How Mobile Homes Set Me Free

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How Mobile Homes Set Me Free

• Karl J. Warner, P.A.

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Overview 1- 500 Units

• Manufactured Homes, in my opinion, is one of the
  best ways you can increase your net-worth and
  create a strong positive cash flow
• Doing business in other peoples parks with REAL
  LIFE examples
• Doing quick flips for cash via a Purchase and
  Sales Contract acting as an Option Contract.
• Net Leasing and Option to Purchase for short term
  cash flow.
• SPECIFIC sales techniques
• Home and Land Packages and
• Mobile Home Parks for long term cash flow.

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A little about me

• Born and raised in Michigan
• Started flying airplanes at age 10.
• Came to Florida to attend Embry Riddle
  Aeronautical University in Daytona Beach from
  1987-1991
• Moved to Deerfield Beach Florida 1992-1998 and
  started a career with Toshiba in Sales
• Moved back to Daytona in 1999 to find a way to
  END MY CAREER WITH TOSHIBA
• Hired Ernest Tew to help me create a asset and
  tax plan

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The Plan

• Replace Job Income (150K) with Cash for my
  time and Cash Flow for my money!
• Contracting to purchase with assigns Option
  Contract
• Invest Cash into short term Cash Flow.
• Terms from 24 months to 120 months
• Convert excess Cash Flow into Long Term Cash
  Flow.
• Home and Land Packages
• Parks
• CASH FLOW that could go on for ?????

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Why?

• Why Used Manufactured Homes?
• Limited competition!
• Pigs arent sexy Karl
• MHs depreciate
• And thats a good thing?
• Most Institutional Lenders dont like MHs
• After 10 or so years Institutional Lenders really
  dont like MHs
• Sellers want and need all cash WHOLESALE
• Buyers need payments RETAIL
• All these wonderful problems equal opportunities
  - creates a Market

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How many Pilot are in the Room?
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How many Pilot are in the Room?

• Before you enter your Market you need to Flight
  Plan your strategy!
• Test your Market
• Acquisition and Inventory Strategy
• Cash Flow Strategy
• Exit Strategy
• Determine your minimum acceptable yields
• Protect yourself
• Understand your Tax consequences
• Start in Other Peoples Parks
• Graduate into
• Home and Land Packages, Parks and Mini-storage
  Facilities

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Strategy For Cash and Inventory for short term
cash flow

• TEST THE MARKET!!!
• Run an add and start a list of buyers!!!

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Strategy For Cash and Inventory for short term
cash flow

• FIND SOME SELLERS Read Lonnies Book!
• I work for a company that provides buyers with
  affordable housing payments on used Mobile Homes.
  I would like to preview your home for our
  clients.
• Negotiate the best terms possible and lock up
  deal for as little as possible (50-100-?) -
  remind the seller that you need a markup in order
  to stay in business.
• Negotiate to show home.
• Have an assigns clause.
• Make contingent on your Client being approved in
  the Park.
• Target vacant homes, FSBOs and tired listings.
• Find a buyer and Double close the deal.

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Plan Acquisition Strategy For Short Term Cash
Flow

• Out of your Inventory of Homes you now have the
  asset to create quick cash (for your time) and
  more importantly, cash flow (for your moneys
  time).
• You must buy low
• Cash talks to sellers
• Unrealistic or unmotivated sellers and their
  Brokers will automatically create a Retail market
• Realistic or motivated sellers, usually without a
  Broker, will automatically create a Wholesale
  market.
• Starting Formula for Acquisition Strategy
  50-80 x Retail
• Example 15,000 x 50-80 7,500-12,000
• This is your target acquisition price range
• OR - in HIGH PRICED MARKETS - THIS IS YOUR DOWN
  PAYMENT!

