Flipping mobile homes - what am I missing?

Mobile Home Park Investing
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Flipping mobile homes - what am I missing?

Justin R.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes

First, I plead ignorance other than everything I can read about mobile homes on BiggerPockets and mobilehomeinvesting.net in about 3 hours time.  :)

I own and manage a modest portfolio of MFR properties and have been involved in a couple SFR flips, so I know those games. But, I've never done anything with mobile homes.

Locally, a 4bd/2ba 1990s double wide in a central, preferred park on a spot with, say, a 2000sqft back yard, will sell for somewhere in the $120k - $150k range.  Brand new ones are listed for about $170k.

We're contemplating a flip and I'm scratching my head since almost everything online talks about buying $5k MHs and reselling for $15k and carrying the paper.  I don't see much (any?) conversation about the $130k price range.

Summary is: $50k purchase from a distressed seller, $20k in work (imagine pets and chain smoking for 25 years ... yeah), multiple comps of the same vintage within 6 months in the same park above $120k.

I'm trying to find the gotchas here.  What am I missing?

FWIW, the manager seems to want to be sure we're moving into the home rather than flipping it.  How important is park management's opinion of what's going on (answer: more than I'd like, I suspect)?

THANK YOU BP Nation!

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Bill Neves
Flipper/Rehabber · Vancouver, WA · Member since 2013 · 328 posts · 252 votes
10y

@Scott Schultz 

Just a different business model.

Correct - mobile homes are depreciating assets. So the question for an investor is "do I want to make money or play the stick built game?" One does not always equal the other.

I used to train people in stick built real estate deals. Worked for the Robert Kiyosaki Rich Dad Real Estate folks, when it was called Russ Whitney. Funny - you mentioned him. I played in that arena for over 10 years and did 160 stick built deals. Made great money... Until the market crashed and LOTS of investors got crushed.

Fortunately, I didn't get hurt but stopped for 3 years. Attempted to get back at it in 2012. No traction. Auctions, many times, are over run with newbies who have 401k money and frequently overpay. Short sales are difficult compared to 2005-2009. Lease options are not what they used to be. Flips are great but many MLS listings are over run with investors out bidding each other to get the deal.

Tried one mobile on a whim and haven't looked back. Almost 40 now. No competition thanks to the stick built 'fact' that mobiles depreciate and are a waste of time. We love that.

10% of all housing... but a waste of time.

@Justin R. is in San Diego, California. There are lots of depreciating mobile homes that sell in the several hundred $ thousand range and more. I've seen 'mobile homes' in parks on the Calif coast for $1 mil and more. Brad Pitt, movie guy, has one worth over $1 mil.

Correct they don't appreciate... but VALUE is different than appreciation. 

Most investors want income and cash flow. But need credit, a pile of cash or hard money to do most deals. And most investors don't have those readily available. 

The monthly cash flow on rentals after repairs is a joke many times. We see nice pay days and several mobiles we've done are $300-$500/mo cash flow with no maintenance. Most stick built investors don't see that. Some, but not most.

So now I show folks that you can do stick built if you have those tools mentioned above or do mobile homes and both can make good to great money.

----------------------

Just yesterday a 'recovering' stick built investor called me. She and her husband invested $50k cash into a 60 day 'quick flip' to make $20k with 2 other investors. A FULL YEAR later they made the 2nd sale. 1st sale fell out, after 12 months of rehab and sales attempts. So after many nights of lost sleep... They got their $50k back and $15k net. 

Now, $15k net is still 30% annual return on the money which is a great return. But wasn't the 60 day 'quick flip' for $20k net they thought they were doing with their experienced stick built investor friends.

She called because she just got her 2nd mobile home deal in 2 months. Working on fix up on the 1st one. Both should net $10-15k each. And in 45 days tops each. And on to more.

Just sayin'!

We love that stick built investors have that opinion. No competition.

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  • John FedroPro Member
    Investor · Austin, TX · Member since 2009 · 410 posts · 295 votes
    10y

    Hi all,

    Congratulations, Justin!! The credit all goes to you. Great work pulling the trigger and helping this seller and getting the deal to this point. The pics look quite good as well. I like the size of the home, the kitchen and layout. Keep up the daily effort and don't forget to keep making offers on more homes even though you already have this one. Aim to keep your buying funnel full. Keep us posted and if you have any questions never hesitate to reach out. Great work again. 

