How to Invest in Mobile Home Parks
If you are reading this, you know that having some investments are a must. Real estate is an especially lucrative and relatively safe option in many instances. But it’s also one of the more expensive investments you can make. Fortunately, with the alternative housing options now available, many regular folks can secure their savings and hopefully earn a stable cash flow as well.
Why Invest in Mobile Home Parks?
So, why should we consider options like mobile home parks for our precious investments? There are various reasons for taking such a step, but the potential income is the most important one.
Advantages of commercial real estate
First off, with a mobile home park investment, you get to have a similar experience to commercial real estate. Mobile Park investing can be highly lucrative without being as expensive as buying a whole apartment building, a shopping complex, or separate traditional houses.
Business is booming
With so many people looking for affordable housing, it’s no wonder that the mobile home park business is thriving these days. The volume of mobile home park transactions has seen an upward trend since 2013, according to Forbes.com. From then to 2020, manufactured housing communities have seen an increase in transaction volume by about $2 billion. In 2020, mobile home parks were among the best-performing real estate assets. The supply of new parks has been difficult because of zoning restrictions and other factors, so investing in the old ones now will be a good step.
Mobile homes are much cheaper than traditional homes. For now, sources like homedirect.com have said that we may expect the average price for one square foot of a mobile home to be around $49. While this might vary a few dollars according to location, the time of the year, and other factors, it’s still significantly lower than the $107 for a traditional site-built home. Plus, a mobile home park can provide a friendly community if you choose the right one.
Relatively low initial investment cost
According to some real estate experts, many mobile home parks now offer the lowest cost investment per unit when it comes to real estate assets.
Investing in a single family home or large multifamily apartment building means a much higher per unit cost. This makes it harder for an investor to expand their properties and increase cash flow on a regular basis. The average expectation is that an investor has to pay around $100,000 per unit for an apartment or home. In comparison, you may get some lots in any mobile home park for as low as $10,000 each. According to some real estate experts, many mobile home parks now offer the lowest cost investment per unit when it comes to real estate assets. The returns are also potentially higher. So, you have the chance of getting more in return for a lower initial cost of investment.
The main reason for this is that a mobile home park owner will own only the land that the homes stand on. They would usually prefer the occupants to own the actual mobile homes. This means that you’re just paying for the lot, while the tenants are paying you for the land they occupy.
Low cost of maintenance and repairs
Most investors in real estate must pay for the maintenance costs and capital improvements even if they aren’t getting a cash flow from it. With residential real estate like mobile home parks, however, these costs go down. Also, it’s the owner of the mobile home who pays for the repair, maintenance, and upgrades of the mobile homes. The landlord, who owns the park, only pays for the upkeep of the mobile home lots, which is quite a bit lower than the upkeep for an apartment building.
On average, one may expect apartment maintenance costs to range from $500 to $1000 per year for each unit. There are several factors that determine the exact number, but this is a general range to plan for repairs and upgrades, etc. On the other hand, the maintenance required for a mobile home park lot is estimated to be around $300 to $500.
Low competition from other mobile home parks
Anyone investing in mobile home parks today is not likely to have competition from new parks anytime soon.
While affordable housing continues to be a popular option, there aren’t a lot of new mobile home parks under development today. Mobile home park investing is still lucrative, but zoning changes, gentrification, and government zoning are all preventing the zoning of new mobile home parks. Anyone investing in mobile home parks today is not likely to have competition from new parks anytime soon.
Most existing mobile home parks offer the bare minimum to their tenants. This is mainly because their owners aren’t people with an investment strategy and lots of capital. If more people got into mobile home park investing, there wouldn’t be so many non-professional landlords sitting around with depreciating assets. At the moment, most mobile home parks in the U.S. are still owned by mom and pop companies, not corporate entities.
The cap rate of mobile home parks is around 7 to 10 percent on a national level. This is the highest rate for any niche in real estate. Still, only one-fifth of mobile home parks within the country are under professional ownership. This means that a major chunk of the mobile home park market is still available for modern investors to start their investment portfolio or diversify their current one.
The market situation also allows you to snap up a mobile home park at a relatively low purchase price. At present, some sources state that the cost of an 80-lot mobile home park might be as low as $800,000. An investor might even get a low-down payment in the $80,000 range. Once the park is purchased, the savvy mobile home park investor can improve the grounds and raise rents if previous owners lagged in keeping up with values. Investments like renewing the grounds to look more modern and clean, improving security, and bringing in vending opportunities, like laundry facilities, can also create additional revenue.