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Short Term Cash Flow Strategy

• Terms talk...
• How much down and how much a month mentality?
• LONNIE DEAL BUY LOW, SELL HIGH, WRITE A NOTE
• ERNIE DEAL Structured properly a Net-Lease and
  Option to Purchase will make buyers very happy.
• Determine Down and Monthly payments and
  Term.
• Lets refer to Down as Option Consideration
  (OC) and Monthly as Mobile Home Payment (MH
  Payment).
• If terms talk then we need to learn the language
  -
• Doctors practice MEDICINE and speak their
  language
• We practice CASH FLOW INVESTING and learn the
  language

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Target Holding Strategy

• Ingredients and Formulas for Holding Strategy
• MH Option Consideration
• MH Lease Payment
• Term

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Short Term Cash Flow Holding Strategy

• RULES OF THUMB
• Determine TARGET Option Consideration
• 80 of local first, last, and security Option
  Consideration
• Local Rent for a similar SFH 750mo
• 1st, Last, and Security 2250
• 2250x801800 to 2250
• Determine TARGET Lease Payment
• 80 of local SFH rent total housing budget -
  Lot Rent Mobile Home Lease Payment (MH Payment)
• Example 750x 80 600mo - 300LR 300mo

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Holding Strategy

• Flight Plan your Term
• TERM will be the length of your lease and WHEN
  your tenant may purchase the home.
• Lets assume that almost everyone likes 0
  interest.
• YOU CAN ALWAYS MOVE PEOPLE REGARDING INTEREST if
  you let the Market help you.
• Formula for Term
• Retail - OC Balance
• Balance / MH Payment Term
• Example
• 15,000 - 1800 13,200
• 13,200/30044 months

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Time to Plan Your Exit Strategy

• Determine Option to Purchase Price.
• Continuing on my theory that almost everyone
  likes 0 interest.
• Formula for Option to Purchase
• Lease Payment x 12 months (or 24, or 36)
  Balance of Purchase Price
• Example 300 x 12 3,600

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Buy, Hold, Sell CREATESCash Flow!

• Putting it all together
• You can buy a home for 7,500 - 12,000 cash
• INTRODUCE LEVERAGE FOR HIGHER PRICED HOMES
• You can market the home for 15,000 with easy
  terms (discount for cash) without offending
  anyone in the neighborhood or scaring off any
  buyers!
• You can expect to get 1800 Option Consideration
• You can expect to get 300 per month Lease
  Payments
• You can expect to receive payments for about 44
  months
• What is your Yield?

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Cash Flow Yield

• Yield
• N 44, PMT -300, FV 0, PV 7500-1800 5,700
• Solve for I/YR 58
• What if we bought the home for 12,000?
• Adjust PV - 12,000-1,800 10,200
• Solve for I/YR - 15
• Targeting this opportunity you could expect to
  make
• 15-58 for almost 4 years!

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Adjusting Purchase Price for your Minimum Yield

• So 15 isnt good nuff - as Lonnie would say!
  Lets assume YOUR minimum is 30.
• Reduce your target acquisition range to make the
  numbers work.
• N 44, PMT -300, FV 0, I/YR30
• Solve for PV 8,150 OC
• 815018009950 or about 10K
• This means that your Target Acquisition Price can
  not exceed 10,000 on a 15,000 Retail Home
• Practicing your trade means you need to know how
  to use a Financial Calculator!!!

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Time for Action!!!

• What to do next?
• Drive parks, call ads, farm parks, look at homes
  - Prospect for Opportunities!
• Contract to purchase Sellers home for 7500
  contingent on Park Managers approval of your
  Buyers. Closing may be extended in thirty day
  increments until Buyers are approved with
  management.
• Give small deposit to hold home - refundable if
  management turns down your applicants.
• Introduce yourself to Park Manager. Explain that
  you own a Company that specializes in providing
  low monthly payments for buyers and that you will
  be bringing buyers in for their approval on Lot
  
• Advertise Will Finance No Banks - do you need
  cash to buy or sell a used mobile home in a Park?
  Call for current opportunities - discounts for
  Cash and Large Down Payments. If so please call
  --

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So how do you handle the Buyers?

• Screen buyers over phone.
• Are you buying or selling?
• Where do you live/want to live?
• Family or Senior or Private Land?
• How many beds/bath? Double-wide or Single-wide?
• Are you Handy our do you need a perfect house?
• Pets?
• What is your current housing situation?
• What is your Budget?
• Down Payment and Monthly Payment
• What is your income and where do you work?
• How soon?
• Any housing related problems - evictions,
  foreclosures, bankruptcys
• How is your credit?
• Any Criminal background or sex offender?
• Start and keep a Data Base for buyers!
• To date I contact information on 1062 buyers!

