Kicking it up a Notch


#1

A little intro. As a lurker we have learned from so many of you. Thank you for being a true blessing. I work with my son, together we have done more than 30 lonnie deals, 7 homes (LH and stick built). We have sold 3 LH on notes. We have Tony and Scotts book and have worn the covers off all of Lonnie’s books.

We would like to do more LH deals. We have financing in place for as many as we can do, at 20 yr am. We are limited to 55,000 working capital. The plan as we see it is to buy for cash, make the repairs and put financing in place and move on to the next one. The problem we are having is to get a decent spread on cash flow for each home. (we are looking for 200 amonth)

Our financing is 8.25, 20 yr,3yr fixed. We have looked for 30 yr money to help the spread, but have been told no thanks or we might do one. We would either rent or sell with owner financing. If we sell we would do it on a 2yr ballon. hoping to cash out at the end of the ballon. We have concerns of being on a note that could move up 1.5 % at the 3yr mark.

By working with our limited working capital we would be slowed to a snails pace doing one at a time, putting financing in place, and moving on with a rental or selling, might only be able to do only 4 or 5 homes a year.What are we not thinking of? Should we first flip some homes to build up more working capital that we could move faster? We want to build long term income and working capital in order that we might continue growth. We would appreciate your input as we put together our next goals as it is eaiser to change before making mistakes. Thanks.


#2

Gary,

First I think we need a little more information:

How have you funded all the deals you have done so far?

Are any of them encumbered in anyway?

How much seasoning on the land home deals you have done already?


#3

I have funded the lonnie deals with cash. The LH’s I did through my IRA, and will continue doing those as I build more cash in that acct. The IRA deals are not available to refi. The project we are starting is a new LLC that we are wanting to continue purchasing LH’s and either rent or resale.

We are wanting to lay a buisness plan to move along crisply. We are having trouble getting the monthly cash flow, and putting into place the potential equity growth that will last longer than the lonnie deals. With our 55 working capital we are looking for a plan that will move us toward our goal. The goal is to own 40 LH’s free and clear.

Thanks for putting in any thoughts you might have or in helping to change our reality. Gary


#4

Gary,

It looks like you are on the right path so the only thing I would add is that the best way to kick it up a notch is to use OPM (other peoples money). It looks like you have not utilized that much so far and that is good because you now have a great basis to show you know what you are doing. You mention that you want 40 land homes free and clear. So why not do 60 total and 20 are encumbered to get the other 40 free (or whatever breakdown is needed…).

Sorry about not elaborating more but gotta run right now…

Jad


#5

Thanks Jad,

We have been toying with the idea to sell some properties with rent to own. We would keep some properties that fit our criteria as long term rentals. By selling RTO we could be selling for retail collecting lease payments and cashing out some as buyers close. If not we resell, collecting new option fee and making better money next time around. This would allow us to build our working capital as we also keep some properties for long term equity growth. If you will sort of a lonnie with a land home. Does anyone have experience doing this. I know someone out there is doing this and we would like some input from their experience. As we are full time investors we could make some cash flow as well as cash a few out helping with income and building of capital.

We like the RTO as we would leave financing in place until they cash out or we get them back. But would also put higher vested tentants ( hopefully ones that would behave more of buyers, and would free us from small maintenance problems) freeing us to move on a little faster to more properties. Any thoughts? Thanks, Gary


#6

Gary,

This is an area that I haven’t moved into yet (just doing Lonnie deals so far) but I am not sure if you will be able to generate the cash you are looking for with the RTO plan. The OPM I was meaning was something like:

  • Selling lonnie notes to generate lump sums of cash

  • Bringing in a money partner that gives you access to large sums of working capital for a percentage of income or profit

  • Taking out equity loans on some of the free and clear land homes now to generate more that are bought with the cash. IE do what Tony and Scott talk about in there book but integrate it into your business model. Get so many with loans to get so many free and clear.

  • Take out a business loan either through a private investor or through some other lending institution.

These are the type of things that can and have kicked people into overdrive with their business…

Jad