Don’t Miss Out on Mobile Home Opportunity—Here’s How to Find Deals

Don’t Miss Out on Mobile Home Opportunity—Here’s How to Find Deals

6 min read
Paul Moore

Paul Moore is the managing partner of Wellings Capital, a private equity real estate firm.

Experience

After college, Paul entered the management development track at Ford Motor Company in Detroit. After five years, he departed to start a staffing company with a partner. They scaled and sold the company to a publicly traded firm five years later.

After reaching financial independence at the age of 33 and a brief “retirement,” Paul began investing in real estate in 2000 to protect and grow his own wealth. He completed over 85 real estate investments and exits, appeared on HGTV’s House Hunters, rehabbed and managed dozens of rental properties, built a number of new homes, developed a subdivision, and started two successful online real estate marketing firms.

Three successful commercial developments, including assisting with the development of a Hyatt hotel and a very successful multifamily project in 2010, convinced him of the power of commercial real estate.

Press

Paul was a finalist for Ernst & Young’s Michigan Entrepreneur of the Year two years straight (1996 & 1997). Paul is the author of The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing (2016) and has a forthcoming book on self-storage investing. Paul also co-hosts a wealth-building podcast called How to Lose Money and he’s been a featured guest on 150+ podcasts, including episode #285 of the BiggerPockets Podcast.

Education

Paul earned a B.S. in Petroleum Engineering from Marietta College (Magna Cum Laude 1986) and an M.B.A. from The Ohio State University (Magna Cum Laude 1988). Paul is a licensed real estate broker in the state of Virginia.

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WellingsCapital.com
Email [email protected]
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Twitter @PaulMooreInvest
How to Lose Money podcast

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Some investors are living under a cloud of shame over their investing strategy.

Now, how could someone think an investment is something to be ashamed of? Nevertheless, a small number of investors have quietly lived under this cloud for years. That time is done for mobile home park investors.

The stigma surrounding mobile home parks

Mobile home park (MHP) operators used to feel inferior to other real estate investors. There was a stigma attached to this realm, with despicable terms out there like “trailer trash.” People thought these investors were nuts to own and operate a park catering to these tenants.

This has changed dramatically over the past five years. Analysts from Green Street are even saying that mobile home parks are the darling of commercial real estate these days.

The popularity of mobile home park investing has truly skyrocketed. BiggerPockets’ own Brandon Turner wrote about mobile home park investing in Forbes. He is investing heavily in MHPs because of the difficulty in finding fairly priced options in other sectors, plus for various reasons he outlines in that article.

Why and how to find mobile homes for sale

There was a popular strategy promoted in decades past by Lonnie Scruggs. It involved buying used mobile homes and leasing them out. It seemed to work in the past, but most MHP operators run from this strategy as fast as their legs will carry them. Learn more about why in this post from BiggerPockets.

Today, knowing how to buy mobile homes is an important skill needed to increase the profitably of a mobile home park.

Why? Because the park’s value is a ratio between the net operating income and the rate of return. More specifically:

Value = net operating income ÷ cap rate


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Mobile home park investing by the numbers

If an MPH operator acquires a 100-space mobile home park with 60% occupancy and an annual net operating income of $200,000, the value would be about $2,500,000.

$2,500,000 = $200,000 ÷ 8%

What if they decide to fill 30 of the 40 vacant lots with paying tenants? Assuming no other changes, this could raise the net operating income from $200,000 to $300,000 (50% increase in occupancy [90 ÷ 60] = a 50% increase in income).

$3,750,000 = $300,000 ÷ 8%

But let’s say they bought the park with 66.7% debt and 33.3% equity. With the value of $2,500,000, that’s about $1,666,500 in debt and about $833,500 in equity.

At the new value of $3,750,000, the $1,250,000 gain in equity translates to a return on equity ($1,250,000 ÷ $833,500) of 150%.

The leverage takes the asset appreciation and multiplies it by 3 times [1 ÷ (1.0 – 0.67)].

So, a $100,000 investment in this park would be valued at $250,000 at the asset level. And this is before any other improvements or cost-cutting measures.

Benefits of raising occupancy of a mobile home park

In addition to higher income and value, there are several benefits to raising the occupancy of a mobile home park. These include:

  1. When you add new mobile homes, they raise the quality and appearance of the entire community. Placing a few new homes near the entrance will increase the drive-by appearance.
  2. You can create a higher rent standard with new tenants, who will get the market lease rate. It raises your income level and the expectation for current tenants that there will be future increases.
  3. A higher total income allows you to increase payroll and thus hire a better manager and maintenance staff and reinvest in the community.
  4. Agencies like Fannie Mae and Freddie Mac love to lend to mobile home parks—with surprisingly favorable terms and rates—but they first want to see certain occupancy and quality standards.
  5. If you want to sell your park, higher occupancy and higher standards will attract more buyer competition, a better purchaser, and a higher price. You may even attract an institutional buyer who will pay more than most purchasers.

