Are Mobile Homes A Good Investment?

When I first began investing in real estate, most people recommended that I start with either single-family homes or apartments. They claimed those were great investments with the strongest growth potential. 

But there’s another asset class that’s currently one of the most overlooked opportunities out there.

If you guessed mobile home communities, then you’d be correct. 

Did you know there are roughly 22 million people in the U.S. currently living in mobile or manufactured home communities?

Manufactured housing ranks among the country’s largest sources of unsubsidized affordable housing.

The five states with the highest numbers of mobile homes or manufactured homes are:

• Louisiana (my state 🙂 )
• Alabama
• Florida
• Texas 
• North Carolina

So the question remains: Are mobile homes a good investment?

With some of the lowest costs, less tenant turnover, and little competition among investors, let’s find out…

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BIG Mobile Home Park Players

Lately, some of the BIGGEST investors (Sam Zell, Warren Buffet) and private equity groups (Blackstone) are getting into the mobile home park space.

Blackstone

Blackstone announced they’re significantly increasing their mobile home investments with buying 40 properties from Summit Communities.

This purchase will help further expand their footprint in Florida and Arizona.

Sam Zell

Sam Zell is known as one of America’s most successful real estate investors that sold off most of his office space and apartment buildings. He’s now focused on owning and operating mobile home parks (156,000 and counting).

Warren Buffett

Warren Buffett and his company Berkshire Hathaway are also another big player in the mobile home space. In 2003 they acquired Clayton Homes for $1.7 billion and are now positioned to build about 25% of the mobile homes manufactured in the U.S.

Berkshire and Clayton also provide some of the most innovative financing options for parks and individuals. Berkshire’s 21st Mortgage provides individual buyers of new and used mobile homes a great financing option.

When the pandemic aggravated the affordable housing crisis, mobile home parks proved to be both a:

• viable housing alternative
• safe and stable investment option

Recent studies show that with the economic future of America in question, mobile home parks are perfectly positioned to harness the power of a declining U.S. economy.

Are Mobile Homes Considered Real Estate?

The land a mobile homes resides on is real estate yet in some instances, the home itself can be considered personal property.

Personal property vs Real property

Typically the state a mobile home resides in determines whether it’s real property or personal property.

Usually, if the mobile home owner rents the land it’s on, it’s considered personal property. 

On the other hand, if the individual owns BOTH the mobile home and the land it sits on, it may be considered real property.

The Internal Revenue Service (IRS) considers mobile homes used as rentals as real property. Therefore, they follow the same 27.5-year depreciation schedule as other residential rentals.

Related article: Depreciation: The #1 Tax Break For Doctors

What Are The Mobile Homes Sizes?

Mobile homes are different from standard home as they come in different sizes:

#1. Single–Wides

Single-wide homes are less than 18 feet in width and are no longer than 90 feet in length. The average size is typically around 14′ x 60′.

#2. Double–Wides

The double-wide homes are made of two different sections and average 24-28 feet in width and no longer than 90 feet in length. The average size is typically around 24′ x 60′.

#3. Triple–Wides

Triple-wide homes are made up of three different sections, which are put together at the home’s final location. They are less common than the other two home types. 

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How Does Mobile Home Investing Work?

There are 2 main ways you can get into mobile home investing:

#1. The owner places their mobile home on land you own, and you’re able to charge lot rent.

#2. You own both the mobile home and the home site it sits on. In this case, you can charge the tenant rent for the mobile home plus lot rent.

Lot rent is what mobile homeowners pay for the piece of land it sits on. 

It typically includes:

• water
• sewer
• use of the private road and common areas

Another scenario would be that you own a mobile home located in a manufactured home park that you do NOT own. In this case, you’re responsible for paying the mobile home park owner the lot rent. 

7 Pros Of Mobile Home Investing

#1. Affordability

The best thing that makes mobile homes attractive is their cost. Because they are mass-produced, they cost much less when compared to other property types such as a traditional house or even renting an apartment.

Occasionally, investors can buy used mobile homes for under $10,000 or much less so that the owners can get out of paying their lot rent.

This low cost of purchasing one makes it easier for some people to start investing in real estate. 

#2. Lower cost for maintenance and repairs

Unless you own the mobile home, your tenants will be responsible for repairs and maintenance. 

Typically, these costs, when compared to single-family homes, are much less. 

#3. More luxury options

Due to the lost cost of owning a mobile home, occasionally, you can splurge on luxury items such as:

• hardwood flooring
• granite countertops
• upgraded fixtures

These upgrades will allow you to charge more when renting the homes.

#4. High return on investment (ROI)

Due to the fact that purchasing a mobile home is much lower than other home types, the potential return on investment (ROI) is high.

#5. High demand

As inflation continues to rise and with more people downsizing, there’s now an increased demand for affordable homes, especially mobile homes.

Because of this, they can be an instant cash flow property if you decide to rent them out.

#6. Lower tenant turnover

Typically, mobile homes have a much lower turnover rate when compared to:

• apartments
• single-family homes
• multi-family homes

This is typically due to their lower costs compared to the above property types plus they’re cheaper to maintain.

#7. Less competition

While not new, mobile home investing is still unheard of by many real estate investors. As an apartment and self-storage investor, I didn’t know much about them until researching for this article.

5 Cons Of Mobile Home Investing

#1. Negative stigma

When you first think about a mobile home park, what comes to mind? Trailer park?

This negative image of being housing only for the poor makes them seem as if all of them are dangerous to live or invest in.

This attitude could make finding tenants difficult.

#2. Lack of appreciation

One of the main reasons many investors get into real estate is the appreciation over time. 

