Have you ever considered investing in mobile home parks?
If not, why?
Mobile home investing is largely overlooked by real estate investors. We tend to prefer single-family homes, multifamily units or other kinds of commercial real estate. But mobile home (aka manufactured housing) parks can be profitable assets—in part BECAUSE they are often overlooked by others.
In this article we will answer three common questions about mobile home investing:
We’ll also give you four key points you need to know before jumping into this exciting opportunity.
Soon, you’ll see how mobile homes can add value to your portfolio—even though they may not be the most glamorous asset class. And as always, take our quick investor quiz if you need more info, and we’ll help you take that next step.
Mobile home investing comes with risks, just like any other investment, but it has a lot of potential to be very profitable.
As mentioned, a lot of investors simply don’t think about trailer home parks. They simply don’t want to get involved.
Their loss, your gain! The relative lack of competition can benefit you in the following ways:
Mobile home investors often own the land and not the units themselves, making mobile home parks among the lowest-cost investments (per unit) in real estate. That low start-up cost means that yes, there’s lots of room for profit.
Aside from the relatively low barrier to entry, mobile home park owners have little (or no) maintenance costs compared to other real estate asset classes. This us because mobile homeowners (not the landlord) are responsible for:
To put it another way, a mobile home park represents much less money spent on upkeep than apartment buildings, townhouses, or single-family dwellings.
Finally, there is plenty of potential for your investment to grow over time. In general, mobile home parks appreciate because:
Tenants need affordable places to live, and increasingly mobile homes are fulfilling that role. With mobile home investing, you have an opportunity to meet an ever-growing demand for affordable housing and build your wealth.
There are several ways investors can become wealthy by investing in mobile home parks:
Since the 2009 housing crash, mobile home park investors have seen an enormous return.
Mobile homes are recession-resistant because they’re the most affordable type of housing available in the market. When a recession strikes, tenants who used to live in single-family homes look for more affordable options. This causes the demand for mobile homes to increase. Because of this, a mobile home park performs better in a recession than other real estate assets.
Most mobile home lots are leased for 12 or 24 months. It's standard to see lot rents increase anywhere from 10 to 15 percent annually to match the market.
Mobile home parks are in the “affordable housing” sector. Tenants living in mobile home parks do not have the financial resources to move. They stay in mobile home parks longer than they do in apartment buildings. Additionally, once a mobile home gets into a park, it stays there. Even if they own the trailer itself, when a tenant needs to move, they typically sell the mobile home to another tenant. The mobile home itself stays in the park.
In 2002, Warren Buffet acquired Clayton Homes, the largest builder of manufactured housing and modular homes. Berkshire Hathaway then teamed up with 21st Mortgage to introduce the "CASH" program, which helped mobile home investors get new mobile homes onto their lots with little upfront cash. In exchange for the homes, park owners send prescreened tenants to 21st Mortgage.
Investors benefit from having new homes to attract preferred tenants. Clayton Homes and 21st Mortgage benefit from prescreened applicants. And the tenants get a home. Everyone wins!
Using the "CASH" program (similar programs exist from other lenders), mobile home park owners can fill their lots with attractive homes. Then, they fill those homes with tenants and increase the value of the mobile home park.
You can use IRS tax code Section 1031 to avoid paying tax when buying and selling “like-kind” assets. A 1031 exchange investment strategy enables you to:
For a case study on how trailer park investing really works (and how you can get started), refer to our interview with Frank Rolfe about mobile home park investing and how he built a profitable empire.
The short version is something like this:
To achieve success, Frank focused on offering lower rental rates than his competitors. The low rents appealed to potential tenants, and as a result he maintained full occupancy in his parks. The result? His $400,000 initial investment turned into a $1.5 million sale.
Let’s look at two types of mobile home investors.
Owner type 1 owns:
In this type of ownership, the tenant owns the home and pays rent for the land plus the use of amenities.
Owner type 2 owns:
In this type of ownership, the tenant pays rent for the trailer and the land it’s on.
Now that we’ve covered the reasons you should consider investing in trailer parks, you’re ready to take the next step. But first ...Here are the four major things to know about mobile home investing before you take the big dive:
Mobile homes are going to be in higher demand as economic uncertainty and a lack of traditional affordable housing lead people to look for affordable housing. So it may be the right time to make the leap.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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