Is this smart?
We are thinking of purchasing a single-wide MH (1972) but in VG condition. It is two bdr/ two bath with a huge glass window enclosed addition making it the size of a double-wide. The addition does not have the central air pumped into it though. There is also an inside laundry-room, huge carport and two large sheds in the fenced yard. We think we could easily get $500 a month rent. The price paid is $35,000 which essentially is the value of the land (lot size 75 X 103 ft.).
We thought to use self-directed IRA funds to pay for this.
Does this sound like a worthwhile pursuit? We know the value of the MH likely won't go up anytime soon but we would own the land in an area where there is little of it left for sale. The neighborhood is a mix of MH and small houses but a builder has also purchased some lots and is building brand new homes here and there so that will help keep prices from dropping.
Or is something like this better to just purchase with non-ira funds? Is it best to borrow or pay cash?
It all depends on your personal situation. I personally try not to use any liquid funds until they pry them from my cold dead fingers. My personal opinion is to get a loan on the property in case your tenant messes things up or you need to update something you have the funds available and arent searching the couch cushions to pay for that roof leak that might appear.
If your goal is to hold on to the property for a long time then get a standard loan, and rent it out for more than your loan payment. Also your IRA is making money, and your loan is tax deductible at the end of the year. You would stand to make more monies off of a loaned property if your cash flow is high enough to warrant the tax deduction of your interest. Consult your accountant and see if you might need a tax break or if he can get a better loan deal as well. My opinion is to keep your IRA as your safety net, worse case scenario you can pull from it to make payments on the loan until you get a renter.
I agree with Kyle. I don't mix funds for investing. Idealy each deal stands on its own, for me that keeps each deal real and easyer to asses value.
By all means, separate the two! Have one note for the MH and one for the land.
You should probably be able to pick up the MH for about $2K, and the land for $33K. Thats the $35K you had been quoted.
I would approach this deal in this manner for two reasons:
1. You can sell the MH with seller financing and make 4 times your money back! Example: You ask for a purchase price of $6500 for the MH only, with $1500 down and the remaining $5000 carried by the owner (you) on a 5 year note at 12% interest. Payment = $111.22 for 60 months. Thats $6673.20 in 5 years + $1500 down = $8173.20 on a $2000 investment!
2. Charge the MH owners lot rent! Whatever your monthly payment is on your purchase note for the land, add $100 per month to it.
In this scenario, you have created over $210/mo. positive cash flow! And since your MH buyers are purchasing, not renting, NO LANDLORD HEADACHES! And the best part is you will still own the land! This is just one way you can create a perpetual money machine! Have fun and let us know how it turns out.
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These are wonderful options! How would you handle the insurance on the mobile home in a case like this? Who pays it? How do you insure it's been paid? Is it expensive to get?
Whomever you sell the MH to will be responsible for the insurance, as required in your Land Contract with the buyer.
I recommend you pay cash for the MH, as financing on a used MH of this one's age is virtually impossible to find! Besides, a cash purchase works out better for you in the scheme of things.
HTH
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