I did a sub2 on a manufactured home that the seller was going to loose to foreclosure. It is a 1400 sq/ft 3/2 that sits on 1.4 acres with a large pole barn and 2 car detached in a very desirable school district. It was in nice shape when I took possession and my plan was to throw a few bucks at it then list it for a profit. I had multiple over ask(150k) offers on day one great…but then the lender called and broke the news that it wouldn’t conform to any loan due to being built before 1976! The mortgage owed is 79,000 and the monthly payment is 600, taxes and insurance is around 1600 per yr. I believe I could rent this for 1350/month to recoup the 13k I have in it at this point. Any suggestions on other options at this point?
My guess is that the ‘manufactured’ home is either a trailer, or isn’t on a permanent foundation, or both.
Otherwise, a 40+ year old manufactured home, on a permanent foundation, can be financed everyday.
How much did you pay for this? Sounds like you’ve captured quite a bit of equity, despite the foundation issues.
You want to set the home on a permanent foundation. Then all sorts of options appear.
- You could sell for cash.
- You could owner finance for more profits
I would install a permanent foundation; sell on an installment contract for $175K; ask for 10% down; finance the balance at $850/mo P.I. on a 30/yr amortization; with everything due in five years.
This would increase the marketability of the house; give me most of my investment back; lower my risk of loss; create a small monthly spread on the payments; and give me a paper, equity profit of $73K (not including five years [60/mos] of cash flow).
$175,000 Sale Price
<$79,000> Less Loan Balance
<$13,000> Less Foreclosure Costs
<$10,000> Less Foundation Installation Costs
$ 73,000 Equals Equity Profits
$ 15,000 Plus 60/mos Cash Flow
$ 88,000 Gross Equity Profits
If you finance the house, your buyer assumes all responsibility for repairs, maintenance, taxes, insurance, etc. and all you do is count your money.
If you rent the house, half your rental income will go to overhead, and you’ll have wait that much longer to realize any profits, much less recover the overhead costs you incurred to buy this hell hole.
Probably the simplest option is to put the house on a permanent foundation and sell for retail, unless this is actually a mobile home, and so, then you’re screwed.
Not all lenders are created equal. You need to a competent mortgage broker. They have way more access to financing sources than a bank will. Not to mention they only eat if they can make make loans. So, they have a lot of incentive in helping you figure out how to overcome financing hurdles. Even then, not all mortgage brokers are equal. Try to find one that’s familiar with refinancing mobile and manufactured homes, if not ‘sub2’ deals.
It’s easier and cheaper to refinance than to get a new purchase money mortgage. And that’s probably the primary incentive I have for offering financing in the first place. I can get a better price up front; the buyer already has 10% or more in the deal, and has only to demonstrate timely payments, and an adequate appraisal to ‘qualify’ for a reasonably-priced refinance (even if his credit is on the low side). There’s always money available, for a price, somewhere.
Thanks Javipa, It is a double wide manufactured home on a permanent foundation(poured footer and blocked as well as hurricane ties). After doing my research(a little late in this case) it appears that hud changed the regulations on how these manufactured were constructed in 1976 and anything before that will not conform for fannie, freddie, fha, va usda or conventional loans. I found a small local lender well versed in pre 1976 manufactured home loans and he wants 20% down at 6% interest at a max of 20 years which is going to be a tall order to find someone willing to agree to those terms.
I paid 9 back payments of 600x9=5400 and 2500 to the seller. I put new fixtures, carpet and windows at a cost of 5,000 in hopes of selling it at the retail level. I got it right in contract and after the buyers lender called to ask for pictures of the hud stamp that is when I found out I was facing an uphill battle because he explained the dilema of being pre 1976. Could I offer seller financing even if there is a primary loan in place? If so how would/should I structure it?
You’ve found the money, but on stiff terms and high rates. Fine.
I think you might do a little better after consulting with a competent/seasoned mortgage broker. Also, it might be worth your time to visit the manager/owner of an older mobile home park, and see if they have any referrals on ‘reasonable’ 3rd party lenders. Owners of older parks typically finance their own coaches/manufactured houses, because financing isn’t competitive, and it’s a major profit center for them…
Meantime, you’ve got a couple of options:
Sell conventionally, but carry back 20% ($30,000) of the retail sale price, at perhaps zero percent, for five years (to overcome the bank’s high rate and terms. You build in a 60/mo balloon payment on the $30k.
The buyer qualifies for the 20-year bank financing, at 6%. This way you net all, but $30,000 from the sale, and simply have to wait a few months for the remaining equity.
A simpler and faster alternative is to finance the whole thing as outlined earlier, but for more money.
There’s too many moving parts to cover here on how to structure a deal using ‘sub2’ financing.
I mean, you have to know how to follow Frank/Dodd regulations; how to insulate yourself from a predator borrower; how to cover late/missed payments; account for year-end interest/escrow/insurance, and tax payments, and how to find a buyer who’s willing to pay high rates and terms and not blink an eye.
There’s a couple of systems that will explain how to overcome those hurdles, and you should consider purchasing one of them.