When it comes to investing in real estate, there are plenty of options. You can buy single-family homes, multi-family homes, apartments, townhomes, condos, vacation rentals, commercial properties, even tiny houses! But there’s one unique, yet potentially lucrative option you probably haven’t considered: mobile home parks.
When most people think about mobile home parks, a lucrative investment isn’t typically the first thing that comes to mind. Because of the price point and stereotypes associated with mobile homes, it’s generally assumed that there’s no money to be made here. However, you should be wary of coming to this conclusion without first doing your research.
There are lots of pros and cons associated with mobile home park investing – and it’s possible that the former outweigh the latter. We’ll attempt to set the record straight in this article.
The Advantages of Mobile Home Park Investing
“Mobile homes obviously have a reputation of being less valuable than traditional site built homes, and in many respects they are. To many unseasoned folks this translates as mobile homes being less profitable and therefore less worthy of our respect,” investor John Fedro writes. But what few outside of this niche realize is that there are lots of advantages to these investments. Let’s check out a few of the major ones:
- Less competition. “We do not have to compete with all of those investors who advertise: ‘I Buy Ugly Houses.’ We do not have to compete with new investors who just purchased a No Money Down type course from some late night infomercial. Just as we were skeptical in the beginning, many others are, too. Mobile home investors are comparably fewer and farther between,” investor Tony Colella explains. This limited competition means there are more opportunities for those who are serious about investing in mobile home parks.
- Less capital. Investing in a moderately priced single-family home in an average market could cost you $200,000. After you make a down payment and account for all of the taxes, fees, and insurance, you could very well pay more than $1,000 in monthly mortgage payments. Because mobile homes are much cheaper, you might only have to pay $200 or $300 for a mortgage. If something were to happen and a tenant were to leave, it’s much easier to cover this small payment out of your pocket.
- Steady demand. Mobile homes are essentially recession-proof. When the rest of the real estate market gets hit hard, mobile home demand suddenly surges. Cost-effective living is always in demand, which makes it great for balancing out your portfolio and income stream.
- Lower turnover. Believe it or not, the turnover in a mobile home park is usually much lower than in apartments or single-family residences. Whereas tenants in the latter group often leave after just a year or two, mobile home park residents stick around for longer – largely due to the cost of moving.
When you combine these factors with some of the challenges found in traditional real estate investing, it’s easy to see why some people have found tremendous success with mobile home parks. Perhaps you could as well?
The Disadvantages of Mobile Home Park Investing
If you look at all of the aforementioned benefits in isolation, it’s easy to get the picture that mobile home park investing is an idealistic investment. However, it’s not all that it’s cracked up to be. You also need to be aware of the disadvantages (or cons) that come with this form of investing. Take a look at three of the biggest ones:
- Lack of financing. It’s much harder to get financing for mobile homes. In fact, you’ll be hard pressed to find a traditional bank or credit union that will give you a mortgage. Not only does this require creativity on your part – forcing you to find hard money loans – but it can also result in higher than average interest rates. (If you’re able to pay in cash, this obviously becomes a moot point.)
- Depreciation. Mobile homes depreciate at a much faster rate than an apartment or single-family house. This could be viewed as a pro or con, depending how you look at it. While it may be beneficial from a tax perspective, it’s ultimately bad in terms of resale value. This is something you have to spend time thinking about as you consider your ROI and exit strategy.
- Clientele. Stereotypes are dangerous, but let’s not pretend they don’t exist. In many cases, residents of mobile home parks are living below the poverty line. While this is fine, it’s sometimes difficult for them to make ends meet. In this sense, it can put increased stress on you to collect rent on time. If you can’t collect rent on time, you risk losing money on your investment.
Perhaps the biggest risk with mobile home park investing is that the exit strategy isn’t always as clear-cut as single-family homes or apartments. Due to the difficulty of funding, you can’t simply sell a mobile home to anyone who is interested. You generally need to get creative.
“While the laws have changed in recent years and selling a home with seller financing is strict, the ability is not dead,” Fedro explains. “With this said your ability to create an exit strategy of selling a mobile home for a large cash-payday will have to be properly understood and due diligence preformed before any purchase is made.”
Whether the pros outweigh the cons is often a personal matter. You have your own set of financial goals and must determine what you’re trying to get out of a mobile home park investment.
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If you’re interested in getting your feet wet and trying out real estate investing, don’t let an issue like time hold you back. We can make your job easy by handling all of the time-consuming tasks and heavy lifting for you. Contact us today to find out more!