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Reader letter about Jimmy Napier and Lonnie Scruggs

John T. Reed on real-estate-investment information | Real estate investment page | Order form | Real estate investment books
John
I just discovered your home page & it is great. I can comment on 2
of the gurus.
You are correct that Jimmy Napier is fascinated with compound
interest. He is an excellent businessman who really understands cash
flow and return on assets. In addition to houses, he has invested in
such mundane, blue collar occupations such as mobile homes, used cars,
backhoes and, his latest kick, buses. In every case he has created a
cash cow by buying an asset low and then very astutely increasing the
revenues and cash flow. That may seem obvious, but not to everyone. I
recently moved to the country & I cringe every time I drive by a
neighbor's farm & see a $50,000 bulldozer sitting idle for weeks at a
time. Jimmy has definitely elevated my consciousness about maximizing
the use of assets and equity.
I am not qualified to comment on his real estate expertise as
compared to other gurus. But I have noticed over the years that it
is not necessary to be an expert to make money in real estate. I know
many people who have acquired houses & duplexes over the years, paid
them off, and now have substantial assets and yet they know less than
the average realtor.
I disagree about Jimmy's cult status. He has lost much of his
following in recent years. The problem goes back about 5 years. He taught
an Advanced Paper course in Pensacola, FL 2-3 times a year. Jimmy would
present some material and then respond to newspaper FISBO ads from
people selling houses or paper. He would actually negotiate the deal in
class. The original concept was a very good teaching vehicle but it
evolved into a market where class members would present their own
paper for sale. The result was predictable: much of the paper sold went
south and lots of folks lost money (including me, unfortunately). Not
all of the paper was bad. I am still collecting on some good notes.
Jimmy's position is that he always said to do due diligence
(true) and that he never recommended anyone (questionable). In any case
attendance in Pensacola has dwindled. Last time I talked to someone who
was there (2 years ago), fewer than 50 showed up where there had been
175-200 in the old days, with many regulars. I think most of the bad
paper was the result of overexpansion and poor business practices rather
than theft. But it does not matter; the money is gone either way and I
and many others now know more than we ever wanted to know about
bankruptcy and the rights of unsecured creditors (none). The big lesson
learned is to create your own paper, which brings us to Lonnie.

I have read both of Lonnie Scruggs' books several times and they
offer many great money making ideas using mobile homes. A number of my
friends and I are doing the traditional "Lonnie deals" where you sell a
mobile home and take back a high yield note, and, as in many things,
it ain't quite that easy. There are 2 serious pitfalls which stem from
the vacancies endemic to lower income housing. The first is costly
repairs when the occupant leaves. The home is usually a mess. I have
been totally unable to rent or sell a home that needed substantial
work. Even the sloppy people want to move into a clean home (but they
will trash it in a month). I admire Lonnie if he can sell a home as is;
he must operate in a very tight rental market.
The second problem is the lot rent. Lonnie says to negotiate a deal
with the park where you do not pay when the home is vacant. No way, at
least not for anyone I have ever met. This causes severe cash flow
fluctuations, as for example, when an occupant paying you $200 a month
& the park $150 in lot rent moves out, your cash flow goes from +200 to
-350, not counting utilities. Because of this my strategy has now
shifted to acquiring a small park where I will control the ground &
other residents. But Jimmy & Lonnie have so well publicized mobile
homes and parks that there are very few bargains left out there.
Neither I nor any of my friends have been able to really solve
these problems; we just endure them. Since they are both caused by
vacancies, this seems to imply that "Lonnie deals" are much more
sensitive to the local market than anyone suspected. (Just like any
other real estate.)

Dennis Mahoney
John T. Reed, a.k.a. John Reed, Jack Reed, 342 Bryan Drive, Alamo, CA 94507, Voice: 925-820-7262, Fax: 925-820-1259, Email: johnreed@johntreed.com

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