More on mobile homes from BiggerPockets


How to find mobile homes for sale for mobile parks

There are a variety of ways to find new and used homes for mobile home parks.

Buy new

There are great financing options for park owners to purchase new mobile homes. For example, Warren Buffett’s 21st Mortgage provides financing for park owners while they look for a tenant-buyer and up to 100% financing for mobile home tenant-buyers. As a park owner, you can shop for overstock mobile and modular homes that you can acquire at dealer cost.

Become the dealer

When you become a dealer, you can buy new homes directly from the factory. This can save significantly on costs, and it will open up the opportunity to sell a few homes to outside buyers. You also can sell homes at a discount to tenant-buyers in your park and make a profit along the way.

Drive for dollars

You can drive (or have staff drive) through other area parks to look for FSBO (for sale by owner) signs in mobile home windows. Then you can make a deal to buy the mobile home and move it to your park. Plan to pay cash on the spot in exchange for the deed. If needed, go to an escrow agent’s office to get the cash and sign the deed.

Park closings

When other parks are shutting down, you can sometimes arrange to move their tenants to your park. You may be able to save on moving costs (in bulk) and fill up your empty spaces. Paying the cost to move the home is usually a big win for park owners (see the value formula above). In the example, 30 spaces translated to $1,250,000 in value. That’s over $41,000 per lot. You can move the home and pay the tenant a “signing bonus” and still be ahead financially.

Craigslist and other websites

Many are surprised by the number of mobile homes that are listed on Craigslist. You should expect a mixed bag of older models that have been renovated and are move-in ready and mobile homes that need some love. Popular real estate marketplaces, like Zillow, also have mobile homes for sale on their websites. The ever-reliable Google is a good place to start a search, too.

The MLS

The multiple listing service (MLS) always has a few mobile homes for sale listed. A requirement to access the MLS is being a real estate agent or broker. If you aren’t one, you can easily partner with a licensed broker or agent.

FEMA homes

The Federal Emergency Management Agency (FEMA) has contracts to pay mobile home manufacturers to build mobile homes for emergencies. Hurricanes and floods can displace large numbers of people, and the government often steps in to help. For example, Hurricane Katrina displaced over a million people in the Gulf region in 2005, and at least 114,000 households were moved into FEMA trailers. After these emergencies, the government auctions off these homes at a steep discount, and they are usually not very old.

Lonnie’s Homes

Some MPH owners attempt the “Lonnie’s Homes” strategy of being a landlord (as noted above, this means buying used mobile homes and leasing them out). While it can work for some people, you may find it labor-intensive and unprofitable. However, if this is for you, locate someone using this strategy, make them an offer on their mobile homes, move the homes into your park, and sell or finance the homes to new tenants.

Current tenants

When an existing tenant wants to sell their home, you (or your manager) can assist them by providing a buyer from your waiting list. You can prescreen buyers who have called in or applied to find the right buyer. By being in the middle of the process, you can set the lot rent at the current market level. This prevents you from playing defense after the home seller has told them about their lower rent.

Targeted digital advertising

Geo-fencing is a way to target Facebook or Google ads to specific locations. Let’s face it. Not every park is well-run or ethically managed. If a park has many deservedly unhappy residents, you can geo-target that park and advertise a move-in special. You may need to pay for the move and perhaps even give a signing bonus, but, as noted above, it could be worth it. There are MHP operators who pay up to a $15,000 bonus designed as a college fund deposit. That is a pretty cool way to get new and happy tenants.

Facebook Marketplace and eBay

Facebook Marketplace is a treasure trove for all sorts of things, and it couldn’t hurt to check it out to find mobile homes for sale. eBay can be another great source, as well.

Newspaper ads

There are still newspapers, and of course, they are also online. The tenant population of mobile home parks is often older, and they still place for sale ads for their mobile homes in the newspaper. Classified trading newspapers are good sources, too.

Mobile home park operators should keep in mind that one of the best ways to earn more income is increasing occupancy and adding more mobile homes to your park. This post has given several ways to achieve this. The key is to have multiple sources to acquire mobile homes. If you look at the math and consider that being an MPH owner is the right choice for you, you may soon see your business offering a big return on investment.