No Mortgage, Wants To Sell
Student of $Cash's$ and got my first potential deal. However, owner owns house free and clear. Pitched buying from him and giving him a note. Since this is my first one, I would love experieced reviews. Thanks.
Doublewide 2000
Paid $60,000 in 2002
Asking $91,000
Comps show it may be worth $91,000 but I will get an appraisal since it's my first one and I don't know the area too well.
Offering him $2000 at closing and $89,000 on a 2-yr note. Owner didn't flinch at this and just asked some questions. Wants me to write it up and have his atty review paperwork.
I will write up for $91,000 "contingent upon appraisal".
I will also be prepared to offer a larger deposit of $3000 more payable at $500/mo for 6 months.
Resell:
Sell on CFD for $110,000
8k down
8% interest
Profit:
$8,000 down
$700/mo pack 24 mos. $16,800
$11,000 backend
less $2000 to seller
less $3000 to seller if needed
total profit $30,800
Whatch you think?
Kyle
Well Kyle, I saw a few problems with the transaction, in my opinion.
First and foremost is the fact that you are paying full retail for the property (assuming $91k is actually retail). Now, as a student of $Cash$, you should know how to knock off at least 20% from retail and the seller believes he is still getting a fair deal (which he is). Simplified, you didn't knock off anything that would be included in a "standard" sell like real estate agent fee, holding costs, repair costs, closing costs, negotiating costs, etc.
Second, doublewides are an altogether different beast than stick-built homes (at least they are here in NC. I'd assume not much different there). a doublewide on a rented lot is not much better than a singlewide, and will depreciate in value, not appreciate. And while a doublewide with land, if deeded as real property (ie like a regular house), is better, generally, the best that you can get is a very, very slow appreciation level. Usually, however, real property DW's value tends to stay about the same year after year. So, it is not very likely that the DW will appreciate $20K in value over 2 years.
Third, a related note to value. There have been a huge glut of foreclosed DW's on the market for a couple of years now, which has put a sharp DECLINE in value. The simple reason is, although appraisers are not supposed to use foreclosed/REO sales as comps, because of the number of foreclosed DW's, that is all that is selling. Since they are usually sold for less than what would be considered FMV, it is all that the appraiser has to go on. Definitely get that appraisal, and ask him/her to be very tight with it.
Fourth, it least here, you would not likely get $8K as a down payment for a doublewide. People wanting DW's are usually in a different class structure from people wanting stickbuilts. They may make good money, but generally have little to none lying around. The doublewide becomes a good deal because you can get more home for the same price compared to stickbuilt. About the most I'd ask for on DW is around 3% down, or in your case about $3K down.
However, on a brighter note, you could ask for, and get, a higher interest rate. Mobile home companies, like Oakwood, Fleetwood, Vanderbilt, etc, generally run their interest rates 12.5% or higher. So even at 10%, you'd be a good deal, especially for a bad credit buyer. In fact, this is where you can get more down. Some will be willing to pay more down in order to get the payments more inline to what they want.
As always with forums, take the info for what it's worth to you. Just to let you know though, my specialty is buying doublewides, so I do have some experience in the matter.
Last note, check out foreclosed dw's are selling for in your area. Here, I'm getting them at 50 cents on the dollar or better at the moment.
Roger
Rajwarrior,
Thanks for the detailed critique--I appreciate it. You have opened my eyes to some real issues here. Where I am now in DE, DWs are selling and appreciating at the same rates as stick-builts. BUT, this DW is in your neck of the woods, kind of--Hendersonville, NC--Where 60% of homes are DWs. So I need to be careful I suppose.
The other DWs in the area are selling for $109k-119k, which is why I figured the $91k is good. Seller is aware of Realtor fees and all, which is why he currently has listed FSBO.
So, do you stay clear of no/low-equity sub-to DW deals in Western NC?
Does it make a difference that this DW is on piers and a mortar foundation?
I assume if you're getting DWs 50c on the $, you aren't taking them subject-to, correct?
Many Thanks!
Kyle
No, I'm not taking them subject to. The ones I've bought have all been foreclosures.
Let's start by responding to a few specifics in your post.
Where I am now in DE, DWs are selling and appreciating at the same rates as stick-builts.
While this may indeed be true, I've never seen any area where a DW would appreciate at the same rate as a stick-built. Their design, build, and general structure is made to be a cheaper (or more economical) version of a stickbuilt. As such, the appreciation rate, if any, is usually much different (slower). The simple reason is that older, setup DW's are really poorer versions of newer built DWs.
The other DWs in the area are selling for $109k-119k
Be cautious here. Are they really selling for those prices, or are they on the market for those prices? That's a BIG difference. Age too is a major factor with DW purchases. What are the ages of these homes selling for those amounts? Finally, financing is another major factor in DW pricing. Are these sells thru a mobile home manufacturer or seller? If so, then the "sell" price is NOT a FMV price, because the mobile dealers can inflate prices at will because they are providing the financing and can adjust the numbers as needed.
So, do you stay clear of no/low-equity sub-to DW deals in Western NC?
I wouldn't say either way. That's really up to you and your investment strategy. The real point I'm trying to bring home is that there is a big difference as to what is considered equity in a DW and what is considered equity in a stickbuilt. DW's simply do not appreciate the same as a stickbuilt, period. Another point, since you are in a different state, do you know the market area of Hendersonville, NC? If not, then it's a poor decision to buy regardless. One of the first lessons of REI is to know the market where you are investing.
Does it make a difference that this DW is on piers and a mortar foundation?
It may. It really depends on how it is titled. Is it deeded, like a home (ie real property), or is the land deeded and the home titled (like a car). Personally, I don't buy anything that is not deeded as real property or can be deeded as such. The only real difference that it makes as far as value that a titled DW WILL depriecate just like a car will.
Roger
I see your points.
This is real property and I do stay clear of titled property.
I am moving to Waynesville, NC in two months and have been researching the area a bit, but obviously not enough.
I suppose my thinking was that as long as I get the property at today's FMV (I will get appraised) and sell on CFD, even with little or no appreciation, it is worth it just for the 24 months "pack" I would get.
so would these numbers be more reasonable?:
IF 91,000+ is confirmed FMV
91,000 purchase price
99,000 CFD 2 yrs
3k down
10% interest
or do you suggest I stay clear of it unless I am able to get for less than FMV?
I am grateful for your advice, Roger
always learning
Kyle
Personally, I wouldn't touch it unless I could get it for $68K or less, and that only if all I had to do was put my sign in the front yard. However, every investor has different criteria for a "deal." It really only needs to fit into your criteria. I would be very cautious with making deals until you really get a feel for the area market. It's been a few years since I've visited Waynesville (attended WCU in Cullowhee, GO CATS!), however tend is that the income level is generally on a lower scale.
What I'm trying to say is that the price seems high to me, although I don't know the full details of deal.
And yes, the pack would make some good income but you want them to be able to get the property refinanced (especially true with a DW), so be very careful with the CFD pricing.
Roger
Sound advice, Roger; and since it's free I'll take it.
I want my first deal to be smoothe and an obvious good deal, so I will pass unless I can get him to come down on price.
Thanks, again.