Selling park-owned homes

What is the best way to sell park-owned homes to current residents? Rent-to-own? Carry the paper? Lease Option? Take a $5000 cashiers check? Any input would be very appreciated! Thank you!

G

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I use promissory notes with the house as collateral. I don’t charge interest because I don’t want to deal with issuing 1099s for a few bucks for a note that may be 2-4 years long. Makes it easy to keep track of the balance. In the note they can not move it from the park until paid or assign it to someone else. I searched google and found a great mobile home park promissory note template. I don’t understand rent to own- for me the whole point is not doing interior maintenance.

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Is that legal to use in Indiana? And does it comply with all the Dodd Frank and other lending and real estate laws?

Unfortunately this is not legal under current law. It is a mortgage for which many regulations apply.

Brandon, what would you suggest for selling off POHs? Also, how would you go about getting current tenants out of RTO contracts and into something better/legal? I would prefer any option that can legally transfer title to the tenant.

Thank you!
Gulliver

There is no good answer to this question. If a note is secured by a dwelling, then it’s a mortgage according to the law.

Options: Sell for cash. Give the homes away. Find a licensed MLO to originate mortgages. Get licensed yourself. Do rent credit and hope that you have no issues. This is one of the “dirty aspects” to the business. The best legal and simple solution I’ve heard is to rent the home until the “equity” or remainder value is low, then sell for cash and/or hold the paper with an UNSECURED loan.

In practice (I am not advocating this!) you hope you don’t get caught. You’ll only have a problem when you go to evict the “bad” tenant and find out that your agreement with them is unenforceable (or, worse, that you have to pay a penalty for taking advantage of the poor unsuspecting customer).

Every state is different and your state MHA may have more answers for you.

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Brandon
This is great information. What I’ll do is consult with the Indiana MHP association and an RE attorney there to get more state specific information. Can you educate me on how the rent credit option works?

Thanks again!
Gulliver

We don’t use rent credit, but to quote Frank, it works like airline miles or loyalty points. Rent paid (on time, etc) earns credit (at a certain rate) that can be used to purchase a home from (you?) later. In my opinion it is kind of a legal grey area. There are many discussions in this Forum on the topic. Search for “rent credit.”

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Brandon,
Are you just selling your POHs for cash? What do you usually do to sell them?

My preference is always to simply sell them outright to tenants at fair market value. I use their ability to pay cash or arrange other financing to purchase as part of my screening process. When a applicant can not manage the finances to purchase they are too risky to take on as a home owner. If they can not afford to buy it is unlikely they would have the funds to repair and maintain the home in the future. Ultimately it will fall into disrepair and be abandoned.

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Greg, how much are you usually selling them off for?

I am in a market where the prices are driven by real estate values to a large degree. Not your normal “Trailer park” market. Homes in my community range in price from the mid 40K for well maintained and updated 70s models to 100K + for anything late 90s and newer.
My buyers are either paying cash or getting chattel loans. Obviously high credit score residents.
In more depressed areas I would expect buyers to be able to pay for or finance homes up to the 20K range. If they could not afford to buy or finance a home under 10K they could not qualify in a park I owned.
It really boils down to the type of community you invest in. In my case I am not interested in providing government housing. I suppose those that do will be forced to have POHs whether they like it or not.

I think you can do 3 loans a year? I try to stay in that range by giving cheap ones away, and selling the higher priced ones, and by higher priced ones I mean $8,000 or so. So it’s not really that much.

I have thought about having higher Lot rent for x amount of time and then lowering it once the amount agreed upon is paid off and just giving them the home. They can rarely afford to move them anyway.

I am in a small rural town, so no would ever pay $40k for a home in a mobile home park. There are small houses for sale in the $60s here.

The latter technique I have thought of as well (high charge for x amount of time, then transferring title to tenant). Is that legal?

I am looking at a park with 32 POH, none that can’t be worth much, as the rent rates are all below $350 each. I was hoping to set lot rents at $175? and then offer the homes to the residents at $100 per month for two years? Looks like this is gonna take $250,000 cash. I won;t have much left for repairs, etc after that hit.
$300,000 price, 23 rented, 9 vacant homes, 5 empty lots.
I am pretty confused. The deal sound good, but the economics of the area are so poor. Peanut farming land.
What do you think?

Just found your response back in 08/2017 but wonder if things have changed in our (seller’s) favor.

This is great information.

No, nothing changed as far as I know

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Does anybody know if doing a Lease Option agreement is Safe Act compliant?

The thinking out there is that if they are two separate instruments, and the option is not constructed to simulate a mortgage - meaning it can be exercised in a reasonable timeframe - then it can be done.

But given most of us are not attorneys in the state you are operating you should confirm this aligns with local customs and enforcement (e.g. seek your own legal counsel to get the right answer).