With these combined efforts, you might get an additional $100 per lot, resulting in $80,000 more per month. It might even be possible to get some private equity to invest in used double-wide mobile homes for sale and offer a higher standard of living in your mobile home park.
How to Invest in Mobile Home Parks
With all the advantages so far, clearly, you are excited to get invested in mobile parks, so here’s how:
1. Hop online
That’s right; the path to mobile home park investing can now start on the internet. Just like we find listings for apartments and houses, mobile home parks are also available for sale online. You can check out the different deals on various websites. If the mobile home parks are listed, they’re already for sale. This minimizes your efforts and ensures that the owners are ready to sell without your needing to convince them.
2. Consult brokers
Some real estate brokers specialize in mobile home parks. Don’t just check out their published listings, also ask about their pocket listings. The latter are listings for mobile home parks that might not necessarily be on the market but are available to specific qualified buyers. If you are lucky enough to be qualified, the brokers can get you a good deal.
Consult several different brokers
Brokers do not usually share pocket listings. So, you’ll have to contact each one on your own. The extra cost and hassle will be worth it if you can get mobile home parks at an even better price than usual.
3. Cold calling
This involves just calling the owners of the mobile home parks yourself and asking if they want to sell. However, this does mean plenty of “smiling and dialing” with perhaps no result at the end of it all. It will help if you have thick skin and the ability to handle a slew of rejections to get to the single “yes” that makes it all worthwhile.
Another form of cold calling is to send a direct letter or postcard to the mobile home park owners asking if they’re considering a sale. This will help you contact many people all at once. However, consider that approaches like these may cause the owners to raise their price. If they’re getting a lot of cold calls from various investors, they might very well go for the highest price offered or beyond that.
4. Dropping In
This means you put in the effort of going to various mobile home parks and talking to the owners directly. This can take a lot of time, especially if the owners feel chatty. It might be best to utilize this strategy only on mobile home parks that suit your requirements and haven’t responded to direct mails or cold calling.
5. Check Your Operator’s Record
Time is the most valuable asset you have. So, you need to look for an active and experienced operator who is selling a mobile home park. The operator could be the owner of the park itself or someone who has been delegated the power to run and manage the park in place of the owner.
There are also several different business models that a mobile home park operator can specialize in, from ground-up developments to stable, older communities. So, seek out the one that matches your goals. Go for an operator who is used to his work and not just experimenting with a new model for the first time.
6. Do Your Homework
Mobile home park investing is now becoming mainstream, so you want to be at the top of your game without relying on what brokers and operators say. Educate yourself so that the pitfalls and scams along the way won’t cause any heavy losses. Listen to podcasts, attend professional events, and seek out conferences that teach you about mobile home park investment.
7. Make a Timeline
Like most investors, you probably want to know how long you should wait for that investment capital to start giving you returns. You also want to know how long the capital will be illiquid. As with all kinds of real estate, mobile home parks will be illiquid by nature. You should make sure your chosen operating partner (if any) has a plan for any event, like a sale or refinancing. This is necessary if you ever require a return of the initial investment capital. If you need to liquidate at any point in the future and have investing partners, all of you should have a plan in place for that purpose.
8. Establishing Expectations of ROI
Returns on mobile home park investment can be exciting to consider. However, the operational risk should match the strength of your investment portfolio.
It might seem unbelievable at first, but you might even get double-digit percentage returns on your mobile home park investment. With the stock market stuck at around 2 percent per year and family homes losing money, the high yields of mobile home parks may seem too good to be true. Still, the plain truth is that around 10 percent of Americans are currently living in mobile homes. There are mobile home parks where the occupants have decent cars, college degrees, and a good quality of life. Even so, mobile home parks still have a bit of a stigma attached to them, which means that you can get seller financing at low interest and an impressive 10 percent cap rate.
9. Review the Demographics
Before investing in any kind of real estate, always check the venue’s area demographics. The area should have enough of a growing population to ensure that the mobile home parks get a decent earning. The median home prices should also be at a profitable level. To ensure that people will be attracted to the area, there should ideally be three or more major employers within the vicinity.
At the end of the day, it’s always essential to check out a few different mobile home parks and compare the options. The tax code, price points, and current budget are just a few factors to consider. The steps above will hopefully help you find the best mobile home park for your investing requirements.