The short version
- A shortage of affordable housing has been an ongoing challenge in the U.S. Mobile Home Parks provide a solution for consumers and an opportunity for savvy investors. Mobile home parks allow investors to acquire more units for a lower cost per door, and lower maintenance costs.
- Investors can increase the value of their investment by either reducing expenses or increasing revenue. Finding a park where you can add value can increase profitability.
- Investing in mobile home parks differs from other types of real estate property and comes with a separate set of challenges. Anyone considering this investment should research the risks and legalities of owning mobile home park.
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Learn MoreMobile home park investing pros and cons
Pros
- Less expensive to acquire than other real estate
- Lower turnover
- Less competition from other investors
- Future looks bright due to high demand for low-income housing
Cons
- Depreciation can be a problem
- Funding is often difficult to find
- High down payment requirements
- Fewer available investing opportunities
- Eviction has different challenges
What is mobile home park investing?
A mobile home park is a community of manufactured homes situated on a plot of land with permanent hookups for utilities, water and sewer. While technically the homes are mobile, they are semi-permanently parked (with trailer hitches covered or “skirted”) and situated together on individual plots (also known as “pads”).
Small mobile home parks comprise between 10 to 25 pads, while larger parks can fit hundreds of pads, all sharing supporting roads and common area facilities. Typically, the homes are individually owned by the primary resident, who pays monthly rent to the park owner. This rent includes the plot of land, common area usage and utility hookups, including water, electricity, and gas.
Investors purchase the mobile home park from another owner using a commercial real estate brokerage to facilitate the transaction. However, unlike investing in traditional residential housing, buying a mobile home park is a commercial real estate investment opportunity. As such, commercial investments are not typically purchased with an anticipation of capital appreciation while you own the property.
Instead, money is made on the difference between gross monthly rents less the net operating expenses, much like an apartment complex owner.
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Learn MoreBenefits of investing in mobile home parks
A $1 million investment might only buy you four single family homes. The average cost of an apartment building per unit is around $100,000, so $1 million will buy you a 10-unit building. Or you could buy a mobile home park with 90 to 100 units for around $1 million — a cost per unit of $10,000 to $12,000.
The closest comparative investment to owning a mobile home park is owning an apartment building. Both are commercial real estate investments providing residential housing to lower income populations. There are, however, a few key benefits.
1. Lower cost per “door”
Mobile home park investing, you can get more “doors” at a lower cost per door, so it costs less money to acquire this asset.
The median price of existing single-family homes in the U.S. is nearing $400,000 and is rapidly increasing. That means a $1 million investment will only buy you four doors. On the other hand, the average cost of an apartment building per unit is around $100,000, so $1 million will buy you a 10-unit building. Or you could buy a mobile home park with 90 to 100 units for around $1 million — a cost per unit of $10,000 to $12,000.
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2. Lower maintenance costs
In an apartment complex or other cluster of residential units, the owner has to maintain the building itself. However, mobile homes are owned by the residents, while the investor owns the land. Tenants are responsible for repairs and maintenance. You do have to maintain the utility hook-ups but not the mobile home or the land it sits on. (This is not always the case; some mobile home parks comprise park-owned units.)
3. Less competition
It can be difficult to invest in an apartment complex as an individual, since you'll often have large conglomerations bidding against you. But most mobile home parks are run as small businesses by mom-and-pop owners. It's less common for national franchises, large corporations, and institutional investors to be involved in mobile home park ownership.
Risks of investing in mobile home parks
Now that we've examined some of the potential benefits of mobile home park investing, let's take a closer look at some of the risk:
1. Faster Depreciation
The first risk of mobile home park investing is that mobile homes tend to depreciate faster than other forms of real estate. While your tenants own their homes and are responsible for repairs and maintenance, you have less control over the condition of the units. You may not be able to attract future tenants if the park looks rundown.
2. Financing is less accessible
To secure funding for your mobile home park investment, you'll likely need to search for a lender who specializes in them — and they often have specific requirements. For example, the lender might require that the community have a minimum or maximum pads per acre; that all hitches be hidden by skirts; and/or that all homes conform to the Housing and Urban Development (HUD) code requirements.
3. Large down payments
Mobile home parks often have higher down payment requirements. While lenders typically require just 20% down for single family home investment purchases, your down payment will likely be 25% when financing a mobile home park.
