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Why "Lonnie Deals" Don't Work for Me
By Frank Rolfe
There are people out there who
think they can make big money buying and selling used mobile homes.
I am not one of them. And after owning about 200 homes, I think I’m
pretty qualified to point out the problems with the business plan.
The first major flaw in the
strategy of making money buying and selling mobile homes is that you
have to sell the home for more than what you have invested in it.
And what you have invested in it is more than just what you
paid for it. It includes all the costs of renovation and putting it
in service including stairs, skirting, fixing floors, replacing
appliances, painting the exterior – everything. If you buy a house
for $2,000, and then put another $5,000 in it to get it ready for
sale, then your total cost is $7,000. And every time you fix
something else, whether its coating the roof, or fixing the water
line, you must keep track of that, too.
When someone tells me they
bought a used mobile home for $2,000 and sold it for $5,000, they
normally have left out about $5,000 of additional capital costs they
put in after the purchase. Maybe that sounds good at cocktail
parties, but losing money is nothing to be proud of. In most cases,
the cost of old junk mobile homes easily escalates to two or three
times what they paid on the front end by the time they are ready to
re-sell. Now that type of expense might be O.K., except that at the
heart of a Lonnie Deal is buying a used home. Most of these homes
have a blue-book value that is a fraction of what you have in them
after you get them back up into salable condition. It’s no different
than somebody buying a 1960s muscle car and spending thousands
getting it back into being a dependable daily driver, but most car
collectors aren’t in it for the money. That’s good, because the
$50,000 restored muscle car often sells for just $25,000. That
formula won’t work for you if you are trying to make money.
The other major problem with
the “Lonnie Deal” concept is that you can’t just sell the home one
time. In fact, for most of us, you have to sell the home many times
before it ever gets paid off. And every time you get the home back,
you find it has been trashed by the former tenant and needs a
massive capital infusion to make it ready to sell again. How bad can
they trash it? My normal tenant has their dog pee in the carpet a
thousand times, knock a hole in just about every wall and door, and
steals the air-conditioner and the appliances to sell at a pawn shop
– sometimes even the light bulbs. Has any of my 200 tenants ever
given me back the home in a clean, sightly condition, with the
carpet vacuumed – yeah, right! It’s only a question of how
bad the damage is. Was the dog a Chihuahua or a great dane? Did they
at least leave the light bulbs? As you can guess, every time you
make all the repairs, you pour more capital into the home. And
normally you only get a few months of payments to try to offset the
loss. In other words, you are going to lose a huge amount of money
each time you churn your tenant.
So let’s tally up the
scoreboard. You buy a used mobile home. You pour money into it to
make it possible to re-sell. Then you sell it for less than you put
in. But that guy only lasts a few months and trashes the home. You
get the home back and pour more money into it. Then sell for a loss.
And repeat the process ten times.
Can you make money doing that?
As far as I’m concerned, no. Has anyone ever? Upon thorough
cross-examination, I would say no. They only want to discuss their
initial cost and the initial sale – good for a trivia contest but
I’d like to see the tax return. Can anyone ever make money at this?
Maybe Steven Hawking could find someone in another galaxy who has a
shot, but nobody I know has ever truly pulled it off.
So before you think of jumping
into the used mobile home business, you need to give it some more
thought. If your goal is to make money, I can think of hundreds of
ways to make more money than buying a used mobile home – including
doing nothing at all.
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