Let’s assume that you are no dummy when it comes to mobile homes. You already know that mobile homes located inside pre-existing mobile home parks are considered personal property and mobile homes that are bought/sold with private land are usually considered real property. You also have already heard that the term “mobile home” is actually outdated and that the term “manufactured home” has replaced it since 1976. However, those are just some of the basics. In this article, we will dive a bit deeper to learn some surprising aspects of mobile homes you may not know.
3 Things That’ll Surprise You When Investing in Mobile Homes
1. Purchase and Sale Agreements are not typically used.
If you ask 10 different mobile home investors how they operate their business, you may get 10 different answers. With that said, in the past 15 years, I have rarely found it necessary or timely to have a traditional Purchase and Sale Agreement written up and signed by the buyer/seller. In my business, this is true whether purchasing a mobile home or reselling that same mobile home inside a park.
The reason for this is because closings inside mobile home parks typically happen too quickly for a Purchase and Sale Agreement to be warranted. When purchasing a used mobile home, typically as soon as a verbal purchase price/terms are agreed upon, it is time for you as a buyer to get approved at the mobile home community. Once you are approved at the community you may close on the mobile home less than a few days later if paying cash or seller financing.
Pro Tip: If a seller agrees to your price/terms, aim to close the home and take possession of the title as soon as possible. If the seller needs to remain in the property after closing, then this is acceptable under certain conditions. At closing, have all paperwork signed, take possession of the title, and aim to hold onto roughly $1,000, or 25%, of the total sales price (whichever is larger), away from the seller at closing. Then aim to have a separate After Closing Agreement written up mentioning that the seller will remain in the home and pay lot rent until such date when they will leave the property in a very clean condition. If they do not leave on time or do not leave the property clean, as outlined in the After Closing Agreement, you will have the property cleaned and repaired using some of the money you held back at closing.
The Reason: Have you ever bought an automobile from a private seller? When you agreed to a price with the seller, did you fill out a Purchase and Sale Agreement for the car? If the seller then decided not to sell you the car or choose another buyer to sell to, you would have little recourse to force them to sell you the car. A mobile home in the park is very similar.
Exception to the Rule: A Purchase and Sale Agreement concerning a mobile home in a park is still a valid contract. If certain ethical people sign a contract, they know that they have to live by this agreement. However, if other people sign a contract, they will have no problem backing out of a contract if it best suits their needs. For this reason, it can be wise to have a Purchase and Sale Agreement written up and signed by both buyer and seller if:
- The park will take longer than a few days for the approval process.
- The seller will not sell the home to you until they move out in a few days or weeks.
- You will be wholesaling a mobile home. While wholesaling a mobile home inside of a pre-existing mobile home park, you may want to have a Purchase and Sale Agreement signed and notarized in order to sell this Agreement to another buyer you trust for a profit.
2. You may be asked for a mobile home dealer’s or retailer’s license.
Some states have zero requirements if you plan on purchasing and reselling a used mobile homes for profit. However, other states ask that you take an educational class, pass the test, become insured, and/or pay a fee in order to purchase and resell used mobile homes within the state.
Exception to the Rule: When it comes to licenses and being state compliant, it is best to err on the side of caution. With that said, the verbiage with some states limits the number of mobile homes bought/sold that a specific person can purchase and resell within one year. Some ambitious investors may choose to utilize the names of their family and friends to be able to purchase and resell as many mobile homes per year as possible in an attempt to skirt the law. Please keep in mind that if a single person (you) will be financially benefiting from all of the deals then this single person (you) should aim to become a licensed dealer sooner rather than later.
3. Some mobile homes are simply not bank financeable anymore.
As of writing this post, mobile home lending is starting to loosen up a bit. Federal regulations (Title 12 U.S. Code § 4565) will be focusing on making affordable housing more affordable for lower income earners. Over the past 20 years, the number of mobile home dealers and lenders has shrunk vastly from its heyday in the ’80s and ’90s. While some banks, credit unions, FHA, and institutional lending is absolutely available for new and used mobile homes inside of parks and located on their own private land, there are some mobile homes that are virtually impossible to get financed. This means that for certain mobile homes, any potential buyer must bring all cash or negotiate seller-held financing in order to purchase the home.
Some reasons why a mobile home may not be bank financeable are:
- The mobile home in question is over 20 years old—or older than a certain age limit dictated by the lender.
- The mobile home in question is not attached to real property but is instead located on top of rented land in a pre-existing mobile home park.
- The mobile home in question does not sit upon a concrete slab foundation, but instead is on packed gravel.
- The mobile home in question has been moved/transported after it was delivered to its original location. (FHA will typically not lend on any mobile homes or manufactured homes that have been picked up and moved to a new location after being set up in an original spot by the original owners.)
Exception to the Rule: First, understand that mobile homes being difficult to finance is not necessarily a good or bad thing. Every deal is a bit different, and it is important to know your options, demand, and exit strategies clearly before purchasing any properties.
Some exceptions to the un-financeable statement above are:
- You may be able to arrange private money if a private lender, family member, friend, other investor, etc. is willing to lend you money to purchase a mobile home. If you’re looking for mobile home private money lenders, reach out to your local real estate investor clubs and association groups. Also, ask around in the forums of this website.
- You could also arrange seller held financing with any mobile home sellers you are making offers to. Typically when making payments to a seller, a higher purchase price may be negotiated while still making the transaction win-win.
Related: 5 Lessons We Can Learn From the Cautionary Tale of the Unhappy Mobile Home Seller
In conclusion, mobile home investing can certainly seem unorthodox or unusual if you’re new to this type of investing. However, all around the country, there are people buying mobile homes, selling mobile homes, making profits, taking losses, and learning lessons along the way. As investors, we typically learn lessons with the help of other investors—and by reading books, sharing stories, and/or trial and error. If you are seeing or experiencing anything weird within the mobile home investing niche, never hesitate to reach out to alleviate your questions and concerns. Some things may be completely normal, and other things may be drastically improved or streamlined in your business.
Did we miss any unexpected surprises?
If so please, comment below so we all may learn together.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.