Three Common Misconceptions of Mobile Home Investing

I haven't been in this industry for long, but I've securitized over $250 million in multi-family loans that are backed by mobile home parks or manufactured housing communities. In this post, you'll learn three common misconceptions that friends, family and even multi-family investors have about these "trailer parks." By the end of this post you'll know why these are still lucrative investments that are shaping the backbone of housing in North America. 

Myth 1: All mobile homes look really ugly

Missing side-skirting, exposed trailer hitches, unsafe neighborhoods, graffiti, violence, gang-activity. These are all characteristics you probably think of immediately when someone mentions a mobile home park. While parks like this do exist, there are also communities that are safe, well-maintained, and provide amenities such as clubhouses, pools, playgrounds and basketball courts. Some parks (most notably in California) even have homes on them that are easily mistaken for single family homes like the one below. 

Myth 2: There's a lot of turnover since tenants can barely afford rent 

Tenants at mobile homes are long term and there to stay, despite having lower incomes. The average tenancy for a mobile home owner in a park is usually between four and seven years, with the home staying on the park for roughly ten years. However, in my experience I've also seen tenants who have been at the same community since it was built (in this case, 33 years ago!). If you are renting out mobile homes, then you are in the apartment business and can expect an average turnover similar to those of renting out SFH or apartments (e.g. signing one year leases, etc.). 

Typical mobile home leases are generally one to two years and are month to month afterwards. However, a major factor involved in mobile home investing is that most folks own their homes and have to pay between $6,000 and $10,000 to have their home installed in a park, which makes moving the home around unattractive (although it can be done).

Once a mobile home is placed on a lot, it's wheels are taken off and it's almost guaranteed to stay. If a tenant cannot pay rent, they will typically turn over title of the home to the community's management instead of trying to find the cash to move the home. 

Myth 3: Your bank will not finance you and you won't make any money

John Fredo's post on why you should avoid mobile home investing advises that bank's impose strict requirements on the homes on the property and there will never be a big payday. This could not be further from the truth. 

First, addressing the bank requirements: As the investor, you own the land, not the homes. While everyone wants your park to have HUD-compliant homes, this won't always be the case and you can ask for a waiver for certain things like HUD compliance, with the exception that it will be replaced with a HUD compliant home if it is ever removed, etc. If you can't find financing at your local bank then maybe it's time to look at the bigger players like Freddie Mac, Fannie Mae, or even CMBS shops, as opposed to portfolio lenders. 

Second, addressing the payday: There are many borrowers in this space with multi-million dollar balance sheets who focus purely on these assets. Just like other forms of real estate, you can raise rents, but you could also add homes. When the time comes, you could look at various exit options (e.g. refi, sell, etc.). Mobile home parks make excellent buy and hold assets when they're cash flowing. I have even seen some produce 30% annual cash-on-cash returns. When it comes to the financials, owning a mobile home park is just like owning any other real estate asset. Check the returns and make sure they make sense to you compared to your objectives.