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’s roughly 22 million people in the U.S. currently live 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 🙂 )
- 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…
Don’t Miss Any Updates. Each week I’ll send you advice on how to reach financial independence with passive income from real estate.Sign up for my newsletter
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 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 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 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 a standard home as they come in different sizes:
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′.
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′.
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.Join the Passive Investors Circle
How Does Mobile Home Investing Work?
There’s 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 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 home owners pay for the piece of land it sits on.
It typically includes:
- 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
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 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:
- 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 being a new, mobile home investing is still unheard of by many real estate investors. As an apartment and self storage investor myself, until researching for this article, I didn’t know too much about them either.
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 reason many investors get into real estate is due to the fact of 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 a car or cell phone as their value begins depreciating (declining) as soon as it’s 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’re wanting to invest in mobile homes, you’ll either have to purchase or lease the land it will eventually reside on.
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 either want to own a park that doesn’t own the homes or one that does. If you want less headaches to deal with, then only charging 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. You’ll also want to find out what sort of rental ordinances apply in your area.
Most of the time you’ll have to purchase used mobile homes on sites such as Facebook marketplace 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 good want to be an active investor. But if you’re like me and would rather go the passive route, there’s 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.Join the Passive Investors Circle