When evaluating a real estate investment opportunity, it is important to realize there are more conclusions than simply a “great deal” and a “horrible deal” to describe any possible money-making opportunity. In fact, most potential investment homes fall in a range between these two opposite ends of the Deal Possibility Spectrum.
The Deal Possibility Spectrum
I like to imagine all possible real estate investments falling within a range from great deals that we can describe as no-brainers and easy opportunities with substantial profit on one side, all the way over to absolutely horrible, time-wasting and money-sucking homes that you have no business closing on as an investor. While it is often times very easy to spot the difference between these two polar opposites, it takes much due diligence and knowledge of your specific market to identify if a particular deal you are looking at can be described as substantial, meaty, worth it, win-win, skinny, risky, etc.
The reason I bring up the Deal Possibility Spectrum is because many newer and unseasoned mobile home investors may be presented with or come across an advertisement for a FREE mobile home. This free mobile home may be currently located inside of an existing mobile home community, or it may be needing to be moved from its current location. Either way, there are a number of things to consider before jumping into any free mobile home investment opportunity.
4 Crucial Things to Consider BEFORE Accepting a Free Mobile Home
1. Competition When You Resell
Be aware of what else is for sale in the park currently. If there are many other mobile homes for sale already, then potential buyers you advertise for may be led to purchase one of these other properties instead of your home. Be aware of the asking prices, conditions, and selling terms of these other mobile homes for sale inside the same park.
Pro Tip: Be aware that if the mobile home park is selling a dozen or more of their own mobile homes via a bank financing or rent-credit program, this will directly compete and undercut your mobile home for sale. Parks do not have to worry about paying monthly lot rent; however, you do. If there are many comparable homes for sale at or below your asking price and terms, consider passing on this free home opportunity.
2. Free or Discounted Lot Rent
There are few things as frustrating as holding onto vacant mobile homes inside pre-existing mobile home parks that are costing you lot rent every single month. If a mobile home park is selling a mobile home for free, they understand that this mobile home will most likely need a good degree of cosmetic and/or structural repairs to make the home habitable again.
These repairs will of course take time, resources, and money to complete. Always ask for 6+ months free or discounted lot rent in order to give you time to fix a mobile home and resell it to a qualified buyer. You can let the park know that as soon as the home resells, you will begin paying lot rent immediately.
Pro Tip: In many mobile home parks ,you are likely to negotiate free lot rent when purchasing a home directly from the park itself. If you are purchasing from an owner occupant inside the park, the manager has little incentive to discount the lot rent for you.
3. Ease of Resale
Not all free mobile homes are created equal. Four-bedroom mobile homes sell more quickly than three bedroom mobile homes, and three bedroom mobile home sell more quickly than two bedroom mobile homes. One bedroom mobile homes are a pass in most areas unless the market demand is through the roof and very high.
Pro Tip: Any mobile home you buy, whether cleaned or a handyman special, should always have a great deal of potential once finished. Make sure all bedrooms will hold a full-sized bed along with a dresser and room to move around. Nowadays, older mobile homes that are 10 feet and 12 feet wide look and feel much narrower than homes just a few years newer that are 14 feet to 16 feet wide. Mobile homes with 100 amps coming into the home are about as low as you want to go for today’s modern appliances. These concerns will not make-or-break a deal; however, they are very important to consider when justifying your reselling price and terms.
4. All Repairs and Holding Costs
Although the cost of a mobile home may be free, somebody will be paying for repairs, labor, lot rent, material, marketing, holding costs and more. Be conservative in your repair estimates, and always aim to make your money back in your first year if reselling with payments. If you are aiming to resell to an all-cash buyer, use local comps from the past three months within the same mobile home community.
Pro Tip: Be aware of major plumbing, roof, and electrical wiring issues. Major concerns like this can be money pits. Lastly, consider the time of year you are purchasing the property. If located in a state with snow, the demand for buyers and handymen will be considerably lower than in the warmer months. Take this into account in your repair and resale estimations.
In conclusion, it is not a matter of if you will find FREE mobile homes, but when you will find these homes. Almost all the mobile homes I have purchased that were free or $1.00 were negotiated down from a much higher original asking price. If a seller is willing to give away their home for free, then it is likely because nobody else is willing to step into their shoes and take on the responsibility of owning this headache mobile home. If after proper due diligence you determine that the home is a good deal, then by all means, tie it up as quickly as possible.
Have you ever obtained ownership of a free mobile home? What has your experience been?
Leave a comment below!