Why isn't everyone buying and renting mobile homes? what am I missing?

29 Replies

If you missed my other post. I am new and will probably have a few questions while I am studying and analyzing deals the next few days. One question I have right now is whats the down side to buying mobile homes for buy and hold rentals? They seem to good to be true. The only thing I can think of is because they might not appreciate like a normal house does? But so what? the cash flow is threw the roof. Or maybe you cant get as much for rent in a mobile home as you can a house? Whats the deal? As far as cash flow goes they seem like a no brainer. I have found some very reasonable 3/2s and 2/2s compared to houses their same size. When I calculate the numbers they seem to be a pretty crazy to me, but like I said I am learning and am a little skeptical when something seems to good to be true. Would like to hear some input. Thanks!

They are not as durable. Financing them isn't as easy. And then there is this additional recurring expense called lot rent. And some communities want occupants to be approved by the community / association. 

Not to mention the stigma that some attach to this (they use terms like "trailer trash").

@Jacob Knowles

I think @Steve Babiak hit the nail on the head here.  The durability of these units combined with the lot rent makes this a niche in the market that many are not interested in.

I feel the best way to be successful with mobile homes is buying a piece of land that is zoned to allow several units.  Pour a slab and add a trailer to it when you can, and either rent them out or sell them.  Either way you will be collecting the lot rent.

I Have done some work anlyizing my market and I have noticed that you need to foine parks that are investor friendly. Some parks only want owner occupied. Building a relationship with a owner who will welcome investors helps you in many ways. 1 they should know when a unit is up for sale. This doesn't always happen because some people will try to duck out without yelling the park owner. I have seen some owners try to recoupe delinquent lot rent from the new owner. 2 the lot owner can refer you to other lot owners who may be interested in investors who want to buy their vacant units. 3 investor friendly park owners can give you a report on violations the unit has been flag for in the past (I.e tree fell on it and water ran in the unit for a month before it was fixed). 4 Park owners have relationships with mobile home dealers which can help if you need to sell a lot of units on exit or put your hands on foreclosed units. 5 If you have a good relationship with the park owner you can work together to get rid of a problem tenant and your unit and money maker isn't jeapordized. I've seen some instances where the park owner will want the unit removed if the tenant is causing problems for the park. 

Build a relationship with the lot owner so you can metigate problems with lot rent or problem tenants. In the end you are responsible for the lot rent And your unit. 

The other aspect is the price point for your renters and buyers you want to find a motivated seller where you get the unit in such a good price that you can cash flow and make your cash Of purchase back in a short period. You want to be able to make money right off the back and just like a house, people have or want to move in a short period of time so give them a solution that benifits the both of you. 

On finding deals it's harder to find motivated sellers through marketing because many of the parks in my area don't have individual unit addresses. It come to the park so you have to know the addresses on the units. This makes a good relationship with a park owner more important. 

On renting and selling you have to make sure the rent or purchase price is more competice than the other appartment sand homes in your market. This all depends on the deal you get when you purchase. 

These are just some of my observations. I hope it helps or opens your mind to other aspects of the niche. 

@Jacob Knowles

I own several, all on their own land.  Cash Flow is key here because they will not appreciate much.  They need to be at least a 2%er.  Look for a small local lender in your area and then hit the ground running.

Hi Jacob,

I've bought a few mobile homes in a mobile home park, and I rent them out. You didn't say whether the mobiles you're looking at are on land or in parks. As folks above said, the challenges with investing in mobiles in a park are that most owners don't allow subleasing, and many parks have space rent that eats up most of the rent. If you can get well-priced mobiles on land, you avoid the latter problem.

If you're looking at older mobile homes, you have to be a good judge of whether the place has good bones. Repairs will increase your costs, and some repairs just aren't worth it. To make things more fun, mobile homes are full of parts that you can't buy at a normal building supply store; they're all odd sizes and funky shapes.

You mentioned rent. I've heard that it's appropriate to charge what an apartment of the same size in the same area would rent for, and that's what I do. I'm getting about $300/month in positive cashflow (after space rent)--and that's in northern CA, where any positive cashflow is noteworthy.

I've been fortunate. I've practiced much of the advice you've read above, selecting a park where space rents are low, the community is friendly, the managers are great, and the owner was open to subleasing even though he rarely allows it. Now the owner and managers tell my partner and me that we're improving the park, that we can sublease more mobiles there if we want, and that they're basically delighted with us. Yes, they do let us know when more units come up for sale. We pay cash--so far, $2,000 - $3,000/home.

When it came time to show our rehabbed mobiles, I was concerned about whether the "trailer trash" stigma would scare off good tenants. At first, it looked like my fears were founded. Then I did some intense affirmations and prayers, and attracted some fabulous tenants.

All in all, I'd say you're on the right path, but there are many possible pitfalls to keep on top of. Good luck in your adventure!

Mobile homes depreciate over time as compared to the real estate that can't drive away - which appreciates over time.

As mobile homes depreciate over time, should they be classified an assets or liabilities?

You mention that mobiles are cheaper than SFH ... They usually need to be MUCH cheaper in rent than the same size apartments in the area.. People would much rather rent a SF home than a mobile home.

Now buy and owning Mobile home parks is where the money REALLY is.

Ray

Sure mobile homes depreciate over time but if you're purchasing them at a great price... Say $2,000 to $6,000 range and you own the property they're on. Rent of $600 a month isn't bad. Or say you get in one for the same money and turn around and sell it for $20,000 or more and simply get a "down payment" of $3,000ish and take payments of $600 a month with $250 of that being lot rent. Once they own the mobile home you still get the $250 every month. Sounds good to me. Anyone getting those returns legally???

