If you have been involved with real estate investing for more than a few months you likely have heard the famous rule to never (ever-ever-ever) allow a home seller to:
- remain in his or her home after closing.
- resell the property back to them.
- rent or lease the property back to them.
These rules come from experience after experience of investors getting burned by home sellers that remain in their old home too long and without paying the investor. In addition these sellers may even cry-wolf to a judge and plead they were taken advantage of by the same investor that helped them and purchased their unwanted home. These sellers-turned-deadbeat-tenants now can make your life difficult for a variety of reasons.
In today’s article we discuss when this “never” rule can be bent with regards to helping mobile home sellers and purchasing investment mobile homes.
This article is not only written for mobile home investors but also any mobile home buyers looking for a good used mobile home to purchase and live within themselves. The below article comes from personal experience and the experience of those investors I have help to educate.
Let us start by asking a few questions.
Why do some sellers desire to sell their primary residence mobile home (on private land or inside a park) and then wish to remain in this same home? Reasons such as:
- The sellers were in foreclosure and wanted to sell. Now they want to rent their old home back from you.
- The sellers were in default to the park and need to sell. Now they want to owner finance their old home back from you.
- The sellers cannot afford their home any longer but still love the home. They wish to sell and rent/lease their old home back from you to remain in the home.
In all of these cases the home owner has proven to you and society that they cannot afford the property. No disrespect to anyone reading as almost everyone has over paid or over leveraged themselves at one point in their lives too – me included.
For all parties involved it is wise to not continue this “living above one’s means” cycle. The mobile home sellers must leave and find a new property to call their home. A home that better suits their lifestyle and financial means will make everyone’s quality of life much happier in the long run.
When can I allow home sellers to remain in their “just sold” homes after closing?
In my investing business and those of my members I have 3 criteria for this arrangement to meet:
1. The sellers have a reasonable need or desire for more time in the home before they leave.
Examples of “reasonable” reasons why a seller may need or desire more time to remain in their old homes are:
- the sellers still need to close on their new home.
- the sellers need to find an apartment to rent.
- the sellers need to finish up packing.
- the sellers fear multitasking and wish to sell before they move.
- the sellers don’t have any money, and need to sell first to re-invest in a new home.
All the reasons above are reasonable-reasons why sellers may need more time to comfortably move out of their home.
2. The sellers will accept your fair purchase offer, with the condition they remain in the home for “X” days after closing.
As real estate investors one of our goals is to be a problem-solver. The more problems we solve, typically the more value we create. With regards to creating value it is often the more challenging scenarios that create us the biggest value. Value you create = Profit you create.
You = Mobile Home Investor = One Stop Shop for Motivated Sellers
While you do not have to agree to allow the sellers to remain in their old home past closing in order to purchase any property, “this concession” does give you a unique value other buyers may not have the luxury to provide. Understand that because you are not going to be living in the home you can allow the sellers to take a few days or weeks past closing to move comfortably.
When sellers sell to you they are not only buying your money with their home, they are agreeing to sell to you out of convenience. Convenience in a seller’s mind equals the speed of the transaction, the ability for you to pull the trigger, the ability for you to qualify at a park, your contract experience, your professionalism, your ability to make the move as comfortable for the sellers as possible.
In short realize that giving sellers this “grace period” to leave is nearly as valuable as the cash you may be handing over at closing. Use this to help both you and the seller. Then pass these savings on to your buyer for a fast sale.
3. You “believe” the seller is honest in their desire to leave as agreed.
While this is completely subjective and I have too often been fooled by lying sellers and buyers; you should have no thoughts at all that these sellers will stay in your new investment longer than agreed or make things difficult for you down the road. This is always be a gut instinct.
Anytime we invest in a mobile home that has the seller remaining in the home and not handing over keys at closing we always sign a form called our “Agreement After Closing”. This one page contract states important facts, such as;
- reason why the seller is remaining in the home
- for how long the seller can remain in the home
- what condition the home must be in when they leave
- the cash amount that is withheld at closing from the sellers until they deliver keys to you
- the cash penalty that the sellers will incur daily should they remain in the home longer than agreed or the home is not left in the condition it should be in.
This agreement is signed by all parties. It is my advice to keep this grace period under 30 days. Your goal is to help transition a seller to his/her new property headache-free and worry-free, not to be a long term crutch.
In an ideal world everyone would think rationally and logically before making decisions and everyone would do just what they have agreed to do. Unfortunately that is not the world we live in. People lie and people are greedy. Before agreeing to allow any home owners to remain in their old property perform your due diligence, protect yourself with proper paperwork, and know your exit strategy. If you feel confused or apprehensive about a current or future home purchase/sale that you are working towards do not hesitate to reach out.
Love what you do daily,