In my previous blog post, I told the story of how I bought my first property, a manufactured home in a park. Before I had even finished the remodeling on that project I read a book called Deals On Wheels (Right now I see two options to buy this on Amazon. The Kindle version for $9.99 and the book version for $34.99. I don’t think I would have paid $35 for this book so they must not be printing any more.) The book was actually very helpful in giving me the guidance I needed to get started. I ended up making about $20,000 so definitely a good ROI for me.
Anyway, the book outlines a simple way to make money when you don’t have much cash to work with. The basic premise is that you buy a mobile home in a park for a few thousand dollars. You then do a little work on it (or not) and resell it. But instead of selling it outright for a cash discount, you offer it on payments. That way, you can not only charge a higher price, but you can also get 8-12% interest on your money.
So that is exactly what I went out and did. Over the course of about 6-10 months, I purchased and re-sold 6 mobile homes. Here is an example of one that I purchased:
I don’t remember the details exactly now, but I paid $4,500 for a 2 bedroom manufactured home. It really didn’t need much work. I think I did some cleaning, painting, and replaced a few doorknobs. I sold it for $7,500. The buyers paid $1,500 down and the rest was on a 36-month note at 10% interest.
They ended up needing to move after 18 months or so. They couldn’t sell it quick enough so they just gave it back to me. I resold it and I think this time someone gave me $6,000 cash. So, on a home that cost me about $5,000 I made received $3,000+18 payments of $200+$6,000 = $11,100. A profit of about $6,100 in 24 months. That’s about 60% annual ROI.
All told, between the 6 mobile homes, I think I made somewhere between $20,000-$25,000 when all was said and done. I borrowed $12,000 from my brother in law and paid him 12% interest-only.
Overall, I don’t think I could have had a better start to my real estate investing career. While $12,000 was a lot of money to me at the time, in the grand scheme of things, it was a “safe” amount to risk. I got some exposure to negotiations, contracts, and renovations.
Some of the major things I learned:
- There are always creative ways to make money. If I had tried to buy these, fix them up real nice and then re-sell them, I probably would have lost money. When I only paid $3000-$4,000 and the space rent was $400 per month, it was imperative that I sell them quickly if I was going to make any money. By offering them on payments, I was able to find buyers very quickly (usually within a couple days).
- Only work with people who have skin in the game. The worst transaction that I had was with a small family on the last mobile home that I “flipped”. It was November and I was in a hurry to get this one under contract. The family was very nice but they didn’t have any money for a down payment. The husband had also just switched jobs like 3 days before. I should have known that they weren’t going to be able to keep paying and the down payment in this case, would have acted like a rental deposit.Sure enough, after about 6 months, many of which they were late, he lost his job and couldn’t pay. I took the home back and ended up selling it cheap to a cash buyer. I didn’t lose money on that one but I didn’t make any either. And it all would have been better if I had just said “no”.
- People need a place to live, no matter what their income. This I have come to learn now that I have had multiple rentals and have worked with many buyers as a real estate agent. Everyone needs a place to live, and so whatever level of home I can afford to buy as an investment, as long as I buy it smartly, I will be able to rent or sell it…always.
- Real estate has many levels. The reason I was able to get into these mobile homes was because no one else wanted to do it. I’m sure there were lots of investors who passed these listings by (I bought them all through Craigslist) because the money was too little for them. If you want to get into real estate, the only thing stopping you is you.
What about you? How did you get started in real estate? Or do you want to but not sure how? Leave a comment, or contacting me directly and I’ll be happy to help motivate you 🙂
Click here to read about my first rental property experience.