Last year we started partnering up with some of our students to help them learn, help them get deals, and grow. It works out great for them because we’re working closely with them and it works out great because we get to do deals in a whole other state.
This was something that we wanted to slowly roll out all over the country, but we tested it out in a sort of beta program with two of our students Jasmine and John.
So in this blog post we’re going to review this deal we just completed with Jasmine and John where we secured a FREE mobile home and sold it for a little over $10,000.
Keep in mind that not every mobile home you find out there will be for free, and they’re not all worth $10,000 on a flip. But we want to share our thought process, our strategy, the seller’s story, and just basically share the whole case study with you.
Why this seller gave away a mobile home for FREE
This was 1997 single-wide that had 3 bedrooms and 2 baths. It was in a 4 star family community at a really great location in Chandler, Arizona. In this specific location it’s rare to find family communities. Also, when you come out of the community, there is a Walmart within walking distance, there’s a school, there’s grocery stores, gas stations etc.
The Lot Rent was $525 a month, which is pretty standard for the area so that wasn’t too bad.
The seller was the actual lien holder on the property itself. So she wasn’t living in the home, she was renting it out to someone at the time and she still had possession of the title.
She had sold it to this tenant buyer who actually trashed the place, stopped making payments, and they were going back and forth on this property. So, she was pretty frustrated.
She’s been trying to get the title back from this tenant buyer because they were obviously not making Lot Rent payments and doing what they were supposed to be doing. And she was just sick of paying Lot Rent and she didn’t have any money for repairs.
She was like, ‘I am so sick of this property. I just want to get rid of it. I’m tired of paying Lot Rent. I don’t have money to do any of this, and I’m just trying to get this title so I can get rid of it.’
So when we were in touch with her 6 months ago we said ‘Hey we can help you out and take over the Lot Rent.’ And this was if she can get us the title to the home.
We wanted stay in touch with her and do follow-ups. A lot of our best deals happen because of the follow-ups. So, we got permission to check back in with her every 3 to 4 weeks.
Jasmine and John were the ones that followed up with her. So, it took some time, but eventually when she was ready to take action, we were ready to go too.
And she was so happy that we did that. She didn’t have to worry about that anymore because not being able to pay the repairs and Lot Rent was reflecting on her credit and record with the park and things like that.
On the exterior the home looked beautiful, it was in good condition for a 1997 model home that was free. And it was in good condition as far as the big 5 repair items are concerned. But on the inside the home needed a lot of repairs.
The flooring in the home was pretty much shot. It was trashed, there were a lot of soft spots especially in the hallway. There was a big hole on the floor that they had just boarded up and there were lots of holes in the walls. The walls also needed paint and cleaning.
The seller took care of removing all the furniture out so that saved us between $300 to $500 bucks. That’s usually what a good deep clean costs.
The AC needed to be replaced. That’s pretty expensive and usually costs anywhere between $2000 to $3000 for a used unit. But it has to be done because you cannot sell a home without air conditioning in Phoenix, Arizona.
But after looking at the inside of the home we weren’t worried about anything. We were confident that we could get it fixed up enough to find a buyer. As long as we priced the home correctly the buyers were going to come.
So then we had to think about what exit strategy we wanted to use.
Exit Strategy #1: Fix & flip for cash
This would mean repairing the whole interior and reselling it to somebody that would pay us cash for the property. So let’s do a quick deal breakdown in the numbers that you guys can see.
Purchase price is $0 because we did not pay anything for the home.
The repair estimate was $6500 which includes subflooring and replacing the AC with a used unit. We like to overestimate on repairs just in case maybe there was a plumbing issue or something that we didn’t see from our initial walk through.
Lot Rent we projected to be $1575 at $525 per month. Again we play it safe by overestimating the costs of these things. Because it could take us up to 3 months to not only repair the property, but also resell the property. We always give ourselves a lot of cushion just in case we have any issues or it takes time to get people approved.
So we expected to be spending $8075 in total on closing this deal.
And once it was all fixed up in good condition, we assumed that we could sell it for anywhere between $18,000 to $20,000 cash. And so, our estimated profits would be almost $11,925. Which is a great profit considering the amount that we’re investing.
But before we jump in and start to make it happen, we always want to assess the pros and cons.
The pros are that it’s great profit potential, and it helps us build a great relationship with the park manager. We’ve worked in this community before, so we love being able to help out whenever we can.
But the cons to this deal are the energy and time required. We know just from the work that’s needed with this home it could take anywhere from 60 to 90 days to get this project completely done and closed out.
This isn’t the only deal that we’re working on. Just with Jasmine and John alone I believe we’re working on about 7 or 8 opportunities right now. So, we know during the fix and flip, you’re going to have to take a lot of time and energy just managing the project.
Exit Strategy #2: Fix & flip for cashflow instead of cash
Then we considered if it might make more sense to make this a long-term investment and get some passive income from it.
It’s very similar to fix and flipping for cash, but we would take a down payment plus monthly payments on the property.
So again, we got the home for free, we estimated $6,500 in repairs and the Lot Rent for 90 days would be $1575. We’re all in for $8,075.
And so because we’re going to be taking payments on this we know we can charge a little bit more on the sale price – anywhere between $23,000 to $25,000. We’re even more valuable to the market because we’re willing to take payments slowly over time.
That being said our estimated profit will be somewhere around $16,925, with about $4000 down payment. So with a $4000 down payment, we would be asking for $300 per month.
The pros are that this is still great profit potential and an opportunity to work with the community. But we can also get a quicker sale. Many people prefer to make payments, especially out in this market. We know we can put this on the market and get it sold in way less than 90 days.
