Mobile Home Parks: The Hidden Gem of Real Estate Investing
Mobile Home Parks: The Hidden Gem of Real Estate Investing
When I first considered investing in commercial real estate, a few scenarios came to mind, such as buying a short term rental or a few small apartment buildings. I’d even contemplated self-storage, a handful of single-family homes or a medical/dental office building.
But one asset class that I’d never given much thought to were mobile home parks.
Although they’re fairly common in Louisiana (known as trailer parks), I’d never considered owning one… until now.
It seems that mobile home investing has flown “under the radar” and proven to be one of the best real estate opportunities available, as it’s often overlooked due to misperceptions.
But when you start to understand that this is a great way to produce consistent returns while avoiding risk, you may start to think twice about investing.
Here’s what you should know about one of the best investments you’ve probably not heard much about: mobile home park investing.
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What is a Mobile Home Park (MHP)?
A mobile home park (aka manufactured home community) is a type of residential development that usually consists of a tract of land that’s been divided into smaller plots for the purpose of leasing or renting to mobile home owners.
Park residents often have access to things such as:
- swimming pools
- laundry facilities
Small mobile home parks usually have 10–25 pads, while larger ones can have hundreds of pads, all of which use the same roads and common area amenities.
In most cases, mobile home residents own their homes outright, and in exchange, they pay rent (lot rent) on a monthly basis to mobile home park owners.
Typically, this also covers the plot of land the home is on, the use of the common areas, and the utility connections, which include water, electricity, and gas.
Mobile home parks (MHPs) may be owned and run by a single entity, such as a single person or a corporation, and are frequently found in suburban or rural regions.
The Secret’s Out
In the last decade, some of the largest U.S. private equity firms have been rapidly buying up mobile home parks due to their unique performance.
The secret is getting out.
Some of the BIGGEST investors include:
Mobile home parks are now getting a lot of money from private equity. Blackstone Group, which has $881 billion in assets under management (AUM), has become a major player in the mobile home park space in the last year or two and doesn’t seem to be slowing down.
They’re not the only private equity company competing in this space.
- Carlyle Group
- Apollo Global Management
In the mid-1990s, billionaire Sam Zell started buying mobile home parks in all areas of the country because it was 100% contrarian, as not many other investors were MHPS during that time period.
He’s famous for his investing strategy, which involves “looking right when everyone else is looking left.” Before the Great Recession, he started selling off most of his office space and apartment complexes, yet NEVER sold a mobile home park, which has allowed him to amass the largest portfolio in the industry.
Another big player in the mobile home space is Warren Buffett and his company, Berkshire Hathaway.
They acquired Clayton Homes in 2003 for $1.7 billion and are now positioned to build over 25% of the mobile homes manufactured in the U.S.
Berkshire and Clayton offer some of the most creative ways for people to get financing, as Berkshire’s 21st Mortgage provides buyers of new and used mobile homes with a great option for funding.
When the pandemic aggravated the affordable housing crisis, mobile home parks proved to be both:
- 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 United States economy.
Why Professionals Should Consider Mobile Home Park Investing
For busy professionals looking for passive income from a lower-risk source, mobile home parks can be a great asset class.
#1. High demand
Mobile home parks are becoming more popular because there aren’t enough of them and more people want to live in low-income housing.
Also, as more baby boomers with fixed incomes continue to retire in record numbers, the need for affordable housing will only grow in the foreseeable future.
According to research, around 10,000 baby boomers retire each day with an average social security payment of $1,294 per month, and many have less than $30,000 in their retirement funds.
As a result, more low-income individuals and seniors are looking to mobile homes as a way to remain homeowners.
#2. Limited supply
MHPs are the only type of asset I know of whose demand keeps going up while the supply goes down year after year.
The number of mobile home parks in the United States is decreasing as developers are buying and using land for other purposes.
Some parks are so old and neglected that they have to close their doors for good reason.
The supply gets even lower as demand increases, especially during downturns in the economy.
