Return ON and OF capital


#1

It is most impressive, even humbling, to hear of the returns fellow investors are realizing, of Lonnie-Dealers who speak of stratospheric “good-enough” returns, all due to diligent efforts. The recent posts under “M.H.Prices” were particularly enlightening, educational for me. Extrapolating the costs of acquisition, renovation, selling or renting leads me to conclude that the investors will not only achieve a handsome return on their dollar, but also that their short-term loans to their purchasers assures a return of their monies. Just think of Don (NY) who recently bought a twelve-unit park for $50,000. Extraordinary! Or consider one random of many examples, the purchase of a 1991, 3/2 14’x70’, in immaculate condition, for $5,000 by John Hyre! The post contributors’ business acumen put mine to shame. Depressing? No, No! Their achievements are invigorating, educational. Their return on and of their capital is inherent in their purchase. Ryan, Tony and Scott, Ellen and John also come to mind, who furthermore do their own renovating and thereby enhance the profitability of their investments.

In another equation–Alexander and I bought DW’s for $10-to $17,000, hired out the renovations, and when the homes were ready for market, they cost $22- to $27,000. Three of the homes are sold on a fifteen-year term, and the others are kept as rentals. The return on capital is about 20%, but the return of capital is at least questionable. If it had not been for the good counsel of Bo Shomansuroff (Mobile Home Concepts), we probably would be in worse shape. (I would highly recommend Bo’s services to anyone). After attending Tony’s and Scott’s bootcamp, we also learned that we were “gold=plating” our homes. In light of the fact that our country is bankrupt, have obligations far exceeding our ability to honor our debts, the Feds, the banksters with their subcrime allies will choose to print dollars until these notes have reached their intrinsic value and the presses run dry. That is the definition of mega-inflation! None of us will be immune from the historically inevitable. Therefore, it would behoove us to consider the return on and of our capital. The rule of 72 does not allow for hyper-inflationary effects.


#2

Bernd,

You bring up a great point and one which I have been meaning to call you about… hyper-inflation is quickly setting hold in our nation right now and I’m about positive that it’s about to get much much worse!

I am not a financial analyst but on my very rough figures I’m estimating inflation to be in the realm of 20% give or take a bit this year. The devaluing of the American dollar has not seen full effect as of yet, most of my SSI tenants are expecting to get roughly a 8-10% increase this year from an average of 3% in years past, minimum wage went up 25% in July and is set to go up 10% again next July which indicates that the government also agrees with (and is causing) this conclusion.

Having never been through a rough period in the market like this before it’s very unnerving to me! I spoke with Scott about this and he has a positive spin that settled my nerves a bit… Even if we come to the point that we are buying $8 loaves of bread we’ll likely be collecting $1000 a month in rent and more importantly our mortgages will remain the same making it easier to pay them off very quickly!

Per Scott’s ideal / thought process we have bought our properties using yesterdays dollars and now have the opportunity to pay them off with today


#3

Bernd,

On the way to speak at an event in Chicago, we found some more homes in Indiana. We will report on prices and move costs. The latter should be lower than what we are paying to move from Columbus by @ $1,000. In any event, the homes that we into our parks (probably 80%) will not generate much profit for us after funding costs and our periodic need to repo & rehab are taken into account. The purpose will be to fill lots that generate rent that can be increased to track inflation…if the homes are all paid off tomorrow in nominally low-value dollars, great! Then the residents own them free & clear and are less inclined to increase their cost of living by moving. The homes that we do Lonnie in other parks should have fairly few net dollars invested in them, so if the payments are eroded by inflation, at least we haven’t much capital on the table…silver lining for a lender, I suppose.

I have not spent the time to try & figure out the effect of the present mess. I have no idea what will happen with the dollar or inflation. I do think that the consequences, while serious, are also exagerated by the drama-loving & Bush-hating media, and further exagerated by a government looking for more power - $700 Billion controlled by an unelected official! There won’t be any favors or corruption there, oh no, not that! And in a very, very general economic sense, I do not care, because there will be offsetting opportunities (cheap, cheap, assets, etc) for those perceptive enough to detect the opportunities and those bold enough to seize them. The SAS motto is “He Who Dares, Wins”.

Saw the debate Thursday, drank heavily beforehand, which preparation was wise. McCain should have owned Obama on foreign policy, and the latter gave him some beautiful openings, you can really tell Obama is not used to contested campaigns. McCain was milktoast and clearly thinks too much like Obama to disagree strongly…or point out that Jimmy Carter’s Community Reinvestment Act and Clinton’s use of that act and Fannie Mae/Fredddie Mac guarantees to make loans to people I would not rent to caused much of this mess, as opposed to 8 years of (admittedly less than stellar) Republican rule. Between McCain’s pathetic peformance and Palin’s inability to answer basic questions (“What are John McCain’s accomplishments?”), I am back to voting libertarian. We are hosed either way - we will get a “maverick” (meaning, his actions appear random and inconsistent because he has no consistent, governing philosophy descernable to ordinary mortals) or an un-reconstructed Leftist lightweight. Might as well let the Radical Law Professor in and allow the Democrats to eat the ensuing blame, in the hope that a few years in the wilderness encourage the Republicans to get back to their roots in the spirit of 1994. Bumps ahead!

John Hyre