Three weeks ago I was out of the state looking at some investment property to purchase, a mobile home park to be specific. Typically, when I am out of my local area and staying a few nights, I enjoy finding local real estate investor clubs to attend to learn more about the locals and the area in general. I was fortunate enough to attend this group’s monthly meeting and was not disappointed.
Most meetings start off with general chit-chat and networking; this group was no different. While meeting folks and exchanging pleasantries, I discussed that I loved mobile homes and mobile home investments. Most investors were receptive to the idea of investing in mobile homes, but a few immediately expressed their dislike for this niche.
“Mobiles homes? Mobile homes suck!”
This is what I heard from a middle-aged investor just out of my peripheral view. Whenever I meet an investor who has such strong opinions about an issue and clearly does not want his viewpoint changed, I typically just let that jaded investor think how they wish. My simple response was, “Well they have been super great to me and others I work with. If you ever need any help, let me know.”
After leaving the group that night, I thought about the comment made by this jaded investor and thought, maybe he’s right. From his point of view and his past mobile home experience, if any, this kind of investing probably really did suck for him. I had no way of knowing his past but began to think of all the ways mobile homes can suck as investments for unaware newer MH investors.
Below is a short list of complaints many investors and non-investors can make about these nontraditional homes.
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The Top 6 Downfalls of Mobile Home Investing
1. Mobile Homes Depreciate in Value Like a Car
It may come to no surprise to you that mobile homes depreciate in their “blue book” value as soon as they are first sold. Much like a car, a 1988 mobile home will typically be worth a fraction of the cash value of a newer 2008 model mobile home.
This bullet is perhaps the most misunderstood contradiction concerning mobile homes as investments. The reason for the error in this thought process is that as investors we should almost never pay retail prices for any mobile home investment. When purchasing mobile homes, we look for undervalued homes that we can purchase to then resell to very interested buyers to create value.
2. Mobile Homes Can Be Tougher to Insure Than Traditional SFRs
Mobile homes do have fewer options for insurance than most traditional homes. While I say there are fewer options, there still exist many options available if insuring your mobile home is something you wish to do. With that said, all investors should love obstacles.
Investor Insight: Start looking at obstacles as challenges that can be overcome with some clever thinking and brain power. Realize that most other average investors will stop at this point, too. Do not be an average investor! Make sure to not give up until all avenues to get a deal done are exhausted. Over time, this mental problem solving process will become more and more second nature.
3. Mobile Homes Can Be Smelly
Standing water, mold, mildew, cigarette smoke, wild animals and rotten food can all contribute to a mobile home being smelly. Any smell associated with a mobile home is not the fault of this particular mobile home. The fault comes from the previous and/or current owner’s lack of pride in their property. As the old saying goes, “If you smell something bad in a property, it may just be the smell of money.”
4. Mobile Homes May Attract Lower Income Tenant-Buyers Who Don’t Pay
This statement is both true and false, as many of these bullets here are. Some mobile home buyers in ocean-side communities are happily paying $1 million plus for a used mobile home inside a park.
Traditionally, mobile homes are deemed affordable housing because they are. Their inexpensive construction and sometimes minimal features help many low-income buyers afford a safe and clean home of their own.
While mobile homes may oftentimes attract lower income buyers, this does not equate to all lower income buyers or tenants being high-risk occupants. It is always on the investor’s shoulders to screen all buyers, tenants, and renters in any property you fill. If mobile homes were not affordable housing, then this real estate niche would not be in demand by many buyers across the country, and we would likely lose some of our edge as investors.
Investor Insight: After helping folks across the country, this is one of the big faults many new investors have. Properly screening tenant-buyers and tenants is vital. A low-risk tenant with a clean background will likely make your life a breeze with regular on-time monthly payments. A high-risk tenant with a questionable background can result in headache after headache, leaving an obvious bad taste in your month concerning mobile homes. In reality the problem has less to do with the mobile home and everything to do with the tenant inside and your screening process.
5. Mobile Home Sellers and Buyers May Lie
This statement is as true today as it likely was 60 years ago. Additionally, this statement is true in almost every other niche of real estate. As long as humans are involved, some lying and manipulation can be expected from your sellers and buyers.
With that said, it is again on the shoulders of every real estate investor to properly ensure:
- Every mobile home itself
- That all current taxes and liens are up to date
- Every mobile home buyer, tenant-buyer, or renter
- All past repairs were mad correctly
- Every mobile home park and park manager
- Every new city code department for rules and regulations
6. Mobile Homes Are NOT Traditional SFRs
So many things change when you take off your traditional real estate investing hat and put on your mobile home investing hat. As mobile home investors we must know what local buyers and tenants will pay for a mobile home in your area. Know these numbers, and account for them when making your purchase offers to every mobile home seller you speak with.
Investor insight: Another huge mistake made by newer mobile home investors is paying too much for any single mobile home. A seller who discounts their asking price from $40,000 to $20,000 does NOT necessarily (and very rarely) equal a great deal. More negotiations are likely needed. If you overpay when you purchase, you will lose money or lose profit while selling.
The more and more I learn, the easier it is to see that mobile homes don’t suck; however, an investor’s due diligence and mindset can suck big time. Luckily, this lack of knowledge and experience can be remedied by an experienced local investor willing to help you and of course via the Biggerpockets Forums and articles like this one.
Mobile homes are only a vessel some investors use to create passive wealth. These factory-made homes are as lucrative or money-sucking as you allow them to be. Before jumping into any niche, make sure you fully understand the business, your exit-strategies and its buyers and sellers.
And as always: Love what you do daily.
What do you hate (and love) about mobile home investing? What would you add to this list?
Let us know in the comments!