Heavily stigmatized in the media as rundown, shabby housing for the poor and social outcasts run by slumlords, mobile homes and parks have had to deal with a huge image problem in the eyes of investors. Most real estate investors and people with means avoid them wherever possible, and most cities have not been hospitable – either zoning only small parcels of land for this type of housing, or banning them altogether.
Even then, mobile homes have sheltered 20 million occupants according to the Manufactured Housing Institute. They are still the largest source of affordable private housing in the country. And now that many mobile home parks have been transforming into pleasant communities with shared playgrounds, pools, and other amenities, investors are taking notice. Private equity firms and institutional investors such as Blackstone, Apollo, and Carlyle Group are buying up hundreds of mobile home parks.
Are mobile homes and mobile home parks viable investments then? John Fedro of MobileHomeInvesting.net certainly says so. I spoke to John about this topic in a recent episode of my podcast. An author, speaker, and mentor, John has been a successful mobile home investor for the last 20 years. He generously shared his knowledge on investing in this asset class and I’d like to share some of his insights and tips with you. If you’d like to hear the full interview, click here.
Mobile Home Investing, Should I Be Embarrassed?
John would be the first to admit that in his early days in the business, he kept to himself out of embarrassment. Even when he attended real estate conferences and meetups then, he would dread to speak about his investment in mobile homes. “I was so nervous and embarrassed because I didn’t want to call myself a mobile home investor. It’s the whole ‘trailer trash’ stigma. They cost so cheap, it’s not real estate, it’s personal property. ‘Oh, you must be a slum lord if you’re dealing with that.’ All of that stuff,” shares John.
But that feeling of shame was gradually overshadowed by self-confidence as he persisted in it and continued to earn steady profits from his investments. When he gathered the courage to speak before crowds in conferences, he learned that not too many are engaged in the same business, so he grabbed the deals that brokers threw his way and started growing his business.
“I look back then and think how foolish I was to be embarrassed about making good money and providing good homes to hardworking folks,” says John.
What types of investments are in mobile homes?
Types of investments in the mobile homes business.
Ownership of the land or “park”
In this type, the investor owns the whole piece of land and all facilities within it and rents out the lots to tenants. The tenant owns their home and pays only for the right to occupy the land where their home is located, plus the use of the facilities (clubhouses, swimming pools, and other amenities), the land surrounding the lots such as the streets, and utility systems.
Ownership of the land and the homes
This involves the investor owning not simply the land, but also the actual homes. The tenant pays for both the use of the land and rent on the home.
Buying, fixing, renting, and reselling mobile homes
Akin to house flipping, this involves purchasing distressed mobile home units, fixing them up, and then reselling them for a profit. However, investors should be aware that in most states of the country, mobile home units are not real property (which is defined as land and anything attached to it permanently) but are considered personal property – which is similar to owning a car. In some locations, tying in a mobile home to a land parcel converts a mobile home into real property that can be recorded at the county assessor’s office and incurs annual property taxes.
Why invest in mobile home parks?
Mobile home parks investments are recession-resistant, outperforming other real estate sectors during the most recent recession.
“During the 2008-09 recession, I was positioned with mobile homes and was not impacted heavily by the downturn. I noticed contractors or home builders losing projects and had trouble paying me. I mean people lost jobs, went through foreclosures and bankruptcies but I was putting them right into my places and filling up my spaces. They were jaded owning single-family homes and looked around for affordable housing options and found mobile homes. I don’t know if it’s recession-proof but it’s definitely well-insulated,” says John.
Continuing demand for low rent housing opportunities
No matter which way the economic wind is blowing – strong or weak – there will always be a market and need for affordable housing options. There are over 60 million low-wage earners that can only afford to pay $500 per month on housing and their only choice is between a low rent apartment complex and a mobile home park.
Low tenant turnover
First off, understand that mobile homes are not mobile in the sense of being easily movable, but rather are manufactured in a factory and then transported to the designated site. Moving it again to another location will cost around $5,000. So, once a mobile home is moved into a park, that home will stay for many years and often, if a resident wants to move, they resell the home, which gains you a new tenant. Compared to apartment buildings where tenants can pack up and leave in the middle of the night, mobile home parks have low resident turnover.
Potential for higher returns
Compared to apartment buildings, mobile home parks typically deliver higher cash-on-cash returns due to reduced costs in managing the land and facilities, including keeping the grounds clean, ensuring the roads are maintained, and providing for any amenities. The mobile homeowners, not the park owners, are responsible for maintaining their own units. Therefore, there are no expenses for repairs, re-painting, new carpets, new appliances, and other improvements inside the home itself.
Things to consider before investing in mobile home parks
Your criteria for buying
“Do you want to buy a park that’s turnkey and you don’t have to do anything? Or do you want to buy a mom-and-pop park that needs a lot of heavy lifting, a lot of work to make it profitable? That’s an important question to ask and then from there, you can understand, what kind of investor you are marketing to and you can start your search,” advises John.
Source of deals
“You can find mobile home parks by talking to brokers, getting on different people’s email lists, advertising, direct mail campaigns, phone campaigns, even cold calling owners,” suggests John. There may also be listings on online platforms such as Craigslist, Facebook, MHVillage, LoopNet but John warns that buying online needs skill and speed, as listings can be snatched up really fast.
Know the area and the local population
Consider a park location with a steadily growing population, because you want a steady source of clients. “If for some reason the town is, like, on a mass exodus and people are leaving town in droves, even with the best deal of a mobile home park, that might not be the place that you would want to invest,” advises John.
Calculating the park’s value or purchase price
Check the park’s income from monthly lot rent and compare it with lot rents in nearby mobile home parks. “You want to get a clear understanding of these parks’ comps. Ultimately, you are not going to pay for what the park could make but you’re going to pay for what the park is making today. That’s what I’m going to base my purchase price on, how much is the park making right now,” says John. It is crucial to perform due diligence to know what other facilities or structures come with the property: sheds, work areas, farm equipment, any vacant land, and other buildings that may factor into the pricing of the property.
Physical checklist: water tests, sewer system, map of the park and lot sizes, and disclosure from the seller of recent problems with any infrastructure
“Earning any type of income with real estate takes a lot of hard work, a lot of patience, and a little bit of luck too. I learned from my experiences – both my wins and my loses – and they’ve helped me achieve my goals,” says John.
Times have changed. As mobile home parks have attracted private equity over the past few years, many have realized that this asset class checks all the boxes for people seeking a lower-risk investment that can offer more consistent upside, long-term profit potential, and good downside protection. So, should you invest in mobile home parks? There are certainly compelling reasons to do so.