#3. High cash-flow
Due to the fact that the cost of purchasing a mobile home is much lower than that of other home types, the potential return on investment (ROI) is high.
Mobile home parks tend to have a steady flow of cash, unlike other types of real estate that go up and down with the market.
#4. Lower risk
As the number of tenants increases in a mobile home park, the amount of risk decreases as well.
In other words, the risk is spread out more when you have more tenants.
For instance, if you only have 5 mobile homes in a park and one of the tenants leaves, you’re losing 20% of your income. Whereas if you have 50 mobile homes on your lot and one tenant leaves, you only lose 2% of your income.
Another reason for putting MHPs in the “low risk” category has to do with what we discussed above.
Even with economic downturns, MHPs can still have steady cash flow because they’re always in high demand. And how well they do has nothing to do with the stock market, the economy, or other types of real estate.
#5. Lower maintenance costs
In an apartment complex, the responsibility for the building’s upkeep falls on the owner, which is different than a mobile home park.
Most MHP residents own their homes and are responsible for maintenance and repairs, while the investor owns the land.
#6. Long term tenants
Typically, MHP tenants stay for extended periods of time which is different than someone living in a apartment.
If an apartment tenant paying $1,000/month learns their rent is going up 6%, they may move to avoid the $60 monthly increase ($720 annually).
On the other hand, a MHP tenant paying $350/month getting a 6% bump in rent pays only $21/month more.
It’s highly unlikely for them to move, especially after learning they’d have to dish out $4,000-$5,000 to have their trailer moved and then utilities hooked up at a new site just to save $21 per month.
Mom and Pop Owners
In the United States, there are currently about 40,000 mobile home parks, of which 85–90% have mom-and-pop owners.
Why is this important? It is due to the possibility of mismanagement opportunities. Most of these owners are content with running their parks with little to no marketing, limited systems, or financial controls in place.
Many have already experienced incredible gains on paper, which they’ll receive when they decide to sell.
Professional operators can typically identify the amount of intrinsic value in these mismanaged parks by uncovering inefficiencies in operations, excessive operating costs, along with potential opportunities for expansion to add value.
When the net operating income (NOI) goes up, cash flow increases, and the value of the property can go up faster.
Aside from that, these operators know how to use the tax code to help their investors obtain tax benefits such as delaying or avoiding paying taxes on cash flow and, in some cases, on capital gains.
Related article: 5 Ways To Defer Capital Gains Tax When Selling Real Estate
How To Invest In Mobile Homes
There are two ways to invest in mobile home parks:
- buy a park yourself
- or partner with a mobile home park syndicator (my choice)
If you want to be an active investor, the first step is to decide whether you want to own a park that leases out the homes or one that owns them outright. If you want to reduce the number of headaches you have to deal with, charging only lot rents is the best option.
Contacting some of the park owners to inquire about the ways in which they manage rental situations in the area(s) that you are interested in is an excellent place to get started with this process.
You should also make it a point to get a solid understanding of the average fair market rent as well as the rental prices for mobile homes in the region.
Because the procedure for selling a mobile home differs from state to state, you’ll need to investigate how the title is transferred from the seller to the buyer. You should also find out what kinds of rental ordinances are in effect in your region and familiarize yourself with those.
The vast majority of the time, you will need to purchase used mobile homes from online marketplaces like Facebook Marketplace or Craigslist.
Using an agent or listings
Using the MLS and local realtors in your area is a simple approach to investing in mobile home parks. Some local real estate agents might know about parks that aren’t on the market yet or whose listings have ended.
Local bankers sometimes hear about small park owners who are ready to retire and want to sell. It’s a good idea to establish connections that might lead to deals in the future.
If you plan on searching outside your local area, you may want to consider listing systems such as:
Ready To Invest (Passively)?
All of this is good if you want to be an active investor.
But if you’re like me and would rather go the passive route, there are groups putting together syndications and mobile home park funds.
I’m currently engaged in the process of locating these for my own use.
If you are an accredited investor and want to learn more about the investments I choose, you can join the Passive Investors Circle.Join the Passive Investors Circle