One BIG Check or Lots of Little Checks?Posted on August 2, 2011 by
Lonnie Deals are among our favorite – and most profitable – creative real estate investing deal structures. What’s a Lonnie Deal? It’s when you buy a mobile home in a mobile home park for cash and then resell it with owner financing. Lonnie Scruggs invented this technique, and that’s how it got its name.
Lonnie got into real estate investing in 1971 at age 41. He mainly bought single-family homes and rented them out. In 1986, because he was tired of being a landlord, Lonnie decided to get into the note business. Problem was, it was hard finding good notes to buy.
Then, one day, a fella called and asked Lonnie to buy his house. When Lonnie got there, he realized it wasn’t a house – it was an older trailer in a trailer park. (It’s a “trailer” in a “trailer park” when you’re buying and a “Modular Home” in a “Modular Home Community” when you are selling!) Needless to say, Lonnie didn’t want the trailer, but because the fella practically gave it away, Lonnie bought it.
A few days later, as Lonnie was cleaning it up, a guy stopped by and asked if the trailer was for sale. Lonnie said that it was and named a price. The guy said, “I’ll take it! One thing, though – I don’t have the cash. Can I pay you on time?” After some haggling, Lonnie agreed to sell the home for something like $500 down, and $200/month at 12% interest.
On his way home, Lonnie realized that he had just created his own note, secured by a mobile home. That’s the day Lonnie Deals were born.
Within a few years, Lonnie’s income had skyrocketed. More importantly, because he SOLD the mobile homes on time, he was in the note business, not the landlording business. In other words, when something broke, the OWNERS fixed it – they didn’t call Lonnie!
Let’s look at the Lonnie Deal we just did. We bought a 1985, 16×70, 3/2 single-wide in great condition for $3,500. Our plan was to sell it for $7,900 with $500 down, payments of $225/month, at 17.39% interest, for 45 months. With these numbers, we would make $7,125 ($10,625 financed price – $3,500 our purchase price). More importantly, our yield would be 86.01% – try getting this yield from a bank!
As soon as we put the home on the market, we got a $6,000 all-cash offer. What would you do – sell it on time and make $7,125 or sell it for cash and immediately pocket a $2,500 profit?
Jack Miller – God rest his wise soul – is another mentor of mine. He taught me that when offered cash money that earns you an immediate profit, take the cash offer! Then – and this is the important part – immediately reinvest that money into another deal. Don’t spend it on a trip to Vegas because the commercial says you deserve it!
Lonnie is 81. I just learned that he – along with Dyches Boddiford and Bobby Redwine – plans to teach his last Lonnie class on October 29-31 in Norfolk, Virginia. If you’re interested, Lonnie’s website is LonnieScruggs.net. You know Kim and I will be there!