Is this a deal for a new investor?

I have a friend who wants to know if this is a good 1st deal for her and I told her i would ask you experts. Here goes1

1 acre ,well,septic tank and mobile home that is rented and has lease for another year at 400.00 month. for 24,000.

She want to know should she buy it and would it make money?

Taxes are 120.00 year and insurance is 240.00 year.

Thanks for any help!!! :beer

You forgot to tell us where the property is located. :slight_smile:

Here’s how I see this deal:

Gross rents: $400 per month
Operating expenses: $200 per month
NOI: $200

Mortgage: ($24K, 30 yr, 7%): $159

Cash flow: $41 per month

I don’t like it. The cash flow is too low.


Not to mention that mobile homes typically depreciate in value over time. If you could structure an owner finance type of deal and sell it, you’d probably be better off.

Thanks , This is in NC

Ps Property Mgr I read your book and loved the frankness and honesty.

I would use the cash to pay the costs of financing on a single family home to be rehabbed and flipped. Mobile homes are too easy to trash and wear out way too quickly.

I agree that on a stand-alone basis as a rental, this is not a super deal.

Is there anything that can be done with the land, though?

Can you put a second mobile home on it? Can it be rezoned? Can anything be done to make it more valuable or get more income?

Does the $24,000 include the mobile home? What is that worth by itself? (In other words, what are you really paying for the land?)

Don’t just look at this deal based on what you see in front of you. Think about what you can do with it that someone else might be overlooking.

I was thinking that its an old mobile home that my husband who is a handyman can keep up and it makes 6000 a year , after 4 1/2 years it will make money, if i borrowed the money for 5 years and paid it all back.

If the rent is only $400 per month and your property taxes and insurance are paid from your rental income, then you (or your friend) only have $4440 ($370 per month) rental income per year to cover repair costs and pay back the $24000 loan.

If the loan is from an institutional lender, the loan will not be free. You will have to pay interest on the loan each month. Since you mention the property is on an acre of land, do we assume that the purchase price includes the home and land as a package?

If so, then let’s assume that you borrow the entire $24000 at 8%. If you get a five year loan, the monthly payments will be $487 per month – a little more than your optimistic $370 monthly income.

If you get a 30 year loan, and also assume that you pay $370 per month each month (all of your net rental income), then you will pay off this loan in seven years and two months.

In summary, this is probably not the best rental property to purchase. The good thing going for you is that the mobile home is old and probably fully depreciated so that your purchase cost is essentially the cost of the land. The bad thing about this is that land can not be depreciated, so there won’t be any depreciation expense (to speak of) to help offset taxable rental income.

A better way to make money on this deal might be to buy the property for $24K, less if you can. Use 30 year financing on a land/home package at the lowest interest rate you can find. Then sell the property on owner financing for $30K and set your interest rate two or three points higher than you are paying on your loan.

For example, if you borrow $24K at 8%, the monthly loan payment will be $176 plus another $30 for taxes and insurance, for a total of $206 each month. You sell the property on a land contract for $30K with 100% owner financing at 11% amortized for 30 years but with a balloon payment at the end of five years. The difference between your buyer’s monthly payment to you and the monthly payment you make to your lender will give you a monthly income of $110 each month. At the end of the five years, the buyer refinances his loan and pays you the balance of his $30K loan, giving you about $6300 more in a lump sum to add to the $6600 in cash flow you will have already collected.

A buyer who wants to own a mobile home on land will do this. The buyer will be only looking at the $315 monthly payment to determine affordability. Since you are providing 100% financing, your buyer won’t have to meet the bank’s loan qualification criteria. If the buyer does not have the closing costs, you can pay them and increase his loan amount accordingly.