Mobile home investing - the pitfalls you never hear about
Over the years I have read many articles on the benefits of mobile home investing. The biggest draw is the low cost of entry and high potential returns. In this article, I will specifically be talking about investing in mobile home parks.
The big problem with investing in parks is that the manager and owner have too much control over your deal and your potential profit.
Anyone that has looked at buying in a park, likely quickly realized that park owners/managers have many rules. One of the common rules is that home owners cannot rent out their units. This is obviously very limiting. The main solution is to sell your home with payment. The returns sound great, in some cases amazing.
But there are a few issues with this plan.
The first is that the park manager has to approve any buyer you wish to sell to. On the surface, this may not sound so bad, but it can be devastating to your returns. Over the years this has led to a few issues I have personally encountered. In one case I had a manager that would deny my applicants based on "if she felt like they were a good fit" when their income and credit was higher than other accepted applicants. The pattern was clear that she was denying them based on age rather than income. This was not a senior park so she was discriminating against them, but having a home in the park, I didn't want retaliation so I just moved on to the next applicant.
In another deal I found out that one of my applicants which I was told was denied was approved for one of the park owned rental units which was on the other side of the park (several streets away from my unit).
The reality is, when you are paying the lot rent, the manager has no motivation to help you get a buyer in place. The real lesson is that there are major negatives when someone else has control over your deal.
Comments (1)
Gene, I agree with your observation. There is alot of hype given to "Lonnie" deals----and Lonnie himself was a good guy, a pretty straight shooterwho wrote some good books----but I tend to regard it as a very risky kind of investment for several reasons.
1) The lot rent in California tends to be really high---not terribly different than apartment rent---so it's hard to make it cash flow. I don't know this for a fact, but I tend to believe that Lonnie operated in states where the lot rent wasn't quite so astronomical.
2) It's a dicey proposition to compete with the manager of the MHP. Frequently, the manager can make it very difficult to do this, as you mention. But also if the manager is being forced to buy new homes they frequently are going to be a little nicer than the kind of mobile homes you can buy on the cheap for doing Lonnie deals. And even if you and the MHP manager are on friendly terms, the manager can change---and maybe the MHP could sell---and the new administration isn't willing to be quite so friendly.
3) Since the best return is to be the owner of the dirt----there isn't alot of margin that tends to be availalble for those who want to buy mobile homes and rent them out.
4) I have no experience with MHP foreclosures, but if they follow the same procedures as with SFRs, you are alot better off in places like Texas where the foreclosure processes tend to be much simpler and quicker.
5) Also, repairs of mobile homes tend to be very specialized and somewhat complicated---I'm not sure how easy it is to find those who repair the homes. And the older mobile homes sometimes have very poor repair records. Unless you buy alot of mobile homes or know someone who is expert, it probably isnt easy doing due diligence on the sale.
6) Also, it seems like almost every asset class imaginable is inflated---it wouldn't surprise me if the market for used mobile homes may be in the same state---though I don't know about this personally.
7) If you want to invest in mobile homes, you want to be in control of your circumstances----and if you can find a community that will let you put them on a lot----not sure how easy that is----then that is probably a more secure investment. But I will say that alot of cities aren't going to be cooperative---so you need to check that in advance.
Lawrence S., over 6 years ago