    Talk soon,
    John

    Podcast Guest on Show #75
    0Reply
  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Dan H.:

    @Justin R. curious where this beauty is located???

    I think you will make a fine profit.  You originally indicated the park manager had potential issues with you flipping (which I did not understand at all).  How did that work out?

    Good luck

    It's in Linda Vista.  The park mgmt doesn't actually have any issues with the repair and sale (you're right - why would they?!) ... they just have odd requirements to approve residents.  For example, we had to produce a physical social security card to them for the new owner.  They didn't understand that a company (who is technically the buyer) doesn't have a social security card, so my partner had to go get a physical card issued in person downtown to make this deal happen.

    FWIW, in this neighborhood, I think a good sales angle might be multi-generational living - I have other rentals in the area and get a fair number of inquiries of the "two parents + kids + grandma and grandpa" sort.  This home is large enough (5 beds) with entrances in both front and back ... it could lend itself to that sort of situation.

    First things first, gotta get the thing torn up and put back together.

    0Reply
  • Jeffrey H.
    Houston, TX · Member since 2015 · 512 posts · 338 votes
    10y

    Good update @Justin R.

    At least you don't have a dumpster of stuff to clear out of there - you're already a step ahead.

    Don't forget to check the underside of the home for problems too.  I am having an underbelly redone right now and it's not a fun process.

    Start thinking about your exit strategy when you unload it. Are you going to 1031 this into additional homes or just cash out and pay the taxes?

    Wash rinse repeat.

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  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    10y

    @Jeffrey H. By "underside" do you mean more than the subfloor?  Are you referring to posts and piers and iron that the thing is sitting on?  Something else?

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  • Jeffrey H.
    Houston, TX · Member since 2015 · 512 posts · 338 votes
    10y

    @Justin R. the underbelly is the material between the subfloor and the dirt under the home.  From the manufacturer these typically come with the pink insulation and then either a plastic or mesh "underbelly" to keep out rodents and serve as a barrier.

    In the south we don't like breathing between the underbelly and subfloor due to heat rising and to support ventilation, but in the north they have a mesh to allow for the opposite.  This stuff comes down and the insulation falls out all the time.

    But I guess if you're in San Diego the weather is nice all the time and you guys don't need insulation.  ;-)

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    Looks like a fairly basic lipstick reno for the most part. Should be interesting results.

    I have had to gut them back to the studs before with all new insulation, drywall, electrical, plumbing, windows doors, roofing, siding, etc. 

    0Reply
  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    10y

    @Thomas S. When you're reno'd these things, have you put tile anywhere and/or laminate down?  I ask because the particle board subfloor is new to me and I'm wondering if there's any gotchas WRT it flexing and causing problems with either of those floorings.

    Better to ask someone who's been there than find out myself, eh?  ;)

    1Reply
  • Garrick Oconnell
    Rental Property Investor · Phoenix Tempe Scottsdale, AZ · Member since 2014 · 184 posts · 55 votes
    10y

    Hello @Justin R. I am originally from San Diego but have been in AZ for the last few months placing manufactured homes on lots we acquired. 

    I have learned quite a bit very quickly.

    I tried to do the same thing you are doing in the "Kearny lodge MH park community near the 805 freeway across from walmart and behind kaiser hospital. The distressed seller had received one notice to many from the park management and was being evicted from the community! I looked at comps and found numbers as appealing as yours. I found that the value was NOT in the home but in the lot and community location. 

    The homeowner had really been a pest and upset the park owners so I was unable to move forward, they had tied him up in so much legal red tape he could not afford to move the home out of the park. The owners realized this and stonewalled me shortly after because they knew he would be evicted and unable to move the home or sell it because they would have to approve the new owners so it seemed they were running out the clock until they could foreclose on the home for unpaid lot rent, then flip it themselves. 

    In the short dialogue I had with the park management the BIGGEST issue was getting new owners approved at the time of sale. With the holding costs and very abrupt change in attitude from the park management it became clear they were going to stonewall me if I completed the purchase. Finally they said if I wanted to move forward all conversations would have to be with there attorney. 

    12 months later we currently own 4 manufactured homes and land they are on in AZ, 3 rented (cash flowing), and 1 for sale in the coming months. 