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Real Life Example

• Are you buying or selling? Buying
• Where do you live/want to live? Daytona Beach
• Family or Senior or Private Land? Senior
• How many beds/bath? 2/2
• Double-wide or Single-wide? Either
• Are you Handy? Yes
• Pets? Small Dog
• What is your current housing situation? Rent
  800 mo
• What is your Budget?
• Down Payment and Monthly Payment 3K/700mo
• What is your income and where do you
  work? 2Kmonth/Wallmart
• How soon? Now
• Any housing related problems
• - evictions, foreclosures, bankruptcys No
  housing
• How is your credit? CC debt, medical bills
• Any Criminal background or sex offender? NO

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SALES 101 Create Scarcity and use the word yes!

• Tell PROSPECT that off the top of your head you
  are fresh out of homes that would suit there
  needs but you know of a home that might be
  perfect for them.
• Describe Home as a minor handyperson special
  and ask if they are interested?
• Explain that you KNOW of a home that could be
  perfect for their needs and explain that your
  investors typically use a Lease with Option to
  Purchase which is similar to a Rent to Own
  Agreement - ask if that would be ok?

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Introduce 0 interest

• Explain that similar homes in that park are
  asking 15,000 - 18,000 all cash and that you
  would ask your investors to offer the home to
  them for 0 interest. How does that sound?
• Your terms would then be
• Option Consideration (Down) 3K
• Balance 12,000
• Term 12,000 / 400 (700-300LR) 30mo
• Then Explain that their final payment may be
  25-50 higher or the term a little longer in
  order to pay for Insurance, Registration, and
  Tangible Tax.
• REMEMBER - USE THEIR BUDGET IF YOU ARE
  COMFORTABLE WITH THEIR ABILITY TO PAY!
• DO NOT OVER EXTEND YOUR CLIENTS!

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Show and Sell!

• Make appointment with Seller to show home.
• The showing could be done in private just like a
  REALTOR.
• This is one of the reasons to market vacant
  homes!
• Get buyer park approved and have them sign that
  it is OK to share their background info with you!

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Document your deal

• Once park approved have client procure insurance
  - lets assume 300 year.
• Get quotes on Registration and Tangible tax from
  DMV and Tax Assessor - lets assume 50 and 50.
• Draft Lease and Option as follows and explain to
  client as follows
• Lease for 434mo for 30months
• 3005060410/1234mo
• Sell Option for 3,000 option consideration and
  in 18th month they may purchase home for an
  additional 4,800 cash or continue making
  payments just like their lease for one more year
  by transferring title and converting to a note.
• Show them that 400 x 3012,000 3000 15,000

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Close / Close

• Sign Lease and Option and COLLECT YOUR MONEY with
  Tenant/Buyer
• Have client sign lease with park
• Cash out the Seller and collect keys and title
• Take pictures of home
• Pay insurance for client
• Transfer title with DMV
• Sit back and enjoy
• 400 Net Cash Flow
• 7500 increase in Net Worth

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Whats my return?

• Whats my Yield?
• N30
• PV7500(Home)300(Insurance)50(Taxes)50(Registra
  tion) -3000 (Option Consideration) 4900
• PMT -400
• FV 0
• Solve for I/YR ?

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Some ins and outs

• Over 85!
• So whats next?
• Some thoughts about doing business in Parks
• Make friends with Park Managers but do not be
  afraid. I have never been turned out of a park
  and I always say the same thing -
• I own a Company that raises money from passive
  investors to provide easy monthly payments for
  clients. I want to introduce myself because we
  want to cooperate with the park and need to
  understand their approval process and their rules
  and regulations.
• You own the Company when dealing with parks - You
  work for the Company when dealing with Tenants

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More ins and outs

• What if your client does not pay the park? Make
  sure the park knows that you need to be noticed
  if the mutual client fails to pay. Do this in
  writing! Then re-assure the Management that if
  the mutual client does not pay it puts their
  agreements into default so we can cooperate with
  each other to evict the mutual client.
• What about liability and insurance? Make sure
  your company is on the insurance as additional
  insured (at the very least be sure to be added as
  Loss payee like a bank - NO LIABILITY).

