me. The single-family Mobile Home rentals I am purchasing are cap rates over 20%. I definitely see the appeal of having one closing and then adding 50 units to the books though. With the properties I have, every few months I have enough down payment to buy another SFH.
I think it’s best to re-invest my earnings as soon as possible, so they can grow, especially when compared to saving for two years to buy a park at half the cap rate. A lot of the parks I see are more expensive per pad then an individual parcel home.
First of all, where are you finding 20% caps? That is a seriously awesome return and pretty rare outside of high crime areas. I think one point you’re missing is management headache. In a park with many tenant owned homes, there isn’t much for an owner to do. In the SFH world, you’re always fixing something… And when you lose your SFH tenant, you’re instantly losing money. Whereas if your park is >30 lots you can lose one or two tenants without making too big a dent in your profits.
Well, I’ll buy a home for 50k and do a lease purchase for 1200 a month, only expenses I have is insurance and taxes.
I can develope my own small 5 park on 2-3 acres for around 40k each and lease for 900, but it’s alot of work and have yet to find how to do it without using more than 25% of my cash.
I understand the ease of tenant owned homes, and of managing everything in one spot. I have some like that but not in parks, 4 in a row on .25 acre parcels. But the way you mention losing money when one moves out of a SFH vs a park seems like an illusion. If someone moves out of a SFH I have my other properties still making money, it’s just like a park but more spread out.
What you are missing is the reality that owing a income rental property has expenses far beyond insurance and taxes. You are ignoring at least 50% of your expenses. The list is very long but to mention only a few…legal, advertising vehicle gas/expenses, repairs/renovations, evictions, vacancies, utilities when vacant, interest on loans, depreciation on the property…the list goes on and on and will be a minimum cost of 50+% of your rental income. Most likely in the case of a MH much higher.
Your numbers however are typical of novice investors not fully understanding the expenses associated with operating a business.
I can’t tell you how many people I’ve met that went from SFH to MHPs. I haven’t met a single person who did it the other way around. The economies of scales just don’t work with single family.
What you describe is called doing “Lonnie Deals” after Lonnie Scruggs, and yes you can make 20% doing this. But you are missing scalability. Also you have high risks. And you apparently have not (yet) experienced the maintenance headaches that will ruin your returns.
You say you are doing lease-to-own so you are hoping to get that $50k back over how many years?
@Brandon Deal was 1.1 acres and bank owned single wide 2008, with all repairs made. Sell price 50k with 2k to closing. So I had about 12500 in with closing cost. I had a buyer for it before I had even closed and took a $5000 down payment within 24 hours of closing (this was for land and home). So without considering debt service I will break even in seven months or so. His deal was 180 payments of $1200, and includes property taxes and insurance which for me or about 1200 a year.
So 7500 to 185k in 15 years
You will have to spell that math out for me. I assume you got $12,500 with 20% down on $50k home with $2.5k closing costs. I assume you borrowed $40k from the bank (how much per month and amortized how and what rate?) and now that $1200 per month covers your bank payments and your T&I which is [$100 per month].
You got $5k down so now you’re only out $7,500.
Where does $185k come from? You have a $40k liability and and a promise for 15 years of $1200 monthly. You think that is worth $185,000?
@Brandon Yes I think you are understanding me.
I got 185 from- 180 payments of $1200 is $216,000 plus the 5k down, which is a lease option price that doesn’t go to the balance then subtract PITI-
Principal 37.5k,
Interest. 12.6k
Taxes and insurance 18 K
So yeah, I think I forgot to subtract the principal and add the down payment , but ends up being 152,900 over 15 years
152,900/15 is 10,193 a year.
22% annualized roi.
Mortgage is $37,500 amortized over 10 years @6.1%
In Louisiana there is bond for deed, it is a Louisiana product that has statutes, and you can even pass the insurance and taxes to the bond for deed buyer. In the future this might be a strategy to use.
I figure to grow my business the fastest with the income I am receiving from 10 to 11 doors, I should do one of these deals every 3 to 4 months instead of save for a larger down payment for a park. I guess at some point I’ll be making enough money to where I can’t make these deals fast enough and I’ll have the option to pay down my liabilities or, or get leveraged and buy a small park.