Mobile home parks might be the ticket if you’re considering expanding your real estate investment portfolio. Sure, single-family homes and condo buildings seem more obvious. Even office buildings, high rises, and plots of land can be more appealing at first. But if you do some digging, you’ll soon realize mobile home parks can be a viable portfolio addition.
Like all investments, there are pros and cons. Knowing the potential risks and rewards before you dive in headfirst isn’t just a wise way to proceed. It’s an absolute when discussing making your initial investment work for you. Here’s a guide to help you navigate the world of mobile home park investing.
What Mobile Home Parks Are
When you invest in a mobile home park, you’re investing in the lot spaces where homeowners “park” their residences. Yes, the owners can move their homes out of the park. However, mobile home parks aren’t the same as RV parks per se. The residents who live in mobile home parks tend to put down roots.
You’re more likely to see an owner sell their mobile home than relocate it to a different park. The investors are usually only responsible for the upkeep of the lots, overseeing the utility hookups, and maintaining common amenities. In some cases, investors will provide mobile homes on the property. But just as often, if not more frequently, the mobile homes are the owners’ responsibility, including compliance with community bylaws.
There might be less upkeep with a mobile home park than an apartment building. But you’ll still have to ensure tenants pay their rent on time and follow the community bylaws. As an investor and landlord, your people and management skills will be paramount to managing the park. An alternative is to bring a property manager on board if you prefer to be a “silent” investor.
However, you’ll want to ensure the property manager is effective. If there are residents who aren’t paying rent and violating bylaws, eviction proceedings are part of the job. Property managers should also take steps to fix problems with common areas promptly. As the investor, your job is to oversee the park’s operations. A mobile home park investment isn’t 100% hands-off unless you invest in one through a real estate investment trust.
Financing Considerations
Mobile home parks might be where residents live, but from a lender’s perspective, these investments are commercial properties. You can’t take out a typical home or residential real estate loan to finance your investment. Banks will offer you a commercial loan if you need to finance an investment in a mobile home park.
These loans typically come with bigger down payments, higher interest rates, and shorter terms than the residential varieties. Other avenues include syndication deals, seller financing, and private lenders. You’ll want to learn the art of negotiation if you ask a seller for an unconventional financing agreement.
As Lifestyle Investing expert Justin Donald says, “The goal of negotiation is to reach a beneficial agreement for all parties involved. Everyone should feel they’ve gained something from the process, even if they don’t get everything they want.” When negotiating agreements with a seller, you could consider assuming responsibility for their existing mortgage. You could also agree to front a portion of the investment’s cost while the seller finances the remaining balance.
In exchange, the seller gets a percentage of the future profits from rental income and your eventual property sale. Syndication deals also involve some degree of negotiation. A syndication is where more than one investor fronts the cost of purchasing the park. Each partner may agree to fund a different percentage in exchange for that percentage of any future profits. Some partners might also take a more active management role for a higher portion of returns.
Pros of Mobile Home Park Investments
About 20 million U.S. residents live in mobile homes. While the residents tend to skew toward older adults with working-class incomes, not all fit this mold. Data shows 24.6% of male older adults living in mobile home parks earn $100,000 or more annually. The age group with the second highest concentration of residents is the 30-to-39-year-old bracket.
As housing costs continue to increase, the demand for affordable housing is on the rise. Mobile homes can help fill this demand. Simultaneously, the supply of mobile homes and parks is less than with other types of housing. For investors, this dynamic represents an opportunity to generate steady cash flows.
There’s less competition from the owner of an apartment building down the street. You can also offer an attractive, affordable option to those with tighter budgets and who may want to downsize. Even when there’s uncertainty in the economy, mobile home parks tend to bring in consistent rental income. It’s not as much of a stretch for someone to buy a mobile home outright and pay the lot rent.
Compared with the average monthly rent or home purchase price nationwide, mobile homes will nearly always be more affordable. Another benefit of mobile home park investments is low maintenance. Unlike other forms of real estate, you’re not responsible for replacing a bad refrigerator or keeping the home’s exterior looking nice when your tenant owns their home. You’re simply maintaining the land and common areas while collecting the rent.
Cons of Mobile Home Park Investments
Some risks involved in mobile home park investments are lower appreciation and more upfront costs. Another significant risk is the stereotypes about mobile home parks. Although the demand is there, the thought of living in a mobile home park doesn’t appeal to everyone. You’ll fight the mobile home park stigma, even if the property is considered “upscale.”
In addition, mobile home parks don’t usually increase in value at the same rates as single-family homes or apartment buildings. If appreciation is one of your priorities, mobile home parks may not be the right fit. However, you could make these investments a smaller portion of your portfolio to even out the risks associated with other properties. Significant upgrades to a mobile home park will help it appreciate more, but it may be less than with other real estate.
Investing in a mobile home park isn’t cheap, either. Most run in the millions and require a larger down payment than the typical home loan. Most investors may not have this kind of cash available. Others may hesitate about parting with this much money for a single investment. Syndication partnerships and seller financing can help mitigate this risk factor but will require additional relationship-building.
Investing in Mobile Home Parks
Mobile home parks are investments to consider adding to your real estate portfolio. Unlike other properties, the demand and income can be more consistent. On the other hand, you have to look at the risks involved, such as lower appreciation rates and higher upfront costs.
But as long as you balance risks and rewards with your investment goals, you can find suitable opportunities. Whether it’s full ownership, a syndication partnership, or a real estate investment trust, mobile home park investments are viable portfolio additions. Keep an open mind, and you may discover your next gem.
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