Lonnie Deals


#1

I have purchased a couple of homes over the past year and followed Lonnie’s book to the letter. Here are the results:

Purchase 1999 Fleetwood 3 bedroom in a park with lot rent of $200 per month. Paid $4,000 cash and spent another $1,000 on fixup. Put the home on the market for $10,000. No buyers for two months. Lowered the price to $8,000. Sold for $7,500 with $1,000 down and payments of $250 at 10% interest. Received one payment from the buyer and then he walked off and left the home a mess.

I spent another $1,500 to fix it up again and have tried to sell it with no success for 3 months. I started at $7,500, now I am down to $6,500 and will take $1,000 down. This is frustrating.

Total cost so far:

Cost of home & initial fixup - $5,000

Lot Rent for 6 months - $1,200

Cost to fix it up again - $1,500

Total Cost so far - $7,700

Total Received from first buyer - $1,000 + $200

Net Cost so Far - $6,500

This is a nice home and I am afraid that I will keep getting it back in worse shape each time it sells and I will keep losing money.

Home Number 2 - 2000 Clayton - 3 Bedroom - Purchase for $6,500 cash and in excellent condition.

Lot rent in park is $195 - Offered it for sale and sold it within 1 month for $11,900 with $1,500 down and financed the rest at 10% interest with payments of $250 per month.

Buyer made 3 payments and then stopped paying. It took me 3 months to get the buyers out and I had an attorney take care of the foreclosure process. Once I went back in the home, it was trashed. They put holes in the walls, the carpet was ruined, the appliances were gone, their are roaches everywhere.

To get this home back to the condition I sold it in will cost me about $4,000 and every night of my life for 3 weeks after work.

Here is where I stand on this home:

Purchase price - $6,000

Lot Rent and Late Charges - $1,200

Cost to fix up - $4,000

Attorney Fees - $900

Sweat Equity - about 40 hours

Total Costs - $12,100

Less payments received from buyer - $2,000

Net Costs - $10,100

Now I will have $4,100 more in the home than when I started.

My questing is… is this what this business is really about? I remember reading in the book something like it is ok when your buyer does not follow through. You can sell again and increase your returns. At this rate I am going to bankrupt myself on these returns.

Zachary Michaels in San Antonio


#2

Zachary,

It looks like to me you might need to do a little bit better job of screening your buyers. Everyone is going to get a flake once in awhile but I know for me at least the ones that do what you mention are when I don’t screen well enough. I have only had one buyer flake out in as short a time as you mention, and come to find out if I had just called his previous landlord I would have seen it coming before the sale. LESSON LEARNED!

It sounds like you are finding good homes at good prices and the most everything else seems to be good, so I would say to concentrate on your screening. There is a lot of good stuff out there on this.

One thing I would also add is to try and see about getting free lot rent on your homes while you are rehabbing and selling. This has helped me a bunch on some deals (and killed me on one I didn’t get it on). It is not something that is always easy to get but you never know till you try.

Jad


#3

I’m glad to see that I’m not the only one who is having trouble making money on Lonnie deals. Is there anybody else out there who is having this same problem? If so, why are any of us doing this nonsense?


#4

Something is wrong with this picture. I have had my share of Lonnie deal troubles. Zachary, I’m wondering about the park you are working in. Do they do their own Lonnie Deals?

I have screened only ONE buyer in six years. That was because the PM didn’t want to be the heavy on a person already in the park. The 8 parks I work in (4 different owners) do a thorough screening of potential tenants. My default rate is about average.

I do not pay lot rent at any of the parks any more. When I first started, lot rent ate me alive. When I finally met the owner of the first park I worked in, I told him of my dilemma in helping him. Lot rent was killing me. He agreed to 3 months free and never enforced it.

When you are under the pressure of lot rent, you are more willing to drop the price to unload it. If your park knows you will pony up the lot rent, they don’t care if your home ever sells or who is in it.

San Antonio is a generally strong market by comparison to northern markets. I would experiment with paying the PM a 10% commission of any cash received for the home to see if that helps. Now that you’ve done deals in a park, go to another park and offer your services for free lot rent. Otherwise, buy homes at 1/3 of retail MINUS repairs. This should leave enough $$ in the deal.

Steve


#5

Zacharym & Edwin,

As Psycho said, proper screening is very important. Do you check their payment (credit) history? Do you call former landlords (not just their CURRENT landlord)? Do you verify job history and income? Do you ask and verify WHY they’re moving? Do you . . . ? An old-time poster who used to post on another board said something when I first started that I never forgot. The gist of it was that if I get a bad tenant/buyer then it’s my own fault. I either turned them into a bad tenant or they already were one. The former is not likely, so it was my job to screen properly and discover the latter before renting/selling to them.

As for getting homes sold, as long as your sales price is not totally out of whack, you might have better luck negotiating on dn pmt & terms than on price. For a solid buyer (remember the screening?) wouldn’t you consider $500 down? What can your market afford? How much to comparable apartments rent for in the area of your homes? That price minus lot rent is about where you want to set your payments . . . or even a little less.

Where are you advertising? Whatever your answer, re-examine your strategy. Think like a buyer. Put yourself in their shoes. Where would you/they look if they were looking for what you had to sell? Even if they aren’t looking for what you have, where do they go, what do they read, etc where you can advertise and let them see your product that they didn’t even know they wanted until that moment?

All the Best,

Michael(KCMO)


#6

Zachary,

You’ve gotten great responses. Here’s what I think may be happening to you- you might be a little eager to put someone in your homes and are giving off a “desperate” vibe to potential buyers. When I first started out, I was a really desperate seller, so I know where you’re coming from- lot rent, insurance (back in the day I insured all my vacant homes) and utilities really cost me.

However, I’m close to closing on my 100th Lonnie deal and I can say that one can usually expect to make good money on these deals. My rate of getting homes back is about 30% over a 5-year term (I really should calculate that number), and I have payors who have been in their homes 5 years, and one who left after 1 month- just last month in fact.

Give us some info on how you are advertising these homes and what you do to screen and maybe we can help you tweak your process. For instance, I’ve got a new buyer who has a 2-year old foreclosure on his record, but a great job. I’ll probably let him move in, but get more money down and a very high interest rate.

And I never give anyone the keys until I have criminal reports, paid insurance on the home, copies of photo ids, etc. If they jump through a few hoops first, they will value the home a little more. If they fail to jump, don’t approve them.

good luck!

Anne

PS- I sell MHs in two different markets, about 1800 miles apart. In both of them I’d sell a 1999 Fleetwood in good condition for about $20K, and at this time of year I’d be asking for $1500 to $2000 in down payment.


#7

Thank you everyone for your thoughts and replies. I have been checking credit on my buyers and for the first home the fico was 675 and the second buyer it was 640. Both buyers had job histories with the same employer of 1 year or greater. The first buyer disappeared and and the second one just walked away after he was fired.

The park’s that I am doing business in are 100% occupied and the manager said he can’t give me a break on the lot rent because he has a waiting list for people to move homes in.

I am glad to hear others are making some money on these homes. I am advertising in my target market newspaper and getting several calls but the lack of down payments has been the issue. I will keep plugging and see what the next credit worthy buyer does.

Zachary