Posted by David Butler on November 05, 2009 at 22:20:55:
In Reply to: Mobile home notes posted by Sean marmoy on October 14, 2009 at 21:02:38:
Hello Sean,
Not certain whether you are talking Mobile home notes, or real estate notes including a mobile home titled to the land it sits on - but wanted to make sure you are discussing selling the note, rather than finding lenders to finance your deals. In that respect, if you are selling the note, you don't pay an interest rate. In fact, you don't pay anything. The buyer pays you for the note.
As to what's reasonable... beauty is in the eye of the beholder. And unfortunately, the MH industry has not been looking that good to investors for the past nine years. Even in the best of times, the market for mobile home note buyers has been a specialty market.
This is particularly so for notes that do not include land as part of the security. Generally, to be safe, the MH units securing the notes should be located in well-managed MH parks. The downside to that approach however, is that the note is automatically the equivalent of a junior note, in that the parks generally have priority liens for the space rent payments.
Another issue that has had a tremendous effect on MH paper the last three years, particularly in areas like Atlanta, and even in Southern California... the number of lower priced foreclosure properties on the market has put a lot of pressure on the demand for MH units from good paying owners. This has had a significant negative impact on MH units in a default situation.
Even in the best of times, MH notes have been subject to fairly stiff discounts, and prudent investor demands for decent equity, and at least 12 months seasoning. This is due quite simply to the fact that the history of such paper has been high risk.
As a result, partial purchases have been the dominant theme for most of us who have dealt extensively in this type of paper. And in the past three years, equity has become much more critical than it was from 1996 through 2006.
In our MH note purchases, we like to see well-documented proof that the home buyer came in with at least 15% down at time of purchase (very rare); or in the alternative, that the Payor has accumulated 20% in the property in relation to the original purchase price (appreciation, if any, does not factor in to this equation). And we definitely require verifiable solid record of 12 months payment history on the note.
We don't speak for all buyers of course. But the reality is, be prepared to stiff discounts on the remaining balance due on the note, and more stringent buying parameters than you will face in selling well-secured real estate paper.
Hope that helps, and Many Happy Returns
David P. Butler
Nascent Equity