    I have found that when you flip a manufactured home you have to get rid of any interior wood paneling or seams and replace with sheetrock. (looks like from your pics your home already has sheetrock) Buyers associate the paneling with trailer parks. 

    1Reply
  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    10y

    @Garrick Oconnell Super awesome - thanks for sharing.  The home I'm working on is in a different park, but also in central San Diego.  I assume you didn't move forward with that SD purchase?

    In this process I took a look at other parks with other homes for sale.  You're right - I think most of the desirability is in the particular park.  The difference compared to many other parks in how well it's kept and proximity to things is pretty stark.

    Depending on how this goes, I could see how it could make sense to buy and move one of these to an urban lot we've got.  I'm quite impressed with how nice these things are ... With a little addition and some architectural dress up, no one would care it's not stick built for rental purposes.

    0Reply
  • Garrick Oconnell
    Rental Property Investor · Phoenix Tempe Scottsdale, AZ · Member since 2014 · 184 posts · 55 votes
    10y
    Trying to upload photo
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  • Garrick Oconnell
    Rental Property Investor · Phoenix Tempe Scottsdale, AZ · Member since 2014 · 184 posts · 55 votes
    10y

    @Justin R.  

    Here are some photos of the new 2015 Cavco we are placing in AZ.

    Land+home+delivery/ installation= $194,000 (I got a dealer license so I could buy the homes directly from the factory) Spent the extra money for the stem wall to provide easier financing for potential buyers,  this home is in an area where it snows which req. 40 lb roof load and additional insulation, and front porch (curb appeal). 

    ARV = $270,000 (this is a land home package)

    Other than the height of the stem wall when this home is complete you would have a hard time telling it apart from a stick built home.

    If you have any questions at all please feel free to contact me I am no expert but have placed 3 homes in the last 6 months. 

    I will have better pictures after we button up the landscaping and complete the front staircase. 

    2Reply
  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    10y

    Just a quick update in case anyone is still following this thread.

    We've got demo complete, which has included getting all the ceilings scraped and damaged drywall cut out and prepped.  There's also quite a bit of clean up in the backyard, including tearing out a shed and a surprise culvert that had been covered over at some point.  Plumbing and electrical and HVAC all look ok (it came with working central A/C ... in coastal San Diego).  No surprises with the subfloor other than the known holes.  Overall, really not that much to report ... pretty un-exciting.  Based on past renovation experience, that's PERFECTLY FINE with me!  :)

    Our budget may be a bit higher for exterior siding - the gutters haven't been functional for a while and we found more damage to the manufactured wood siding than we were expecting.  Pretty cheap to deal with.

    Will update after another week or so and hopefully have more interesting things to report!

    2Reply
  • Paul Stout
    Mobile Home Park Investor / Licensed Indiana Real Estate Broker · Chicago Area, IL · Member since 2015 · 262 posts · 135 votes
    10y

    Looks great.

    1Reply
  • Weiwei Gao
    La Jolla, CA · Member since 2016 · 27 posts · 9 votes
    10y
    Justin R. Good story to read and follow. Thanks for sharing. Good luck.
    1Reply
  • Account Closed
    Investor · Vallejo, CA · Member since 2016 · 42 posts · 19 votes
    9y

    @Justin R. Any updates on the project? Were you able to sell?

    0Reply
  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    Man, I promised to update this thread with the outcome, then got caught up in the next project.  Bad on me.

    Here's how it played out:

    • Purchased: March 2016 for $48k
    • Renovation: $41k (for a mobile home ... crazy, I know)
    • Holding Costs (park fees, mainly): $10k
    • Sales Costs: $9k
    • Financing Costs: $8k
    • Total Invested: $116k
    • Sold: November 2016 for $160k
    • Profit (before the tax man calleth): $44k

    I don't have pictures handy, but we put quartz counters in the kitchen and bathrooms, laminate in all non-bedrooms, new shingles (roof was ok), lots of new subfloor, and all the typical cosmetics.  We got away without changing windows, doing more than painting the siding, or messing with the awning over the parking area.  People especially like outdoor spaces in San Diego (and many residences don't get much yard space), so we spent some money on making the backyard functional and nice since it was so large.

