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Why Lonnie Scruggs' Mobile Home Park Deals Don't Work for Me

Guest post by: Dave Reynolds

Article Overview: 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.

Why Lonnie Scruggs' Mobile Home Park Deals Don't Work for Me

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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Article Tags: lonnie scruggs, making money, mobile home park, mobile homes
Referred by: http://www.mrlaundromat.com/



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