Frequently Asked Questions
Mobile Home Parks are becoming a popular asset for wise investors as they are one of the safest investments while yielding respectable returns. Mobile Home Parks are also becoming an integral feature in many REIT’s and Pension Portfolios because of their low risk and positive cash returns. When buying a mobile home park, an investor is purchasing land, not the actual mobile homes. Compared to residential revenue properties such as duplexes or condos, which would cost over $250,000 per door, a mobile home park owner can purchase land for about $30,000 per lot. For example, a 1 Million dollar investment might get you a 4-plex which can be rented to 4 different families, where that same 1 million dollars can get you a 30 pad mobile home park. If a $25 per month increase is given to your 4-plex tenants, you increase your monthly income by $100 and yearly income by $1200. That same $25 increase in the 30 pad mobile home park yields $750 per month or $9000 per year!
There are many other benefits of owning a park as compared to other multifamily units. In mobile home parks, your main concerns include street maintenance and underground services; it is not your problem if a furnace goes out, the tap is leaking, and you won’t have to replace shingles and windows if you own a park. A tenant in an apartment can pack up and leave in the middle of the night, but mobile homes are not quite as +easy to pack up and haul away without being noticed! In most parks, if someone moves out they leave their home in the park and find a new buyer for the home; you as the landlord will continue to collect rent until the new owner takes over.
There has been a negative stigma about mobile home parks that is slowly changing. As more seniors move into mobile home parks as a way of downsizing and families are looking for homes that are affordable, parks are much more attractive to those who don’t want their walls, roof and floor connected to the adjoining neighbors. Some of the most well known American wealthy (Sam Zell and Warren Buffet) are big investors of mobile home parks.
Why Invest in Mobile Home Parks?
A few of the most important things to consider when buying a park would include
Finances - Look at the last 3 years financial statements to get a sense of the net operating income; that is the revenue minus the expenses. This should include the rent roll, taxes, insurance, utilities, etc. Look for financial institutions that have an understanding of mobile home parks as sound investments and see what their lending rate is.
Physical Aspects - Find out what work has been done or may need to get done as far as water and sewer lines. Many investors want parks with city services, but there is also good profit to be made with parks that have septic fields. Look at the condition of the roads, whether they are paved or gravel. There may be a maintenance building or service building that houses water meters; be sure to look at the state of these buildings. It would also be a good time to find out which local contractors are used for snow removal, plumbing, etc.
Local Economy - Check to see what the population numbers are in the community and what type of economic activity is forecasted. Even small towns can be a good place to own a mobile home if the economy is steady and workers are finding jobs. Like other revenue properties, if you purchase a mobile home park in a large urban center, you will pay more per lot than purchasing a park in a smaller community. The rental income will follow the same pattern!
What are some things to consider when buying a mobile home park?
I suppose like many mobile home park owners I’ve met, I was looking for a way to increase my wealth without taking on too much risk. I did have the opportunity to get involved in real estate building spec homes, in partnership with a friend. At the time, I was not in a place financially to borrow money to acquire vacant lots and build homes that may not sell for 3 months to a couple of years. I felt the carrying charges or possible economic downturn of those investments would be too risky (although in hindsight my friend did very well!) I learned about revenue properties when my wife and I purchased a rental home with another couple. We had done our research and bought a home that would allow the rental income to look after all of the expenses and provide a little cash flow. As many of you have heard, this is the concept of creating wealth using OPM (Other People’s Money). I was fortunate that another friend and I were talking about this concept when we were taking our boys to a hockey game. That conversation led to a trip where we dropped our kids off at the rink and drove out to look at a mobile home park. We formed a Joint Venture of three buyers to finance the mobile home park. At the time, we were able to obtain 70% financing, so that left us to come up with 30%, or 10% each. I used the equity in my home to come up with my 10%. The concept that worked for me is that we received monthly rental income immediately. The tenants of that park paid lot fees that looked after the 70% mortgage plus a monthly amount paid out to each owner. I used my payment to pay the 10% equity loan, so in fact, I did not use any of my own money to purchase that park.
How did I Invest in Mobile Home Parks?
It is totally okay to have older homes in your park. Homes can be re-sided quite cheap and improve the appearance dramatically. The benefit of older homes is that generally, when people move out of an older home, the home itself is left in your park and a new renter moves in. It is more likely that a new home would be moved out of your park than an older one. In practice, it is nice to have a mix of older and newer homes in the park.
Should I be concerned if the homes in a park are old?
Sadly, no. The funny thing about mobile home parks is that they are perhaps the least defaulted business loan out there, but banks are still hesitant to make loans available. Many bankers and corporate banks are still hung up on the stigma of mobile home parks. TV shows like “Trailer Park Boys” do not help the image and sadly misrepresent the majority of mobile home park communities. It is unfortunate, but there are some bankers that can’t get past the negative images portrayed of a “trailer” park, even when they are shown the park has a net operating income of 70% and a loan could easily be repaid with this cash flow.
Is it easy to get financing to purchase a mobile home park?
Of course it will depend on the location and type of park, but most park owners look to increase the value of their park in two common ways. If there are vacant lots in the park, getting a home on that lot will increase the park value significantly. The second method would be to increase the rent. There are park owners that will increase the rent by just $10/month each year and that can have a big impact on park value in just 3 to 5 years.
How do I increase the value of my mobile home park?