Another Mobile Home Deal - Flipping the Note
Flipping a property that cannot be financed by traditional lenders.
Apologies for the lack of updates, been busy closing, rehabbing and locating more deals as of the New Year. I’ve had to put my updates on pause but I’m now back to it.
This is a deal I did a few years ago and it’s a perfect case study on what to look out for when buying a very old mobile home.
Finding The Deal
This one was an interesting deal as it came across my table from a wholesale company that no longer operates in Texas. Funny enough, I trained a few reps that worked there back in the day and I’ve always kept tabs on their deal flow. I spoke with one of their reps and asked them if they ever come across mobile homes, and they actually had one but no one wanted it.
That remark right there is a huge reason I love this asset class, so many people write off mobile homes which allows me to purchase them at deeper discounts. To keep it short, did a quick walk through and bought it all in right around $78,000. Couldn’t work out a creative financing deal, so it was an all cash purchase. I also couldn’t secure a hard money loan. I’ll detail why below.
Mobile Homes vs Manufactured Housing
Something to note when purchasing older mobile homes is that you must look out for the year build, specifically the cut off year of 1976.
HUD (Housing and Urban Development) has a run down of why this is so important. I’ll link it here.
Here’s a quick summary of the link above. Manufactured homes built prior to 1976 are not built to HUD code, which basically means they will not offer financing via government backed loans (FHA) on these houses. If I can’t get a borrower to secure a standard mortgage on these properties, that means I also can’t secure a hard money loan to flip these properties as they will not underwrite a deal with no exit strategy.
This home is also a single wide. Even if it was built after 1976, most lenders today do not lend on single wide homes for whatever reason. I do have one lender that will on a case by case basis, but the underwriting criteria is strict enough that it shrinks my buyers base by a large margin.
Renovations and Resale
A few pictures of the property below. On that second picture, we had to remove that tree branch to secure insurance before closing.
The renovation on this was pretty easy. All in all the property was in great shape. The biggest ticket items was the tree branch removal, new appliances, new electrical panel and a dumpster. The rest was minor touch ups.
The rehab, utility cost, survey and insurance totaled out to just a smidge above $10,000.
Finished pictures are below.
Selling The Property and The Note
How do you flip a property that’s basically not financable? You have to sell it owner finance then sell the note.
We listed this straight on the MLS and located a buyer without an agent fairly quickly. Saved a little on the commission there. I had the buyer do a basic loan application like anyone would if they were applying for a normal loan. Created loan terms that made sense for their financial profile and closed the deal through title.
The Loan Figures:
I resold the property at $150,000 with a $20,000 down payment which created a $130,000 note or mortgage. I seasoned or held onto this note for about 3 months. Afterwards I located a note buyer that was willing to purchase the entire loan balance at a discount.
It was actually right around $96,000 factoring in earnest money, closing costs, etc…., the investor was targeting a 12.5% return on their money.
So the net profit after all is said and done was around $26,000.
96k (Note Sale)
20k (Downpayment)
3.3k (3 Month Loan Payments)
Gives you $119.3k Gross Profit
78k (Acquisition)
10k (Rehab)
5k (Closing Costs/misc)
Right Around 93k in Costs
119.3k - 93k = 26.3k NET PROFIT
26.3k/93k = 28.3% Cash on Cash Return over 6 months
Side Note
In my absence, it looks like we got a number of new subscribers and quite a few people reaching out directly. For all agents, wholesalers and deal finders, I’ve got a buy box listed on my main website or you can click here for what I’m looking for.
Currently all of my projects are under contract and I’m waiting to close them out. I’m actively looking for more deals on top of capital partners to keep my pipeline going. I may do a few posts on locating and assessing deals if you guys want to see behind the scenes of it all.
Finally, I am working a mobile home deal that has legs. Details are below. Looking to find capital to put this one together as my hard money guys won’t touch it and I’ve tapped out of my current private lenders. Give me a shout at thomas@sa2austin.com if there is interest.
Love it!