As an active mobile home investor, you likely have been reading and studying as much as possible concerning working with and helping local mobile home sellers and buyers in and around your area. Most of these how-to articles and videos will express the importance of what to do correctly, as well as proper procedures from start to finish. However, in this article, let us discuss some common mindset pitfalls even seasoned investors may experience while investing in used manufactured housing.
5 Common Pitfalls Mobile Home Investors Encounter
Pitfall #1: Thinking you’re a master negotiator.
Do not be fooled by your smooth negotiation skills. Here is a situation that will absolutely happen at some point in your mobile home investing career: Within a matter of minutes, you are able to negotiate a seller to accept a 50%+ discount off of his/her original asking price. At this point, you pat yourself on the back and rush over to the home with cash in hand. This may be a costly decision.
Mobile homes inside pre-existing mobile home parks are particularly susceptible to this negotiation pitfall. A seller who is willing to discount his/her property 50% over the phone may be selling you a ticking time bomb, or perhaps the seller is simply motivated for innocent personal reasons. Either way, proper due diligence must be factored in with regard to acquisition price/terms, holding costs, estimated repairs, resale demand, hard to spot issues, exit strategies, etc. when making any purchase offers to any seller(s).
Pitfall #2: Treating factory built homes like single-family homes.
This is a mindset pitfall with so many fallacies. While it is debatable that modern-day manufactured homes are of comparable or better construction quality to many site built homes, factory built homes and site built homes are like apples and oranges, i.e. very different.
- Manufactured homes and SFRs appreciate differently.
- The construction is different.
- The sellers can be different.
- Homes located inside pre-existing mobile home parks versus attached to private property are very different.
- Financing is different.
- The buyers can be different.
Pro Tip: This is a common pitfall when estimating resale price and demand for an investment mobile home. Aim to always base your exit strategy on a realistic price determined by recent comparable sales and time on the market data within a two-mile radius of the subject property or within the specific mobile home community (if located inside a mobile home community) within the past three months.
Pitfall #3: Purchasing the home quickly without an inspection.
If you have not purchased a mobile home in the recent past or you are not a seasoned mobile home handyman, always consider hiring an expert to walk through any investment home with you to point out minor and major repair issues that may otherwise go unnoticed. Any additional repairs spotted should absolutely be reduced from of the current negotiated price. This will likely more than pay for an inspector you hire. Handymen and handy-women may also walk through your property for a small fee or simply as a free to consult on which repairs they would/will fix if/when you hire them.
Pro Tip: Follow your inspector and/or handyman around the property and ask questions when possible. This is a great way to learn what inspectors are looking for and possible repair estimates for future walk-throughs.
Pitfall #4: Assuming senior mobile home communities and all-ages mobile home communities are the same.
Many mobile home investors may be biased or jaded towards senior-citizen-only mobile home parks. This is typically because senior citizen communities restrict a major portion of society that is actively looking to purchase mobile homes. This in theory may make the senior-home harder to resell; however, every home works on a case-by-case basis. With proper due diligence, good foresight, adequate negotiations, and a clear knowledge of your local market, you can buy mobile homes in both types of parks that are desirable and profitable.
Pro Tip: Make certain there is strong resale demand with any new real estate niche you invest in.
Pitfall #5: Thinking the park will handle your application process.
Almost every mobile home community will have some form of a screening process to vet every new adult resident who wishes to live in the community. This screening process may include a background check, credit check, verification of income, reference check, predator check, etc. While some mobile home parks perform a very thorough and complete tenant background screening, other parks simply look for adequate income and nothing more. Some mobile home parks will verify criminal history nationwide, and others only check the local state database.
Almost always preform you own due diligence. You have worked hard to get to a point where you own another investment property ready to be rented or resold. If you are planning to have a long-term relationship with this renter or tenant-buyer, make certain you know the person(s) that will be living in your property. There are many great tenant-screening services online, including the tenant-screening feature located here on BiggerPockets.
Pro Tip: If you will be reselling a mobile home via owner financing, make certain your application process meets current seller financing restrictions. The use of a mortgage loan originator may be needed to properly screen and verify that your buyers are qualified and have the ability to pay.
In conclusion, many of these pitfalls are typically preceded by surges of excitement and emotion. As you skillfully negotiate a deal, your excitement level may rise. Additionally, whether you are estimating repairs solo or are about to rent an investment mobile home to the first person with money, your emotions may cause you temporary blindness of your better judgment. At these times, it may be wise to take a deep breath, gain clarity, and ask someone more experienced if help is needed. The forums here on BiggerPockets are a great resource of knowledge if you are willing to ask the questions. Continue to take action and help others daily.
What pitfalls have you fallen prey to as an investor?
Let me know with a comment!