Just to give a quick explanation:
First of all, a mobile home and land property (also known as a land-home property) is not a mobile home in a mobile home park nor is it the mobile home park. The owner typically owns both the home and the land, identical to a site-built home. You may find these in a rural area with one home on several acres of land, a neighborhood with homes on each side, or anywhere in between.
You may be thinking to yourself:
“Don’t mobile homes lose value? Why would I invest in a depreciating asset? After all, I’m sacrificing my free time to improve my financial position, not weaken it.”
I have found this to be inaccurate for the 10 to 20 year old homes that we acquire. More than likely, they will not appreciate like site-built homes; however, nearly all of the depreciation has already taken place.
So, buying an asset that stays relatively flat in value doesn’t seem that exciting. But then again, it depends on your motivation for investing.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
If you’re like me and invest for CASH FLOW over APPRECIATION, then mobile homes may just be a better vehicle for you.
Let’s look at the gross revenue numbers first:
In my market (Columbia, South Carolina) with $100,000, I can buy 5 mobile home and land properties for $20,000 each (includes purchase price and repairs) that can be rented out for $600 apiece or $3,000 total per month. This same $100,000 could buy a 3 bedroom site built home that can be rented out for about $1,100 per month.
The cash flow is great and was probably the biggest reason for why I got into this niche, but I have learned that the local economics can be just as crucial.
I have seen way less competition in the mobile home arena. The mobile home investors in my area have very little brand recognition or online presence. They might have a For Rent sign in the yard with a phone number and/or a brief Craigslist ad with a phone number.
I believe that the lowered competition can be contributed to the stigma of mobile homes and the lack of bank financing for investors. This lack of bank financing can be seen as positively or negatively, depending on your view. It has been very cumbersome for growing our business the “traditional” way of putting a mortgage on each home but has stymied other investors from growing past a couple of rentals for the most part. The result is that it has forced us to find creative financing while other investors have quit looking for money.
I’m fortunate to live and invest in the state that has the highest percentage of mobile homes compared to the total housing units for any state (over 18% in South Carolina in 2007).
In the two towns that we really like to buy properties in, the percentage is even higher.
We have purchased ? of our properties off the MLS since we started in 2011 and really didn’t ramp up until January 2013. There are still plenty of good deals in our area on the MLS. Our biggest bottleneck has consistently been a lack of financing, not a lack of deals.
The demand for affordable housing has been strong in our market and I believe that it will grow stronger the next 5+ years.
We have separated ourselves from the other investors by offering an affordable “rent-to-own” solution for our tenant-buyers. (Honestly, it’s more of a land contract than anything else, but we use the rent-to-own terminology with our tenant-buyers.)
There is a large group of people that have poor credit but stable employment who will have difficulty in getting a bank loan but work out great for us.
We typically sell our homes within 7 to 14 days.
One Final Note…
One thing I would like to mention is that I didn’t evaluate the economic information when I was starting out. I looked at the potential cash flow and jumped in with both feet. I was investing in areas that were less than 45 minutes from Columbia (a major city in South Carolina) and have figured out along the way which areas have produced better tenant-buyers. In other words, I would recommend that you stay fairly close to a major city where the jobs are plentiful and you can figure out the best areas as you go.
Just a quick note: I should mention that my dad and I have been 50:50 partners since the beginning and will hopefully fill in the confusion when I use the first-person plural: “we” or “us”.
In my next post, I will discuss some more benefits of mobile homes over site-built homes, such as repairs and their classification of being considered personal property.