It would seem to me that mobile home tenants are much more transient than SFH tenants. I don't own any mobile homes, they are not a part of our long term strategy, but appreciation of SFR's vs. the depreciation of mobile homes might be the reason they are not discussed as much.

I've been focusing on parks trying to get my first deal done. Lot rents are 300-400$ and I can get some even free or as low as 2,000 or so but the problem for me is I can't rent them out and not sure they are worth flipping. I'm trying to find them on their own lots but I suppose I'm just struggling to assess the after repair value.

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You asked why everyone isn't investing in mobiles, there are a lot of people and there is a lot of information out there on this niche, just keep digging. I don't know if I would like to hold a mobile long term for rent though, I think there are better strategies.

@Jacob Knowles Much success in whatever you REI strategy or market. I'm not an investor in this niche, but have researched its consideration early on in my career. This is all my opinion based on that research in several states. Lots of great comments already from folks in the business.

Owning the land (with the mobile) is key to better cashflow, resell and other benefits, if you wish to rent or flip. Too many things can go wrong in a park. Sometimes, there are advantages, but less value and more rules.

Mobiles, like autos, depreciate. Not appreciate, unlike other property types. Some tax rules and requirements may apply differently.

Your profit margin is still slim in flipping, unless you have a pipeline and know how to repair mobiles quickly and inexpensive, or know someone who does. Less expense up-front (purchase and repair), even with minimal rent areas, can lead to a decent cashflow. Not great, but decent. For parks, meet with all owners/park managers in your target area. The more parks you work in, the more product you can deal with. You might find some hot deals and some you barely make it.

Markets in retirement states (Fl, AZ, CA) can be a great place for longer term strategy. Availability of assets are easy to find and very little money to own, compared to other properties. Though, resell market is tough, for those same reasons.

Thanks a lot for all the feedback. Its all good information and has got me thinking about a lot of options. I own enough land to put the trailers so my intention of the post was buying trailers cash and putting them on the land. I realize they will depreciate but the ROI seemed to good to worry about the depreciation. I never considered sub leasing. Didn't know it was an option. I guess the biggest down fall to the strategy that I am talking about are the tenants you attract. They might not take care of things and leave trash around. I am interested by the idea of financing the sale of the trailer to someone, since banks wont finance them. Then I would still collect the cashflow but not the depreciation and maintenance of the trailer. Once the trailer had depreciated I would no longer own it and have collected plenty of cashflow on it. I would keep the land and slab it set on and give them the option to rent the slab. Or haul the trailer off. I think that sounds like an interesting idea. Anyone think of any downfalls to that?

hey Jacob, just make sure your local government will allow you to do so. From most of what I've read permitting and construction for new MHPs is a difficult thing to do. Running proper utilities can get expensive. There are quite a few existing park for sale in Maine I've been looking at, that might be a better way to go?

There are 2 reasons we buy income-producing real estate: 

1. To gain financial freedom, which is a function of cash flow, and

2. To build wealth, which is a function of balance sheet

Typically, mobile homes are strictly a cash flow play, which misses the point for a lot of us. While it is possible to create equity in mobile parks, though much more dicey than apartments and such, single mobile homes are not conducive.

So - if all you want is cash flow, then fine. But, set aside plenty for CapEx :)

I also believe many large mobile home parks prohibit this behavior, instead requiring owner occupancy as part of the rental agreement from the park.

That's not to suggest there are not creative ways around that - but it is a consideration.

Originally posted by @Jacob Knowles :
... I am interested by the idea of financing the sale of the trailer to someone, since banks wont finance them. Then I would still collect the cashflow but not the depreciation and maintenance of the trailer. Once the trailer had depreciated I would no longer own it and have collected plenty of cashflow on it. I would keep the land and slab it set on and give them the option to rent the slab. Or haul the trailer off. I think that sounds like an interesting idea. Anyone think of any downfalls to that?

Read up on seller finance rules - there are things like Dodd-Frank and SAFE Act to consider. 

Thanks everyone!

The best bet for MH is to own the park and collect rent on the land, not on the trailer. Let individuals move their own trailers in and pay the rent - except for an occasional screw up, most people who pay to move their trailer to your park and hook it up are never going to miss paying the rent. For the occasional person who abandons the trailer, if it's not completely trashed, you've just inherited a unit that you can rent out to someone else. 

Downsides: having a trashy park unless you are extremely vigilant about managing it; absorbing obscene utility bills, unless you get lucky and find a municipality that allows individual metering of each trailer wherein they take responsibility for collecting utility payments. If not, one or two bad leak trailers can wreck your cash flow in a hurry on a master meter. 

Personally, I wouldn't be involved in them. Finding anyone to use them as an asset for refinancing or other cash flow issues is challenging. 

Originally posted by @Rocky V. :

@Jacob Knowles

I own several, all on their own land.  Cash Flow is key here because they will not appreciate much.  They need to be at least a 2%er.  Look for a small local lender in your area and then hit the ground running.

 Rocky, do you mind sharing who you bank with on your MH's?

@Jacob Knowles

I'll answer the question in your title:  You are missing nothing.  It is that easy.  Don't get bogged down with things like Dodd-Frank and everything else you will hear about this business model.  Anything you go after in life will throw up barriers.  Take them down one by one.

Put together a great plan, do a ton of research, just like you are doing by asking this question, and when the time is right, execute your plan.

Moble home investing is for cash flow and cash flow is great place to start your career.  Equity will follow.  Land with the mobiles can be a great way to go.

I Wish you the best success...

I have learned a lot with this post. Thanks a lot to everyone for the info! Appreciate it.

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