| Even before you buy your next mobile home it is very important to have an exit strategy lined up to sell your home and start making money!
Whether selling for cash, holding financing, leasing, and/or selling the note – there are different tax benefits and repercussions to these options. As well as different variations on cash-flow options (length of time, amount down and payments per month)
Cash = If the home is in nice condition you may be able to sell this home outright for a nice cash profit! This is very straight forward. You receive cash and hand over the title or SOL (statement of ownership). The seller may have the cash readily available or has to secure a bank loan, which is very hard to do now-a-days. When selling the home for cash you will be expected to pay short term capital gains tax (under 1 year) or long terms capital gains tax for anything held over 1 year.
Owner Financing = This option creates an income stream from the sale of the mobile home. There is typically interest and principal payments that allow for a passive income stream. You can and should charge a down payment, depending on repairs needed. Owner financing can last for as long or as little as you negotiate. When I say negotiate I mean your order: Remember you have what they want, You need to tell the prospective buyer what the “terms” are (length, amount down and per month); Not the other way around.
I recently listened in as a new investor, Cliff, over the phone as he was talking to prospective tenant-buyer for his newly acquired mobile home in a park. He couldn’t have sounded more unsure or soft spoken! What happened?… This particular buyer kept talking and talking an pushing Cliff down and down on down payment price due to this and that (repairs needed and his own personal troubles)!!
When talking to a “Seller” I agree to be moderately moldable to fit their needs. However when dealing with a prospective “Tenant-buyer” BE FIRM! You tell them what the price is down and per month, if they laugh at you or say no, thank them for calling and hang up! If they are giving you problems this early into the game or needing you to make concessions say next… unless for some reason you trust them and wish to make a deal OR they are the 10th person in a row to tell you the home is way over priced… in this case lower the down or monthly and raise the amount of months needed to pay the home off.
You will be paying the same taxes as a cash sale – Yes, even though you are receiving payments over time you are taxes on the full purchase price day one! Unless perhaps your CPA is better than mine, in which case I need his number!
Lease = Most park managers do not want renters inside the park. I agree with them, I never just straight rent any of my places. For the main reason I am looking for long term tenant-buyers mentalities as well as I wish for them to fix all their own repairs.
You can simply construct an addendum to instruct the renters to fix any repairs under a certain dollar value and not call or bother you! Let’s say their base rent is $775 a month; For every month they don’t call you their rent is discounted to $675 (the amount you originally wanted). Get it… If they do these minor repairs (leaky toilet, change light bulbs, minor drywall repair, broken windows, etc.) themselves they get to pay the discounted rent, if they call you for any reason their rent jumps up to $775 for the month. This is a great incentive for them to fix the repairs themselves, or not repair them at all!
I do not do this and do not recommend this. Much more liability with renters, if you sell the home and hold a note you become the bank and don’t need worry about being sued, or repairs (for the most part, read prior posts on “ASAP” repairs)
Option to Purchase = I typically sell the homes with owner financing as above. However if the home is located in a park where they do not care if ownership is transferred as of day one, I will use an option contract. This allows me to rent the home until I get ready to sell it. (I use a separate form to insure they will do all necessary repairs – different from straight renting because they will be buying soon, one day! This has allowed me to defer taxes until I sell the home at a substantial discounted price.
Either way of selling I make the tenant-buyer reimburse ME for paying the yearly registration taxes and insurance!
Selling the Note = If you are looking to make quick cash but cannot find a readily available cash buyer look for a “note buyer” after you sell the home via owner financing, you can sell this note for a discounted price (or a portion of said note) to a note buyer looking to make a nice long term profit. (I’ll explain deeper in a further post!)
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