I have lots of land here and there that nobody but me seems to want (and I’m not so sure about me). A few days ago I was trying to buy a lot zoned for mobile homes. The seller, who was also a broker, wanted $63,000 cash, but at her price, I wasn’t interested.
In order to salvage some kind of profit from the interview, she offered me a nice house in a good area with a $82.000 loan on it. She had listed it for $310,000 with an equity of $228,000. The owners were flexible, so she asked me to see what I could come up with. The owners were unable to make the payments, which were current, but not for long.
I didn’t want the house, but I did want to unlock some of the equity I had tied up in land that was at some distance from my locale. So, I offered to trade a large, recently refurbished late model free and clear mobile home situated on 4.5 acres with a market value of $180,000 plus the aforesaid 1-acre $48,000 lot plus $63,000 in cash for the $310,000 house’s $228,000 equity, subject to the existing $82,000 plus the broker’s $63,000 mobile home lot.
Why would the homeowner go for this? He’s out of time. He’ll be giving up $228,000 in equity in return for a free and clear 2100 square foot mobile home (albeit in a community 50 miles away). He will no longer have to make payments that he can’t afford. Instead of losing his home, most of his equity will not only be preserved, but will provide shelter for his family that can be financed to some degree if he wants to raise cash.
Other than earning a commission, how does this help the broker? She offers the home seller the $48,000 lot plus the $180,000 Mobile Home, plus her $63,000 mobile home lot for the house. That totals $228,000. She keeps the $63,000 cash. He gives me the $63,000 mobile home lot to balance the equities.
At this point, I’ve got the lot for the same price the broker would have sold it originally, but by combining the cash with two hard-to-sell parcels of real estate, I’ve gotten full retail value for them in the form of a nice upscale house with a high equity that will produce income until it is sold or traded off.
At this point, I re-list the house with the broker and tell her to see if she can trade it together with $82,000 in cash for 8 mobile home lots. The seller of those lots will get cash plus have his equity in much more marketable form. If he’d rather own the house free and clear, he’ll have the cash in hand to pay it off. I’ll get lots on which to place new mobile home units that I can more readily sell or trade.
