Valuing notes on mobile homes

Trying to buy a park with notes on 9 homes- $300K+ in notes. Mortgages 10-15 years long. Owner thinks the notes are worth full value and doesn’t want to hear anything different. Owner says the notes work for him, and doesn’t understand why I wouldn’t agree with his valuation. We’re trying to let him know the industry discounts these notes as there is default and damage over time.

He wants me to roll the mobile home notes into the park financing at full value. my thought is its best to keep the home and park loans separate.

I’m looking for unbiased supporting articles, published materials, or industry information on how these notes are generally valued. How can I prove this position?

I haven’t talked to a bank yet. my worry is that if I have to make a personal guarantee, they will agree to the full value of the notes. In a few years I could have $150K of toxic debt that sucks the life out of the park income.

Owner won’t keep homes/notes because they are collateralized with the park asset.

Any help would be appreciated.

I’ve done quite a bit of note investing over the years (and no, I am not interested in these notes) and on the secondary market the big wholesale buyers would demand at least a 9% yield and the brokers would, of course, want a higher yield. On mobile home notes the going rate a few years back was 13%.

I suggest offering them to a note broker and agreeing before hand that you and your seller will agree to his offer price as their fair market valuation.

You need to determine what the homes are worth, and pay that value (don’t ever ‘cap’ the income from the homes). ‘Worth’ is what they can be sold for on notes in your community. If the face value of the notes is an accurate representation of what the homes are worth (e.g. a 1995 medium-quality home with central A/C and all kitchen appliances has been sold for $10k at 14.5% interest) then that note may indeed be worth full face value. The interest rate is your return.

But if the seller wrote the note differently on that house - say he structured it as $20k, at 0% interest - then you need to discount that note by 50% to $10k - what the home is actually worth, sold in-place, on a note with reasonable interest to give you a good return (mid-teens or higher).

So you’ll need to do your homework, comb through each note, and determine if it’s face value is ‘fair’ or a trumped-up face value at 0% interest. I’d also pay careful attention to the down payment. Someone who put down $4k on that $10k house at 14.5% makes me think that the remaining $6k of value on the note is likely to be paid, so I’ll cash-out the note seller at $6k (of course, the large down payment reduces the home’s value from $10k to $6k).

If that same home had a note written differently - say, showing the $20k value at 0% interest, and the person who signed the note put just $500 down, then that note is definitely not worth $20k. It would be worth $10k (unless the person has been paying for years like clockwork and only has another $3k to pay on the home - then the note is worth $3k or a bit less).

So the moving parts you’ll need to evaluate are:

  1. FMV for each house sold on a note with reasonable interest rate (reasonable for high-risk MHP residents - 15% or so)

  2. How much down was actually taken on each note, and how long ago each note was signed (e.g. you’ll need to estimate the default rate)

  3. Whether the notes have a good interest rate built-in (e.g. lower face value) or are 0% notes (e.g. inflated face value)

Rule of Thumb: Pay the lesser of FMV or the principal amount left on the note (assuming there is already good interest built-in for your return).

Good luck,


I agree with Jefferson. If you hold the notes, you are essentially purchasing the homes because you don’t know who will default and when, and what shape the home will be in when that happens. Until the note is paid off, you’re essentially renting that home.

We have this problem from the other side – as a note-maker, we’d be happy to sell our notes to someone when we sell a park but we know that buyer is not going to value our notes the same as we do. And we wouldn’t value them as highly if we didn’t also control the land the collateral sits on. I think no sophisticated buyer of the park would pay face value for those notes (yielding 12+%). We’re not super-excited to be in the note-making business because it ties us into the park for the length of time it will take to “season” the notes. We believe our exit strategy is in filling the park to capacity, and when there are only a few homes with under ~3 years of seasoning (as there always will be due to repos, move-outs, etc), sell the park with the notes backed by “actual” equity in the collateral. We will have recouped most of the value of the note through increased occupancy. We’re not in the note-making business to make money off the principal & interest; we’re in it to fill the park.

We’re still just getting started post-Dodd-Frank new rules and who knows what will happen. But the point is to make money and I think the yields on the notes are less than the yield would be on a new park. So we’re looking for parks and not trying to tie up capital in the notes.

I would be interested to hear how to track down investors for notes without violating SEC regulations.


I’ve purchased some mobile home notes in the past and am considering buying more. I agree with the others that the value of the notes shouldn’t be higher than the value of the homes. The default rate on mobile home notes is horrific in general, and there is a great chance you would eventually be stuck with the home itself, not the note. The note payers could also trash the house before defaulting, resulting in you having to pay rehab costs.

For me, as a purchaser of notes, I won’t pay over the amount I think I could sell the home quickly for cash.

Leslie -

Great. But how do you ‘sell quickly for cash?’ That works on a 1970 Detroiter Starlight Deluxe that your are selling for $2,000, but not for a 2001 Clayton that is worth $16,000. So do you only buy the older homes that can be sold for cash? Or do you have some magic way to get $16,000 cash for a newer home?



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When we buy those $15k - $20k late 1990s homes, we end up taking a longer term hold strategy on the park. After 5 - 7 years or so, you should have paid off any debt you incurred to buy the used homes, so any home income is gravy at that point. It allows for a very flexible position when you sell a park with inventory.


If the $16000 is about the retail or financed value, I’d still want to pay less than the value if sold for cash. 16000 financed is worth far less than 16000 cash.

Just be careful! Retail and financed and cash value are supposed to be the same under new sales regulations – or if not, you had better know what you’re doing. But I agree – $16k cash is way better than $16k financed.