By Adrian Smude | Lifestyle REI
Mobile homes are a forgotten asset class, which is one reason why they still produce great returns. Since it’s not often discussed, there’s a lot of confusion about investing in mobile homes. But after reading this short article, you’ll understand the 3 types of mobile home investments: Mobile Home Parks, Mobile Homes on Rented Land, and Mobile Homes with Land.
Mobile Home Parks
Mobile home parks can be two or more mobile homes on the same parcel. If you own a mobile home park, you may own just the land, or the land and mobile homes. Quick heads up—most municipalities require inspections and special licenses for mobile home park owners.
When the same person owns the home and the land, think of it as a flat apartment complex. The owner is responsible for everything. With the right management, these can be very profitable.
When the landowner doesn’t own the homes, think of the mobile home park as a big parking lot. The parking spaces are a little larger, and people pay a monthly fee to park their mobile home. This requires less maintenance because the homeowners are responsible for maintaining their home.
I believe long-term mobile home park owners will benefit from seller financing if you’re able to educate the seller about their tax burden if they sold for cash. If you decide to use bank financing, you’ll likely have the best luck talking to a community bank.
This space has become very competitive with the hedge funds buying mobile home parks typically 100 units or larger. Unfortunately, this has made it difficult to get great returns.
Mobile Home on Rented Land
When you only own the mobile home and NOT the land, you own personal property. In most states, this is governed by the DMV. The owner of the land who allows you to park the mobile home will charge you a monthly fee commonly called lot rent. The landowner may have set rules about resident age restrictions and subletting. It’s important to talk to the landowner/manager of the mobile home park before purchasing a mobile home on rented land to ensure they support your plan. The lot rent, and any fees associated with the home, stay with the home.
Pro Tip: When purchasing a mobile home on rented land, it’s important to verify that the seller is current on their payments.
Ideally, when purchasing a mobile home on rented land, I want the rent or monthly purchase payments I will collect to be double the lot rent. This sets me up for success in the event I have months of vacancy.
Mobile homes on rented land are the lowest cost of the 3 ways to invest in mobile homes. But banks don’t like to finance these. The key is to find private money from friends/investing colleagues or use some cash of your own.
One challenge with not owning the land is you lose control. The landowner makes the rules. I once had the manager contact me on the 5th of the month to let me know by the end of the month, I wasn’t allowed to own anything in the park which I did not live in.
Mobile Homes with Land
When you buy the mobile home and the land it sits on, you have a real estate transaction. This has become a forgotten way to invest in mobile homes. This is great because you have less competition, which means more profit for you. I believe this is the best way to invest in mobile homes.
The major reason I purchase mobile homes with land is for the monthly cash flow, but I have the asset of the land in the event something happens to the mobile home. I have found residents stay longer when they have privacy compared to living with a neighbor a few feet away.
I enjoy cash flow, so I buy and rent these aluminum castles, but that doesn’t mean you cannot fix and flip them. You need to research the qualifications banks require to ensure your end buyer will be able to cash you out.
An experienced title company will have someone in the office who specializes in these closings. Don’t forget to do a lien search on the title(s) of the home(s) as well as the land. And remember that the legal description typically includes the mobile home and VIN.
I’ve found owners of mobile homes with land are not as timid to talk about seller financing the property to you (the investor). I believe this is because it’s more common that the seller purchased the home on seller financing themselves. When making payments to the seller doesn’t benefit their life, I give the opportunity to a financial friend to lend on the property. Banks aren’t very fond of lending on mobile homes for investment purposes.
Now that you know 3 types of ways to invest in mobile homes, it’s time to decide which fits your business goals and take action! When it comes to rentals, mobile homes with land have given me a wonderful lifestyle. I am receiving 857% more cash flow for the same amount invested in 7 mobile homes with land as I did with one site-built home.
Want more information? Contact Adrian at Lifestyle-REI.com.