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The Liability Tail

• What type of entities?
• Insurance is the first line of defense.
• We like to layer our entities.
• Public LLC takes title to homes and enters into
  Lease and Option with Clients.
• Public LLC never accumulates any significant
  Net-Worth
• Private LLC loans Public LLC the money to do the
  deal at arms length (that means document your
  deal) and put lien the titles.
• FS CHAP 723 You should also NOTICE the park
  about the lien!

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Part II - Long Term Cash Flow

• If MHs in Parks are so good, why home and land
  packages and ultimately PARKS?
• MH parks are short term
• Park Managers change
• Park Owners change
• Parks have strict rules and regulations
• If your Tenant/Buyer stops paying you are out not
  only the receivable but you must also pay the
  Park to keep the home on the lot

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Home on Your Land

• How does H L package differ?
• MHs give a great short term cash flow while
• Land makes a great long term hold
• If you own the Land you eliminate the eventual
  Management and Ownership changes found in Parks
• You set the rules and regulations
• If a H L deal becomes non-performing I would
  rather pay an Investor / Bank a mortgage payment
  that at least buys down your property then pay
  a Park lot rent!

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How much can you pay?

• Formulas for Holding Strategy
• Lot Lease will help you determine Land Value
• Once you know your Land Value you can determine
  your MH Price

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Income value approach

• Determine Land Value
• Lot Lease - this is the easiest place to start
  since local parks set the Market
• Weve found that most people will pay SLIGHTLY
  more to live on private property where they will
  someday have an opportunity to own the land
  versus living in a park.
• Our Local market ranges between 225 - 440
• Weve settle in around 300 a month.
• Determine Land Value in order to know how much to
  sell the MH for
• 300 mo LR x 12 3600 Annual - 720 Property Tax
  2880 Net / 9-10CAP 28,800-32,000

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Pricing the Home

• Determine Home Value
• If the Land is worth about 30,000 based on
  income approach how much can we pay for the
  house?
• Total Price 48,000 - Land Value 30,000
• Home Value - 18,000
• After doing enough deals in other peoples parks
  you will know if you can sell the home for this
  price or higher!

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Legal and Tax Tail?

• What type of entities?
• We like to layer our entities.
• Land Trust owns RE
• Land is leased to tenant
• Public LLC owns Mobile Home
• Enters Net Lease and Option with tenant
• Private LLC owns Beneficial Interest in Trust
• Private LLC puts lien on Title of Mobile Home.
• Or, Bank or Private Investor holds First Mortgage
  with release clause for MH Title in case MH sells
  early
• As Equity increases record second LOC in Public
  Records

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Legal and Tax Tail?

• What about Tax Consquences?
• Our cash flow is in the form of rent
• We depreciate the improvements for a paper P/L
  loss
• We lease long enough so that our option price is
• Equal to or less then what we bought the home for
• Under scrutiny I feel comfortable that the IRS
  would understand the MHs typically depreciate as
  they become older and more obsolete.
• The net result is that we sell at BREAK EVEN or
  at A SMALL LOSS.
• Bankers dont get it - but your BANK ACCOUNT
  will!

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Pictures of Pinewood D6
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Example - Pinewood D6

• So how did we do?
• N36
• PV 2500 6 tax 2650 - 750
• 1900
• PMT 225-25(Insurance/Reg/Tax)
• 200
• FV0

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Example - Pinewood D6

• So how did we do?
• Solve for I/YR
• 138
• As Lonnie would say
• Good Nuff!

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FINAL THOUGHTS

• Cash Flow - work or you work?
• Equity Appreciation - create v. market
• Depreciating Assets
• Down Markets

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Round Table Topics

• Parks
• Private v. Banks
• Land Trusts
• Net Leases
• Option Contracts V. Virtual Options.
• Roth IRAs and Options
• Lonnie deals v. Ernie deals
• Property Tax!
• Golf and airplanes )

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Contact Information

• Karl J. Warner, P.A.
• PO Box 291538, Port Orange, FL 32129
• PH 386.254.8464
• Fax [phone]
• KarlJWarnerPA_at_earthlink.net
• www.mobilehomeuniversity.com