But there are some cons with this. Again, it could still take 60 to 90 days to get this project done just because of the repair work. We know because we’ve done something like this before. We actually purchased a used AC unit on a home before, but we had to actually move it out and bring another one in because it was faulty.
So now you’re looking at not only 90 days of time and energy, but 5 or 6 years of making sure those payments are coming in. If they do default or you have any issues with your tenant buyer you’re going to have to repossess the property, repair and resell it again.
And since we’re partnering with Jasmine and John we need to keep in mind that the $300 gets cut in half. So that’s going to be $150 a piece. And we need to make sure it’s worth the time and energy for $150 cashflow a month.
Also, with a $4000 down payment and $4000 remaining to cover our costs, we can expect to see a profit only after about 13 or 14 months. Usually whenever we’re cashflowing, we like to get a return back in under 6 months.
Exit Strategy #3: Wholesale
In this strategy we would be wholesaling the home as a fixer upper, not doing any repairs and just selling the property as is.
This time when we break down the deal, we purchase the property for $0, we don’t make any repairs so that cost is $0 as well, and then we pay for at least 1 month of Lot Rent at $525. And so, we’re all in for $525 on this property.
Because the home needs a lot of repairs, we’re thinking we can probably sell this for anywhere between $8000 to $10,000. It’s a newer model home, with a nice size in a great location, so that allows us to aim for a higher price.
If it wasn’t for the great location, we would price it somewhere between $6000 to $8000. So anytime you’re in a situation like that, don’t be afraid to mark up the home $2000 or $3000 because of the added value.
So our estimated profit at the high end would be about $9475, which is still an amazing profit considering you’re all in for only $525.
There’s a few pros in this deal. It can be done very fast because we’re not working with any repairs here and we’ve got buyers hungry and ready to go. We’re also spending less, and therefore risking less. It’s also going to cost less time and energy.
We’re not managing any type of a handyman or anything like that. We are leveraging time and knowledge instead of leveraging our money, outside of the $525.
The cons are the smaller profit potential compared to other options and it might be bit harder to sell because there are repairs that are needed.
So your buyer is going to either have to know how to fix the home themselves, or be connected to a handyman or somebody that can go in there and get the job done.
The buyer could want to move the property as well. And that could potentially damage your relationship with that park manager. Because park managers would prefer to keep the homes in their Lots. If you move the home then they have some additional work to do to find another home for that Lot.
So, you want to be very careful with that.
This is what we decided to do
We decided to wholesale the property guys. Some of you know that’s our bread and butter.
We ended up actually selling this property to another TCA member for $10,000 cash in under 7 days. He paid 1 month of Lot Rent. It was totally worth it to be able to make that kind of profit when you consider the ROI on that in less than 7 days.
The great thing is we’re helping those students as well. We know those students; they work with land. So they can go and find a good piece of land and move this property to that land. Or they can just leave it in the community, do the fix and flip or even choose to buy and hold.
This strategy also frees up more time for us to work on other things. Again, we have almost 7 or 8 deals in the pipeline with Jasmine and John. And they’ve got some of their own deals that they’re working on themselves. So, we just didn’t have the time or the capacity to manage the fix and flip.
Our main job with Jasmine and John is we want to help them create as much revenue as possible within their first 1 or 2 years.
We think that’s extremely important. So that when you’re ready to do those fix and flips, when you’re ready to do those buy and holds, it’s not necessarily coming out of your own pocket. You’re letting your business pay for those things.
There is no right or wrong guys. This was just what we decided to do based on our capacity and time and what we wanted to do with that time.
Relevant questions from the Q&A Session
Do you think wholesale is the best way to go as a beginner?
We personally do think it is. Because we went the opposite route. We went the route of just focusing on cash flow in the beginning and we became cash strapped.
We didn’t have a bunch of people that we could go to and get loans from. We didn’t have a bunch of our own money because we were still working off some of the bad deals we had in real estate.
If we were to turn back time we would just focus on generating revenue in our first 1 or 2 years versus the cash flow.
The cashflow was great though because it did help us free ourselves from our jobs, to focus on this full time. But a lot of days we were nervous and fearful because we just didn’t think we would have enough money to run our business.
It’s hard to scale if you don’t have a decent amount of cash. Especially when you’re looking at opportunities that are amazing, but it’s $10,000 and you just don’t have that. So the reason we got started wholesaling was because we were cash strapped and needed a new way.
But if you’re sitting on a stack of cash, or have access to other people’s capital, and you can focus on cashflow, that’s great.
Did you guys learn any general contract and carpentry work to fix and flip the property yourself?
We know investors that go in and clean up their properties. But we have no interest in learning how to do that. We just want to focus on what we do best, which is serving clients, finding more opportunities and finding buyers.
That’s our big thing. We manage the projects, but we never do the work ourselves. It’s just not our stone of genius.
We’ve got enough knowledge to know exactly what needs to be done. And then how to pay those individuals properly so we’re not getting screwed by individuals who just have more experience than us fixing the homes.
Do you guys teach in detail how to do all of these strategies?
Absolutely, it’s in our master class program. We go into full detail about this. It’s almost 10 hour’s worth of content in there. So, we make sure that you guys are good to go whenever you decide to make the jump.
If you guys are interested in learning how to actually do the step-by-step process, the paperwork, how all of this works, how to close it out with the buyers we’ve got you covered in our program. Our accelerator program covers just that. And we want to help you get started.
We don’t want you sitting on the fence. We don’t want you doing that analysis paralysis thing anymore. We want you to get out there and start getting some deals.
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