Even if it doesn’t have much appreciation, it rarely loses value over time.

This isn’t the case for mobile homes. They’re similar to cars or cell phones in that their value begins depreciating (declining) as soon as they’re purchased.

Even after rehabbing one, you’ll rarely ever sell it for what you’ve put into it. Because of this, renting mobile homes is all about cash flow.

#3. Quick depreciation

As stated above, mobile homes typically depreciate faster than traditional single-family homes.

While this is good news from a tax perspective, it is bad news for your resale value.

#4. Need for land

If you want to invest in mobile homes, you’ll either have to purchase or lease the land on which they will eventually reside.

Trying to find space in a mobile park can be difficult to find due to their high popularity (unless you own the park 🙂 )

Another option would be to find one to purchase from a mobile home park, which, in that case, the home setup will already be taken care of for you.

#5. Difficulty financing

Most banks and traditional lenders are reluctant to offer financing for mobile homes (aka chattel loans), especially if you’re not buying one with land, as this is considered personal property.

Mobile home financing is perceived as a risk for banks due to how quickly they lose value.

However, since mobile homes can be purchased so inexpensively, you can often buy them without needing bank financing.

How To Start Investing In Mobile Homes

Determine if you want to own a park that doesn’t own the homes or one that does. If you want fewer headaches, charging only lot rents would be your best option.

A good place to start is by contacting some of the park owners to see how they handle rental situations in the area(s) that you’re interested in. 

You’ll also want to get a good understanding of what typical lot rents are and what mobile homes are renting for in the area.

The mobile home sales process varies among states, so you’ll need to find out how title is transferred from seller to buyer and what rental ordinances apply in your area.

Most of the time, you’ll have to purchase used mobile homes on sites such as Facebook or Craigslist.

It would be a good idea to find a mentor in this space so they can help walk you through finding deals, obtaining inspections, setting them up, and finding tenants. 

All of this is if you want to be an active investor. But if you’re like me and would rather go the passive route, there are groups that are putting syndications and mobile home park funds together. 

I’m currently in the process of locating these for myself. If you’re an accredited investor and want to know the ones I choose, join the Passive Investors Circle.

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FAQs

What are the key differences between investing in mobile homes and traditional homes in the United States?

Investing in mobile homes can differ significantly from investing in traditional site-built homes or stick-built homes. Mobile homes, often referred to as manufactured housing, are built in a factory setting according to the HUD code before being transported to their location, unlike traditional houses that are built directly on-site. This building process often means mobile homes can be a more affordable option, allowing for a lower initial investment and less money needed for a down payment compared to traditional homes. However, mobile homes typically incur a higher interest rate for loans than conventional homes due to being considered personal property rather than real estate. Additionally, mobile homes might not appreciate in value as much as traditional stick-built houses, largely depending on the community, the land on which they sit, and regional housing market trends.

How does the location of a mobile home, such as in mobile home parks or urban development areas, impact its investment value?

The location of a mobile home significantly impacts its investment potential. Mobile homes situated in well-maintained trailer parks or mobile home communities might offer consistent cash flow, especially if the park is part of a larger urban development or near expanding job markets. On the other hand, mobile homes located in areas with less urban development might not see the same level of demand. Investing in mobile home park communities can be a great way to generate a steady stream of rental income, as you can collect rent from multiple mobile homeowners within the park. The value of mobile homes in urban areas or those integrated into the planning of new housing market developments may also benefit from the surrounding traditional houses and infrastructure improvements.

What are the advantages of mobile home investments in terms of maintenance and rental property management?

Mobile homes, especially modern mobile homes and modular homes, typically require lower maintenance costs compared to traditional site-built homes or older houses due to their smaller square footage and more simplified designs. This can result in less maintenance work and lower long-term expenses for the mobile home investor, making it a potentially lucrative real estate investment. Furthermore, mobile home rentals can offer a great investment opportunity through a consistent and steady stream of rental income with less upkeep, providing a good balance between affordability and profitability. Investing in a mobile home park can enhance this benefit, as the investor can manage an entire community, spreading the cost and effort of maintenance over many units, thus ensuring more consistent cash flow with lower individual property maintenance.

What should potential investors consider when looking into manufactured housing as a real estate investment?

Potential investors should conduct thorough due diligence before investing in manufactured housing or becoming a mobile home park owner. Key considerations should include understanding the local real estate market, the rules and stability of the mobile home park, and the specific regulations that govern manufactured housing, such as adherence to the HUD code and requirements for a permanent foundation. Investors should also evaluate the energy efficiency, floor plans, and construction quality of the mobile home. The Manufactured Housing Institute and the U.S. Census Bureau can provide valuable information and statistics regarding the mobile home industry. Furthermore, understanding financing options, such as the differences between a conventional loan for traditional houses and the financing for manufactured homes, is crucial. Investors should also assess the risk of natural disasters in the area and the potential impact on mobile homes, which may not be as resilient as traditional site-built homes.

Why might mobile homes be considered a good investment compared to other types of homes?

Mobile homes can be a great investment for individuals looking for affordable entry points into the real estate market. They often require a lower down payment and initial investment compared to new homes or traditional site-built homes, making them accessible to a broader range of investors. Additionally, the demand for affordable mobile home rentals can lead to a consistent and steady rental income, especially in housing markets where traditional rental properties are priced out of reach for average renters. Mobile home park investing can further amplify this effect, allowing investors to capitalize on the entire community’s rental potential. The lower maintenance costs and the growing interest in energy-efficient and modern mobile homes can also contribute to their appeal as a great way to achieve long-term real estate investment success with less money and less maintenance over time.