4 Key Lessons Learned From Investing in Mobile Homes
Do you dare invest in mobile home parks?
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If not… why not?
Mobile home parks, aka manufactured housing communities, are among the most stable and profitable asset classes in America. And unlike multifamily, where I had planned to invest for the rest of my life, manufactured housing is still “a little bit undiscovered.”
I’m entering my third decade of real estate investing later this year, and I have had four brushes with manufactured housing. One produced zero results, and the second was a disaster. The third produced minimal results, and I thought that would be my last go-round in this sector.
But our firm has invested millions into mobile home parks in the past few years, and we couldn't be happier. We have discovered a hidden jewel in the commercial real estate realm, and we, along with our friends and investors, are reaping massive rewards in the form of income, appreciation, and tax benefits.
But there are many ways to mess this up. Though I’ve written elsewhere about why I love this sector, today I want to talk about how this could go wrong.
I’m going to give you a brief tour of my four brushes with manufactured housing investing with the hope that you can avoid my mistakes and enjoy the awesome benefits of this powerful asset class. Then, I’ll tell you why I love mobile home parks.
Experience 1: Pure Ignorance
My mama always told me to stay away from trailer parks. Did yours?
She told me nothing good happens there. I think I even heard her use the word “trailer trash.” (I’m not proud of that.)
My dear mother and father passed away several years ago. And after a lifetime of working hard at a well-paying job, Dad left us about enough money to cover their funerals—along with some hefty credit card bills.
I’m grateful for the life they gave me. But my parents weren’t great investors. In fact, they knew nothing about investing. And this was a handicap to me—especially when I made my first few million dollars at age 33.
I knew nothing about investing. And as a result, I confused investing with speculating. I launched into several years of binge-speculating (though I told people I was “an investor”). And it cost me dearly.
I actually had a chance to invest in a mobile home park back in those days. I swiftly turned my nose up at that opportunity. And I can imagine that you might have the same reaction.
Though I don’t know if I would have had the humility to listen in my mid-thirties, I wish I would have had access to the wisdom of Robert Helms from The Real Estate Guys. Robert said, “Live where you want… and invest where it makes sense.”
Please don’t ignore this powerful asset class. Warren Buffett and Sam Zell, two of the top investors of all time, can’t be wrong.
A Wall Street Journal article published just a few weeks ago details how Sam Zell's stock grew at over 1,200% since the recession, and another mobile home park company, Sun Communities, actually grew at 4,100%. (I like the subtitle. See below.)
Experience 2: Investing in Individual Mobile Homes
I can’t tell you how badly this went for me. When I look back on my years of real estate investing and think of my worst mistakes, three mobile home investments top the list. These were some of the impetus for co-launching our How to Lose Money podcast over three years ago.
Though there are exceptions, trailer tenants are some of the more difficult tenants out there. Every single mobile home park investor I know avoids owning individual mobile homes. There is no end to the stories I could tell you from my experiences. And I hear the same thing from top industry pros.
Owning and renting out mobile homes makes a ton of sense on paper, but that’s where it stops. Don’t be fooled into believing otherwise.
Almost all successful mobile home park investors own and operate the dirt and infrastructure of the park. And that’s the way they want to keep it. When they “inherit” an abandoned trailer or acquire a park-owned home with a park acquisition, most want to sell it to the tenants as quickly as possible.
And thanks to our friend Warren Buffett and Berkshire Hathaway’s 21st Mortgage Corporation, it’s easier than ever to get financing for tenants who want to make these rented homes into owned homes. The boundless enthusiasm of the nation’s top real estate investor, Sam Zell, has made financing more widely available, as well.
Mobile homes are also the only asset (to my knowledge) that can be financed for purchase through Section 8. Did you know that?
Experience 3: Building Modular Homes
Manufactured housing falls into at least three categories:
- Mobile homes
- Recreational vehicles (RVs)
- Modular homes
I am actually a fan of the last category. Modular homes are homes that are built to stick-built (site-constructed) standards, but they are pre-assembled in factories and set up onsite. There are many advantages to this type of construction.
This was especially advantageous to a real estate investor (me) who did not have a construction background. It limited my risk, time, and hassle in constructing new homes. And I built about seven of these in the early part of the century (I still love saying that). I made money on each one (contrasting with losing tens of thousands on one of the two ground-up construction homes I built).
I hear your question coming: “Wait. So why was this a mistake?”
Sometimes investments don’t have to lose money to be a mistake. If I told you I was “investing” in my savings account at under 1% interest, would you call that a mistake right now? I hope so.
The modular home saga included a lot of drama and hassle, and it was never as profitable as predicted on paper. And most importantly, compared to where I am now, I wasn’t building real wealth. I was just trading hours and effort for dollars. And I wasn’t obtaining the powerful tax-saving strategies available to commercial real estate investors.
Experience 4: Passively Investing
My firm, joined by a growing tribe of friends and investors, vets best-in-class operators in the mobile home (and self-storage) space and invests heavily with them. And we couldn’t be happier. We are enjoying the fruits of a wonderful asset class without the hassle and risk of operating the assets ourselves. This is my favorite investing strategy.
Why Mobile Home Parks?
I’ve already written about this, and I’ll do so again soon. Here is a list of why we love this asset class:
- Recession-resistant (steady through the last downturn)
- Shrinking supply, increasing demand
- Tenants that rarely leave
- Low and predictable maintenance and capital expenses
- Limited need for contractors
- Tenants are joint stakeholders with park owners
- Stigma of mobile home park investing leads to lower competition
- Great financing options
- Surprising tax benefits
- Mom-and-pop owners aging out and selling underperforming properties
- Hungry institutional investors who want to write large checks (the benefit of assembling a stabilized portfolio)
Are you ready to invest in mobile home parks?
Our own Brandon Turner has joined Sam Zell and Warren Buffett to build his future around this powerful asset class. If you want to learn more, look out for the new book I’m writing on self-storage investing to be published by BiggerPockets.
Have you let the trailer park stigma keep you out of this recession-resistant asset class or are you all-in on mobile home parks?
Let us know your opinion in the comments.