    A couple things I learned:

    1. Selling a manufactured home in a park is different from a stick built.  Different realtors, different buyers, different financing, just different.
    2. The park was selling new homes in the $180-190k range, so that bounded us in on the sale - both on the high and low side.
    3. "Politics" between park mgmt and the residents association can gum up doing this in a park.  We didn't have much recourse if things hadn't worked out.  We didn't really control our own destiny.
    4. Buyers like to feel like they're getting something better than what's around them ... these buyers were proud to know their backyard was nicer than either of their neighbors.  Psychology matters in how you rehab, of course.
    5. Partnering is awesome.  I was working on finishing a much larger and complex project at the time, and I had a partner on this one who took care of the day-to-day for this flip.  I was busy at the time ... as they say: 50% of something is better than 100% of nothing.
    5Reply
  • Account Closed
    Investor · Vallejo, CA · Member since 2016 · 42 posts · 19 votes
    9y

    @Justin R. That's fantastic! Congratulations and thank you for sharing your story.

    1Reply
  • Rachel H.
    San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes
    9y

    Interesting @Justin R. Congrats on the deal! 

    1Reply
  • Ryan Phillips
    Investor · San Diego, CA · Member since 2017 · 54 posts · 30 votes
    9y

    @Justin R.  Hey man, thanks for posting the update.  I have recently been spending lots of time on MHP research, and I would tend to agree with you and @Garrick Oconnell, if you put the right quality of materials together they may be called Mobile Homes but they sure look like the stick built.  Plus, you don't have to worry about weather in SoCal so for many families this may be their best option to afford California near the beach.

    Please post the final product pics, it looks like a good flip on all accounts.  Congrats.

    1Reply
  • Michael Plante
    Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @Garrick Oconnell:

    @Justin R.  

    Here are some photos of the new 2015 Cavco we are placing in AZ.

    Land+home+delivery/ installation= $194,000 (I got a dealer license so I could buy the homes directly from the factory) Spent the extra money for the stem wall to provide easier financing for potential buyers,  this home is in an area where it snows which req. 40 lb roof load and additional insulation, and front porch (curb appeal). 

    ARV = $270,000 (this is a land home package)

    Other than the height of the stem wall when this home is complete you would have a hard time telling it apart from a stick built home.

    If you have any questions at all please feel free to contact me I am no expert but have placed 3 homes in the last 6 months. 

    I will have better pictures after we button up the landscaping and complete the front staircase. 

     What sort of discount does the manufacturer give a dealer compared to retail

    Say on a mobile home which sells for $65,000 at a dealership what would your cost be, because we have been contemplating this 

    0Reply
  • Jodi Kaili
    Sandy, UT · Member since 2017 · 45 posts · 3 votes
    8y

    @Justin R. Hi Justin...was wondering how your MH investing is working out. Looking to start this run in Utah. My Hubby n I are newbies and looking for a low cost way to get our feet wet! Will be researching how the market here in Utah is for MH sales/rentals. Do you know what the best way to research this information would be? Hope your venture is going well for you and appreciate any feedback you may want to share :)

    0Reply
  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    @Jodi Kaili This is all the experience I have with mobile homes, so I don't have much experience to drawn on to give advice.  TBH, I don't know if this practically would work anywhere other than high cost urban-ish markets where land values far eclipse structure value.

    If something along these lines falls in my lap again, I'd give it a go, but I'm not actively looking for more of this.

    0Reply
  • Jodi Kaili
    Sandy, UT · Member since 2017 · 45 posts · 3 votes
    8y

    Ok...@Justin R. Thanks so much!

    0Reply
  • Chris Puglisi
    Investor · Wallingford, CT · Member since 2014 · 104 posts · 53 votes
    8y

    @Justin R. 

    Great post!  Working through something similar in CT.  Not as expensive of a market as you but homes in decent shape from the 1990s are going for around $50k-$60k.  Hoping to turn about $10-$15k for a quick cosmetic flip (paint, flooring).  Only thing that makes me a little nervous is we are moving into the winter months here and things tend to sit on the market a little longer.  I am also thinking of holding the note for the buyer, which may help to attract buyers as it is difficult to get financing for mobile homes in CT.  

    1Reply
  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    @Chris Puglisi In my limited research (and talking with smart people like @John Fedro) before doing this project, I walked away thinking what you're suggesting is more the typical business model here: Buy a home, fix it up minimally, sell and hold the note, then either take the home back or complete the sale.  

    In my market, that would have a pretty low return:time ratio relative to other opportunities, but if you're in a market that has enough scale to build a business out of that, it seems solid!

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