I am getting ready to order some homes with the cash program. After a base price of $32,000 for the 16 x 76, $8,000 - $9,000 in installation and setup costs, 10% margin on sale, and State and Local taxes the price to the customer skyrockets real quick.
My question is do I add some nice upgrades to the home to get it just over $50,000 loan size to qualify for a 23 year term and monthly home payments of $460.
Or do I go more bare bones and the loan would come in at $46,500 with a 15 year term and monthly home payments of $492.
One one hand the upgrades make a big difference in the look of the home and would theoretically be easier to sell and the customer would have a lower monthly payment. But on the other hand the more bare bones model the customer is gaining equity faster but has a higher monthly payment.
Kristin you nailed it. The park owner is on the hook for 15 or 23 years. I’d prefer 15 personally. If you can sell $50k homes you can sell $45k homes. Can you sell $45k homes? You know your market best. I think it’s a great deal but you have to have demand.
With respect to the numbers and math, there is no right or wrong here, just what your market is looking for. I think I’d value the lower time frame of liability much more highly than the customer will value the difference in monthly payments (or monthly equity growth). In other words, perhaps I am foolish but I’m putting my needs in front of the (unknown) value to the customer. On the other hand, how can I know your market and what your customers demand/want/expect? I’m struggling to answer that question myself at a park we bought recently in Michigan.
You might split the difference and order a couple of different “styles” and see what your customer base likes?
@Kristin I need to clarify bare bones I may have misspoke. The term I should have used is standard options/appointments. In other words a base price home with not much upgrading. This manufacturer has better standard features than many out there. It was pointed out in another post on here by another poster that these homes were the nicest quality they saw at the Louisville show and visited the factory.
" we visited the factory 2 weeks ago and liked the quality of the build. Little items make a big deal such as all drywall (no VSG), solid dovetail cabinets, std home doors, etc. To us, there was no comparison, especially with the lower shipping costs. You get much more for the price."
So this home standard has what would be upgrades in others and the shipping cost is half what the other manufactures are due to the location of the plant to my park. So more home for the money instead of shipping cost. Also 16x76 is box size I know some people talk about size in different ways. So its a 16 x 80.
It ties me to the deal by having to step in and takeover money mortgage payments if a buyer walks from the deal at anytime down the road. So yes the park owner will be responsible for the next 15 or 23 years. If I sell the park I may have to give the owner some cash per each 21st Mortgage Cash deal to cover a period of time when he may have to step in and make payments until finding another buyer or tenant. The way I heard Frank put it recently is it’s not such a bad trade off when considering every lot you fill adds $30,000 to the value of the park that your seller just purchased from you than you would have otherwise sold it for without using the Cash program. I could always bring in used homes instead of Cash homes but they are expensive in Minnesota for their age/condition. If park sold I would not keep responsibility.
@Brandon that is my dilemma. I have only owned the park for 6 months so I do not know the market as good as I would like to. I have done test ad’s and I am getting some demand but until I take the leap and order one it is hard to be certain. I am even working with 21st to try and pre-qualify some interested customers before I have the home(s) delivered.
I do value the lower time frame of liability and tenants faster equity growth. I just wonder if they value the lower payments significantly more. It seems the only way to know for sure is to order one of each and see what happens. My gut is telling me the upgrades over a stock home are not as important as lower payments. Problem is the only way to get lower payments is with the upgrades in my case.
I would do this for both the Tenant and for myself (as the Owner / also on hook for loan).
You want your Tenants to feel that there is a light at the end of the tunnel (that the loan will actually be paid off…that they will be able to actually own their Mobile Home outright one day in the near future).
You might get some nice upgrades (extras) with the 23 year term, but as an Owner I do not think that it is worth it for the extra 8 years added to their / your mortgage.
We have had our Turn-Around Mobile Home Park for over 3 years now…still turning it around :-).
Our Turn-Around MHP has a lot of Construction Tradesmen as Tenants.
We have multiple Tenants who have done renovations in their Mobile Homes.
These Tenants/Tradesmen have installed Granite Counter-tops in their Kitchens along with beautiful, ceramic Tile in their Bathrooms.
These kind of Tenants/Tradesmen are just looking for new, base-line Mobile Homes that they can use their skills to turn their Mobile Homes into their Castles .
@Kristin I have been thinking about it and I tend to agree with you. I looked at the amortization schedule and with the 15 year mortgage they own the home after 15 years. With the 23 year schedule they would still owe $30,000 on the loan after 15 years. I also did some research on what a 15 year old 16 x 80 is worth in my market at 15 years old and it’s right around $25,000 - $30,000 if in good condition. So the 15 year customer has an asset, the 23 year customer has nothing.
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