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Is there an option 3? I mean, dumping $30k into one deal such as those listed above, seems like a bad idea. To me, that is 3 deals right there, or maybe 6 options. Can you be more creative with the dealmaking? I recall John Schaub saying you are more likely to make a mistake with $100k sitting in the bank rather than $10k sitting in the bank. I guess you could always get a loan against a free and clear house though. For that reason, I pick 1. Plus I love brick houses.
I need advice on the best use of $30,000.
Her are my options:#1
Purchase price(Incl.rehab): $30,000 (cash)
Retail value: $75,000
Monthly rent: $550.00
Taxes & Ins. $100.00
Cash flow $450.00
Equity $45,000#2
Purchase (Inc.rehab) $95,000
Retail value $125,000
Monthly rent $1085.00
Down payment $30,000
Loan amount $65,000
Int. rate 7%
15 yr. loan pay`t $585.00
Tames& Ins. $100.00
Mo. debt load $685.00
Cash flow $400.00
Equity $60,000Property #1 38 yr. old brick house, new central heat/air and new roof, 4 br 1ba out in the country on 3/4 of an acre, 20 minutes from a major hospital.
Property #2 Built in 2006, vinyl siding, located in a new subdivision with lots of foreclosures, in town, both houses have the same square footage.
What would you do?
Deano Vulcano
I have $30,000 sitting in the money market account collecting a measly 2.5%, any of the two deals mentioned would blow away the returns of the bank, I was just wondering what everyone else thought about the best long tem use of the 30k, one of the two deals mentioned or something else.
I have a 810 credit score, so I can access that money at any time.
You mentioned options, could you elaborate on that a bit.
Thanks for your response Greg.Deano,
I’d be looking for a nice double wide on an acre or two of land. HUD has plenty of them.
You could get a MUCH BETTER return with that than the deals you described above.
I was just out at Bobby Redwine’s and he showed me a deal he did last week. A 2 year old double wide with 4 bedrooms, 2 living areas covered parking and TEN ACRES for $39,000
It will rent for $950
You can see why none of the other deals excited me too much.
I bet you’ve got plenty of mobile home deals in your area.
Check out the Learning Center – moible home section – for more ideas about how to turn that $30k in to a really good cash cow
Deano,
Jackie’s sounds like a great deal. Since I am not interested in mobile homes, I would consider options. You have a couple of choices: Lease/options or pure options. Lease options are akin to rent-to-own. You control the appreciation and growth with the option, and control cash flow and use with the lease. Before the option expires, you can choose to exercise it or you can forget about it (if you choose not to buy). A pure option is simply the right to purchase the property in the future. There is less inherent risk in options that buying a property outright. There is plenty in the learning center on options as well.Jackie,
If I ever needed to pull out cash, in an environment like today, it would be very difficult, lenders won?t touch mobile homes right now.
Because of all the foreclosures on MH`S it is nearly impossible to get a high comp. in order to justify a present day value.
Also, 15 years down the line, when property #2`s mortgage is paid off would I rather own a brick house worth 86k, a 17 yr. old house worth 143k or a MH worth……..?Unfortunately the MH you spoke about would only rent for $650.00 here in South Carolina.
That MH will bring $117,000 after 15 years at $650/mo.
Since MH`s tend not to appreciate much it may only be worth $50,000 after 15 years.
15 yr. cash flow($117,000) plus property value after 15 yrs.($50,000) = $167,000Deal #2
15 yr. cash flow at $400/mo. = $72,000
If this property appreciates just 1% after 15 years it will be worth $171,526
15 yr. cash flow($72,000) plus property value after 15 yrs.($171,526) = $243,526Plus the 16th year and then on the monthly cash flow on the stick built house would be $1,110/mo.
Compared to $650/ on the MH. (Obviously the rents would go up over the 15 yrs. on both properties, most likely more on the stick built over the MH).Other factors on the stick built:
1-Since the house is appreciating, so will the monthly rent.
2-Starting the 16th year all the monthly rent will cash flow.
3-Owing 65,000 on a $125,000 property is only 52% LTV
4-With my credit score I can refinance up to 80% which would give me access to $35,000 cash, and it would cost me about $1,000 to refi.
5-Lending may get tough for stick built homes but never completely dry up, MH`s don?t seem to be as consistent.I?m not against MH`s at all but I?m just trying to play out the whole scenario on both types of properties.
Deano
Deano,
Sounds like you need some mobile home education. Would you rather get a 7% yield on your money or a 40%+ yield on your money? Would you rather get $4800 a a year cash flow with that $30k investment or $11,400 a year cash flow with that $30k investment?
In 15 years of $400 a month cash flow – you’d have $72,000
In 15 years of $11,400 a year cash flow – you’d have $171,000 ( or in less than 3 years you’d have ALL YOUR MONEY BACK)
There are plenty of mobile homes that are more than 15 years old which are in better condition that 15 year old houses.
Instead of thinking about using financial instutions for ANYTHING – you should be thinking about using private lenders who would buy all or part of your notes when you need to pull out cash. I assure you they will love the potential yields that mobile homes offer.
I’d still pick the mobile home.
Jackie
p.s. You can’t buy groceries with equity. Cash flow keeps you in business.
I would probably do both of them. Borrow or bring in another partner if I do not have all the $$$ to do the other deal.
In looking at your #s, why are taxes and insurance the same for both homes?
Deal #1 would be a yield of about 18% for a long term investment in the perfect world. The only thing you left out is, vacancy and repairs. Probably need to drop the monthly net by $100 or so. #1 does appear to have more equity than #2 the day you close the purchase.
Deal #2 would yield of about 19% if you assume no appreciation (need to lower the net here also by the vacancy and repairs amount):
N I PV PMT FV
180 ? -30,000 400 125,000
Solve 19.57%This is a good investment because of the fixed rate debt of 7% and yields of 19%.
As to mobile homes depreciating
I’ve been buying these for 13 years and EVERY single one ( not nearly every one) of them are worth at least what I gave for them many years ago. The secret here is to buy at a BIG discounts. When you buy at 30 to 50% of retail, they actually appreciate!!! It is much safer to buy the mobiles on their on land. If you buy in a park, they may and do depreciate because the park owner keeps transferring some of the equity from your mobile home to the land each year they increase lot rent.In closing, I would find an investor and buy #1, #2 AND do all the mobile homes I could find.
Bobby Redwine
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