PROS vs CONS of Mobile Home Park Ownership?
After purchasing multiple parks and managing them over the past few years here's my synopsis of the pros and cons of owning a park. What has been your experience?
- Steady Income: One of the biggest advantages of owning a mobile home park is the potential for a steady stream of income. As the owner of the park, you lease the land to tenants who own their mobile homes. This allows you to collect monthly rent from each mobile home owner, creating a reliable source of income. We've noticed great net operating income from our parks and continue to force appreciation through annual rent increases.
- Lower Operating Costs: Compared to other types of real estate investments, mobile home parks generally have lower operating costs. Unlike owning rental properties, you are not responsible for the maintenance and repairs of the individual mobile homes. Instead, you are only responsible for the common areas and infrastructure of the park, such as roads, utilities, and amenities. This can result in lower ongoing expenses, making it an attractive investment option for some. This can be somewhat of a incorrect data point as our parks expense ratios are in the 25%-35% range.
- Demand for Affordable Housing: With the rising cost of traditional housing options, there is a growing demand for affordable housing. Mobile homes provide an affordable housing solution for many people, especially those on a tight budget or looking for a more flexible living arrangement. Owning a mobile home park allows you to cater to this demand and provide an affordable housing option for tenants, which can result in a stable tenant base and consistent occupancy rates. We have seen this demand through mobile home listings on the brokerage side and it still continues to be strong. We've never had an "expired" MFH listing and this shows us that affordable housing is at it's highest demand ever.
- Potential for Appreciation: Like any other real estate investment, mobile home parks have the potential for appreciation in value over time. As demand for affordable housing increases and land becomes scarce, the value of mobile home parks can increase, resulting in potential capital gains for the owner. This has been the biggest gain for our portfolio by repositioning the asset by forcing net operating income and through improvements.
- Management Challenges: Managing a mobile home park can come with its own set of challenges. Dealing with tenant issues, enforcing park rules and regulations, and overseeing maintenance and repairs can be time-consuming and require effective management skills. If you're not prepared to handle these challenges or hire a property manager, owning a mobile home park may not be the right investment for you. This definitely has been a challenge for us since tenant disputes can get out of hand and suck the moral of the specific area of the park down. We deployed professional property management to combat this.
- Dependence on Tenants: The success of a mobile home park is heavily dependent on the tenants who lease the land. If you have high turnover rates or struggle to attract and retain quality tenants, it can impact your rental income and profitability. Additionally, mobile home park tenants may have limited financial resources, which could affect their ability to pay rent on time, leading to potential collection challenges. We fortunately have not run into these issues by screening tenants well and keeping rents affordable.
- Regulatory Requirements: Mobile home parks are subject to various regulations and laws, including zoning and land use regulations, health and safety codes, and tenant protection laws. Compliance with these regulations can be complex and require ongoing effort and expense. Failure to comply with regulatory requirements can result in fines, penalties, and even legal disputes, which can impact your investment returns. We keep detailed checklists of all the items that are annually required to keep our parks running which includes water testing, park registration, septic maintenance, and licensing.
- Limited Financing Options: Financing a mobile home park can be more challenging compared to other types of real estate investments. Traditional lenders may have stricter lending criteria for mobile home parks, and obtaining financing may require a higher down payment or come with higher interest rates. This can make it more difficult to acquire and finance a mobile home park, especially for first-time investors. We avoided this problem by deploying owner financing and locking in great terms.
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