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Posted over 8 years ago

The Big Difference Between Investing in Mobile Homes vs. Parks

So you've been thinking of getting into the mobile home game for while now, you've found some mentors and you've got the cash to pull the trigger. Now you're left with a serious question: do I get a mobile home or do I get a mobile home park? In this post you'll learn the good and bad of buying mobile homes and how that compares to your other option: owning the land that the homes physically sit on (also known as a mobile home park). Feel free to chime in below in the comments if you have any additional insight that can help out your fellow investors!

Mobile homes make money on the spread

Ok, so what? What does making money on the spread even mean? Most of the time when you buy a mobile home it will be located or placed on a parcel of land next to other mobile homes from as few as one or two more to as many as possibly 1000 other mobile homes at some of the larger parks. That parcel of land is called a pad that you pay rent on every month so you can enjoy your mobile home. 

When you buy a mobile home as an investor (assuming your park's management will let you rent it out to someone else), you pay whatever leasing fees and rent associated with renting the pad and make what you can rent it out for. That difference between what you make and what you have to pay the owner of the land/park for rent is the "spread" that I'm talking about. After reducing it by the rest of your expenses, you get your net operating income or your profit.

Technically, you make money on the spread on almost any real estate investment (e.g. you earn rent and pay out your mortgage and other expenses), but its inevitable with mobile homes unless you own the land since you will always be paying rent to keep it somewhere. 

Mobile homes aren't exactly normal homes

Location, age and condition determines the value more than anything for mobile homes. They also depreciate like cars as opposed to appreciating in a way we like to normally think of homes. The park that your mobile home is in will also have a huge impact on your homes value (e.g. if it's clean and safe vs. one that might be known for crime with exposed hitches on many of the homes). 

The risk of getting stuck with a mobile home that you might need to move due to arbitrary rules set by the park should be a large concern for new investors, because having to move a mobile home can set you back thousands of dollars

Additionally, once you rent out a mobile home, you have entered the apartment business, which means you have typical landlord responsibilities. The biggest risks here are having to evict a tenant and the possibility for extensive renovation between tenants (e.g. its common to have to replace carpets and redo large sections of the home from what I've seen. You could get away with less, but it really depends on your market). 


How owning the whole park reduces (some of) your risk

You get to set the rules when you own the park. The biggest upside, however, is that you receive cash flow from more than one mobile home site/pad if you bought one that is well run and large enough. This means you now have some scalability in your business. If one of your tenants can't pay rent, you'll still receive rent from your other pads. In the worst case, you don't have to worry about moving the defaulted tenant's home (unless it's completely dilapidated and the tenant leaves it on the property) - they will usually turn in the title. 

By now, you can see where I stand: I prefer scalable, repeatable businesses with redundancy in case some tenants miss their payments. I also prefer owning the pads and renting them out, as opposed to being in the apartment business and worrying about the interior condition of the homes.  

While it might be faster, cheaper and easier overall to go out and buy one mobile home at a time, put some thought into what sort of business you want to be in and what style of mobile home investing best suits your personal financial and real estate investment goals. Feel free to leave a message in the comments with your opinion!



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