4. Challenging eviction process
Eviction can be complicated with mobile home park investing. if you're the owner of an apartment complex, removing a tenant who doesn’t pay is pretty straightforward. But in a mobile home park, the tenants own their units. The estimated moving cost for a mobile home is $3,000. If a tenant is in dire straits, the park owner may have to foot that bill.
How to start investing in mobile home parks
There are a few online marketplaces where you can find detailed information and analytics on mobile home parks that are available for sale. They include:
- Mobile Home Park Store is the largest specialty site for mobile home parks. As of writing, there are over 325 mobile home parks available for sale on their site.
- Loopnet is the largest commercial real estate listing service available online to anyone, with rich data on all types of commercial investment properties for sale including mobile home parks.
- CoStar is a listing service for real estate professionals. It also lists mobile home parks for sale. It’s more robust in search capabilities and detailed analytics than Loopnet, but CoStar restricts use of its database services to those that have entered into proper license agreements.
- Reonomy.com is a newer search platform that’s very user-friendly and hosts over 50 million commercial properties including mobile home parks.
Make sure you consult a real estate broker agent who specializes in commercial real estate to help you determine the property's fair market value. As the investor, you’ll want a buyer representative who has access to deal flow. You'll also want someone who will advocate for your interests during the search and acquisition process. Generally, the seller pays the commissions for the buyer’s agent so there’s no reason not to go through a broker as a buyer.
What to look for in a mobile home park investment
There are a few ways to increase the value of your investment and cash flow by either reducing expenses (maintenance, property management, etc.) or increasing revenue (rents).
First, you’ll want to look for a mobile park community where you can add value or make improvements to increase revenue. These can be properties which have been neglected by their current owners or not been upgraded. Or they can be properties that are missing opportunities for additional cash flow.
Ideally, you also want to find a community where rents are priced below market value and you can increase monthly rental rates with minor and inexpensive updates.
The community around the mobile home park is an important income factor as well. Communities located close to large employers who hire hourly workers can provide a large pool of potential qualified tenants. Tenant selection in any residential housing where you have people living close together is important. You want to be sure everyone feels safe and wants to continue living in the park. Retaining good tenants, and weeding out the problem tenants before they move in, is key to both profitability and a positive experience as a landowner.
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What due diligence should you perform?
As with any real estate investment, you’ll want to hire a licensed inspector to do a thorough physical inspection of the property and all mechanicals. In particular, you’ll want to focus on three aspects to vet your investment: financial return, infrastructure condition and local market.
1. Financial returns
Rent — or “maintenance fees” as they're typically called on mobile home parks — are collected monthly. You’ll want to review a minimum of two to three years of rent rolls. Rent rolls are the detailed accounting of rent collected per unit. You'll also want to get annual profit and loss statements, utility bills and tax returns. If possible, ask for the screening applications of each tenant. You want to understand the typical financial situation and demographics of your prospective residents.
2. Infrastructure
While there aren’t physical buildings to maintain, mobile home park owners provide water, sewer, electric and gas hook-ups to each lot. This infrastructure is key and you’ll want to know the current condition and maintenance history of all the mechanicals.
These include:
- Well water flow and potability tests if applicable
- County/city water line pipes inspections
- Septic or sewer line camera scope reports
- Electric and gas utility hook-up inspections
In addition to the above, the seller should be able to provide details about capital expenditures and improvements made over the past 5+ years.
3. Location
As with any physical real estate investment, location largely dictates the viability and profitability of mobile home parks. Investing in affordable housing in a more upscale area typically yields a better result (more profit, lower risk, better quality tenants). This holds true for mobile home parks as well.
Be sure to look into the current county zoning. Make sure the park meets all the regulations and is properly licensed. You should also research proposed zoning changes and area development plans that might affect long term viability of your mobile home park investment.
The bottom line
Mobile home parks offer a unique commercial real estate investing opportunity. Unlike an apartment complex where the investor acquires, manages and maintains a building, a mobile home park investor typically owns the park land while individuals own and maintain their homes. This reduces the operating expenses and property management fees.
Mobile home parks often offer the opportunity for property improvement that will lead to higher monthly rental income for the investor. However, anyone considering this type of investment should thoroughly research the market and be aware of the unique challenges before taking the plunge.
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