Investing in real estate is all about generating passive income. With a diverse portfolio, it’s possible to create an impressive and steady stream of revenue. That said, the competitive nature of the real estate market has made it difficult to find opportunities. As investors work with agents to search for additional ways to invest their money, mobile homes have become a popular consideration. As is the case with any investment, you must weigh the pros and cons before jumping in. Here’s what you should know.
The Basics of Investing in Mobile Homes
There are two approaches to investing in mobile homes.
The first is to simply own a mobile home (or several mobile homes) within a park and rent it out to tenants. To make this option work for you, the rent you charge has to make sense in comparison to what you paid for the mobile home. This is the only way you’ll end up cashing in on this type of deal.
For investors with more money to play with, buying an entire mobile home park is a fruitful option. In this scenario, you’re leasing out the land you own to each mobile homeowner in the community.
Pros
There are plenty of good reasons to invest in mobile homes and mobile home parks. Here are some of the benefits for investors who decide to go this route.
Lower cost per unit
Buying property like a single-family home requires a sizable investment, especially in the beginning (when a down payment is due). Mobile homes cost much less. It may only be a few hundred dollars per month if you’re financing one unit.
For those who are buying a mobile home park, you will be paying much more for the land before renting out individual mobile home lots. You’ll be responsible for property taxes and any insurance policy that covers the value of the land. Depending on your location and the size of the mobile home park, the cost can vary greatly. However, this is usually much less than the cost of owning several single-family homes or a large multi-family complex.
Steady demand
This is another aspect of mobile home ownership that can vary depending on the region. Some areas of the country have more mobile home parks than others.
Nonetheless, here’s what data from the Manufactured Housing Institute shows us about demand:
- 22 million Americans live in mobile homes
- 62% of residents anticipate staying in their mobile home for more than 10 years
- 90% of people are satisfied with their mobile home
These numbers indicate reliable demand for the affordable option mobile homes provide. This is especially true in states like Texas, Alabama, and Tennessee, which have many mobile home manufacturing plants.
Affordable maintenance costs
As you would guess, the repairs and routine maintenance costs needed for a mobile home are usually pretty affordable. Due to the smaller size, plumbing and electrical wiring are much less complicated.
If you own the mobile home and are acting as a landlord for a tenant, you can expect minimal costs. On the other hand, if you own an entire mobile home park, your tenants will have the responsibility of handling their home repairs. In most cases, your job is to simply maintain common spaces, roads, and utility connections.
Cons
Most real estate investment opportunities come with some disadvantages. When it comes to owning mobile homes, here are a few downsides to think about.
Density restrictions
Many plots of land have density restrictions, even when they’re properly zoned for a mobile home park. This is important to consider if you’re looking into investing in an entire community.
Find out how many units you’ll be allowed to put on the plot of land and calculate whether this gives you a high enough return on investment.
Every situation will be different depending on how much you’re spending to buy the land and prepare it for manufactured homes and their tenants.
Less appreciation
There is no doubt that mobile homes have come a long way in both design aesthetics and technology. However, there is still some level of stigma surrounding this type of property. Some cities even have zoning restrictions that don’t allow manufactured homes.
The result is usually less appreciation over the lifespan of your investment. While a traditional single-family home is likely to grow in value over several years, mobile homes are different. There is less long-term security when it comes to this investment. This applies to both routes of selling a single mobile home or selling the land that contains an entire mobile home park.
How does an investor get around this? If you own a mobile home park, go above and beyond to provide top-notch landscaping, common spaces, and infrastructure. This will help your listing stand out.
Natural disasters
Unfortunately, the nature of a mobile home means it is much less sturdy than your typical house built on a foundation. This is why they’re incredibly susceptible to damage or complete devastation during natural disasters.
Earthquakes, tornadoes, and hurricanes can all decimate mobile home parks. This is an important consideration before you invest in a mobile home, let alone an entire park. Consider which natural disasters are common in your region.
Building Your Portfolio with Mobile Homes
If you’ve weighed the pros and cons and believe mobile homes are a promising addition to your portfolio, it’s time to start the process.
First, hire a real estate agent you trust. This is the best way to get access to MLS listings, plus, you may hear about properties before they hit the market. A professional can help you find something that will enhance your portfolio.
When it comes time for financing, a local bank may be more likely to fund your mortgage if they are familiar with the area. A large national bank is unlikely to participate unless the loan for your mobile home park is at least $1M. If you’re purchasing a mobile home park that is already up and running, consider seller financing to save on commission costs and other fees.