What If They Stop Paying?

Probably the question I hear the most when I offer to finance the sale of mobile homes is, “Suppose they stop paying?” Hopefully, the following story will answer that question and explain what really happens in most cases. If your buyer pays as promised, you make a good profit. If they stop paying and you get the home back, you make a bigger profit.

How much money can you make on one old mobile home? I don’t really know, but I’ve got one that won’t go away; it’s like a perpetual money machine. Every time the loan gets close to being paid off, something happens, and I get the home back and have to sell it again.

The first sale

I first bought this home for $4,000. It was sold a week later for $7,900 with $2,000 down and a note for the balance, payable 12.75 %, $157.55 month for 48 months.After receiving 12 payments, they stopped paying! I was “forced” to take the home back. (Some quick math: $2,000 down, plus $1,884 in payments = $3,884.) Oh No! I still had $116 in this home! What to do now? What a disaster!

After several cups of coffee to get my head cleared up, I started working on a plan to solve this “problem.” Finally, I decided to place another ad in the paper and just hope that I could find a buyer.

The second sale

What a streak of luck. After several days, it so happened that a man called needing a place to live. I had the home priced at $6,900, but this man was such a great negotiator. Before I knew what was happening, he had beat me down to $6,250 CASH. (There’s always somebody that will mess up your bookkeeping.) Whew, I sure lucked out of that disaster and saved my $116.

About six months later, this buyer got an unexpected transfer, and he now had an old mobile home to sell. He called me first to see if I would buy it back. Guess he didn’t have a lot of business experience; he was expecting me to pay him the same price he had paid me.

I told him how rough times were and how nothing seemed to be selling, but if he would give me his best cash price, I might be able to help him find a buyer. I suggested also that he advertise and see if he couldn’t find a buyer. He tried for several weeks, but no luck. Each time he called me, his price was lower.

After about two months, without a cash buyer and with time running out to leave town, he called and asked if I would give him $3,000. That was the magic number, but I wanted him to name it rather than me. So I solved his problem and now had this home back again.

The third sale

Ten days later, I had it sold again for $6,500, $750 down and a note payable 12.75%, $229.89 month for 30 months. After making 23 payments, this couple wanted to buy a new mobile home. They couldn’t buy the new home until my note was satisfied.

After trying and failing to find a buyer with any money, they asked if they could just give the home back to me, in exchange for me satisfying the balance of their note. They had “new home fever” real bad, so I agreed to help them out and satisfied the balance on the note. I’ve never seen anyone so happy to give their home away.

The fourth sale

Two weeks later, it was sold again for $5,500, $500 down and another note for $5,000, payable 12.75%, $237.12 per month for 24 months. So far, I’ve received 22 payments on this note and still have two more to collect. So maybe my “perpetual money machine” is finally going to die. If it does, it’s sure been one splendid ride.

More than $23,000 profit on my $4,000 investment

Checking my figures, I see that I’ve collected a total of $23,273 so far and still have $474 to collect . My original cost was $4,000 plus a little advertising and some minor repairs.

I haven’t tried to figure what my yield has been. (It might blow the face off my calculator.) I’ll just assume it’s GOOD ENOUGH. (Update: This buyer has paid the note off, so this money machine has died a natural death.)

When I explain to people how I create notes by buying, selling, and financing used mobile homes, the most frequently asked question is, “But suppose they stop paying?” My answer, “It’s usually the best thing that buyer can do for me.” Suppose my first buyer had paid off the note, how much money would that have cost me?

Used mobile homes are the only affordable housing left for many people. But being affordable solves only part of the problem for the person needing a place to live. The biggest problem for that potential buyer is finding someone who will finance the purchase of that home. For that reason, there is a great demand for used mobile homes with seller financing. And you get to be the banker.

Let me finish this story by saying that during this whole period, I’ve never had a call from any of those buyers complaining about frozen pipes, stopped up drain lines, or any of the problem calls I used to get when I was a landlord.

I’m quite sure they must have had some problems but, since they were owners and not tenants, they got to take care of the problem. I was just the note holder and note holders don’t fix frozen pipes. Note holders just wait for the mail carrier to bring the checks. What a business!


By CREOnline Contributor

A content contributor to the original CREOnline.com.