I’ve had a guy post an add wanting to borrow $4,000 using his lot and trashy MH as collateral. He’ll pay $500/month for $6,000 across the year. License name matches county records (last 2 transactions were quit claim), value of land is about $16,000.
How do I verify that I’m looking at the guy on the license? It is 7 years old and the photo could be him, but…?
Also, is this a decent deal to do?
Interesting question and potential deal! Firstly, I would never refer to a mobile home as trashy!! These ‘homes’ have earned many folks like me millions over the years…even when potential buyers refer to them during conversation as ‘trailers,’ I still respond using Mobile Home.
Regarding your deal, here is what it looks like:
12 N [u]82.38%[u] i/y $500.00 PMT $4000 PV
My cash flow calculator says if you loan $4000 and then receive 12 payments of $500, your yield on the investment is 82.38%. That, by the way, is an average deal when you create notes for profit using mobile homes. Is this a good deal? Well, you might ask yourself how much yield/interest is your $4k earning right now in your bank account?
What about collateral. You mentioned the land is valued at $16k…even without the collateral of the mobile home, that is a 25% LTV for your money. Most lenders will do 80% LTV so it appears you have plenty of collateral.
Regarding the identity of the borrower, if his ID matches what is on title of the land and the mobile home, I would do this deal! Before, however, I would verify title through motor vehicle, have an MV-1 prepared with me as 1st lien holder and doing so would have the MV Department issue a new title and send it to me for my possession as the lien holder until the loan is repaid. That gives me ‘repossession’ rights if there is a default. In addition, I would do a quick title search on the land to be certain it is free and clear; then I would place a security deed against the property for the loan and record that into the public record so that in the event of a default, I could foreclose as the first lien holder.
As an alternate, you might consider obtaining an agreement for a Commercial Lien along with your promissory note and the surety for the lien could be the land and the mobile home. Then do an Affidavit of Obligation, file that into the public record including the real estate section, then file a UCC 1 Notice of Lien and attach the Affidavit of Obligation and the promissory note to show your agreement for the lien. This would give you priority over any mortgage that would be placed upon the property after the date that your lien is filed. If I used this approach, I might pay for a UCC 11 first to assure me that there are no other Commercial Liens against the borrower or the subject property. The only thing which trumps a commercial lien is another commercial lien with an earlier date…1st in line, 1st in time.
These are good examples to secure your investment. I believe this security is essential, even in a small $4k transaction. But the rewards are amazing…80%+ yield!!! I’ve done hundreds of these and have come out unscathed!! Even if there was a default, you repossess property, clean it up and you have a mobile home and land package which you could resell at full retail with owner financing for $20k. If you got $1k down and financed $19k for 15 years at 12%, here is what that looks like:
180 N 12% i/y $228.03 PMT $19000 PV
Your worst case here is that you would get 15 years of monthly payments of $228/month, which is over $41k! Put back into the formula how much you have in the deal, $4000 + or - (one would have to subtract payments already received prior to repossession, cost of fix up, and new down payment), however figuring $4k left in the deal, here is what that looks like:
180 N 68.41% i/y $228.03 PMT $4000 PV
Make sure you have the collateral for security and then RUN to this borrower to get his signature before someone else beats you to the deal.
Hope this helps.
Rob