The Pros and Cons of Investing in Mobile Homes and Mobile Home Parks
July 24, 2023
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Is Investing In Mobile Homes Right For You?
One great way to generate passive income is to invest in real estate.
However, real estate is highly competitive, so this is easier said than done.
Enter mobile homes.
Their rising popularity with investors over the years is due to lower competition and lower barriers to entry than many traditional forms of housing.
Investing in mobile homes and mobile homes parks isn’t all sunshine, though.
In this article, we’re going to look at the good and the bad to help you decide if it’s worth the investment for you.
NOTE: In this article, (for purposes of simplicity and clarity) the mobile homes definition we’re going with is a large trailer or transportable prefabricated structure that is situated in one particular place and used as a permanent living accommodation.
That said, please read this article (WHAT IS THE DIFFERENCE BETWEEN MANUFACTURED HOMES AND MOBILE HOMES?) if you want to understand the difference between mobile homes and manufactured homes.
Let’s start with the pros. The first advantage of investing in mobile homes and mobile home parks is affordability. In terms of investing in real estate, mobile homes cost significantly less than most other kinds of housing. If you’re financing one unit, you might pay as little as a few hundred dollars each month.
If you invest in a mobile homes park, the cost will obviously be a lot higher for the land before you can rent out individual mobile home lots. You also need to consider property taxes and insurance policies to cover the value of said land.
According to Andrew Lanoie, the founder of Four Peaks Capital Partners, “MHPs offer the lowest cost investment per unit of any real estate asset class with potentially higher risk adjust returns.”
Another advantage of investing in mobile homes and mobile homes parks is reduced costs for repairs and maintenance.
If you own a mobile homes park, you don’t own the actual homes that your tenants reside in, so maintenance and repairs are their responsibility. You’ll still need to ensure the upkeep of the park, but that’s not the same burden as an apartment complex or multifamily house.
Steady demand is also a benefit of mobile home ownership. While this varies depending on the location, it holds true for the most part.
The need for affordable housing continues to grow in modern America. Factors like home prices reaching historic levels, new mobile home parks not being developed due to government zoning and gentrification, and baby boomers retiring in record numbers are creating demand for affordable housing.
Data from the Manufactured Housing Institute also shows the demand:
- 22 million Americans live in mobile homes
- 62% of residents believe they’ll stay in their mobile homes from over 10 years
- 90% of people are satisfied with their mobile home
This data indicates steady demand for mobile homes in the coming years. This holds particular weight in states like Texas, Tennessee, and Alabama, which have numerous mobile home manufacturing plants.
Another reason mobile home parks often present great investment opportunities is diversification. For instance, if you have three single family homes, and one of the tenants needs to be evicted, you could be looking at thousands of dollars in expenses. And that could be a sizable portion of profit out of your entire portfolio.
On the other hand, if you own a larger collection of units, you safeguard better against nightmare scenarios like the one above.
And, as the chart below shows, manufactured homes are a great investment to diversify with because the absolute returns continue to grow substantially.
Less tenant turnover is another key advantage to mobile homes. This factor is significant because tenant turnover is one of the costliest expenses for most landlords because of cleaning units, marketing to new tenants, and the loss of income while units sit vacant.
However, since tenants own the mobile home they reside in and lease the land, tenant turnover is less common.
Another major reason those who live in mobile homes move less frequently is the expense and complexity of relocating a mobile home. The costs can range from $3,000 to $10,000 depending on the size and location as well as the local regulations (which may prevent moving them on the highways).
Now that we’ve looked at the pros of investing in mobile park homes and mobile homes, let’s look at some negatives.
The first con of this kind of investing is the stigma. Although strides have been made in this department, there’s still a negative stigma that makes investment riskier. Some cities even enact zoning restrictions that prevent manufactured homes in certain areas.
This stigma can create less long-term security compared with traditional single-family homes, which typically appreciate in value over time.
The antidote to this issue is placing an emphasis on the type of place or mobile home you invest in. Quality matters and should be a factor in your decision.
The second con that comes with mobile home investing is sewage infrastructure. Mobile home parks have two kinds: public services run by the city or services managed by a private septic system.
If a park has a private septic system, the park owner must take care of maintenance and repairs. This is often expensive and unpleasant. Leaks or backups into homes are common and may cause health concerns if they aren’t attended to quickly. Obviously, this system comes with risks for investors and owners.
Another con of investing in mobile homes is density restrictions. If you’re looking to invest in an entire community, you’ll need to consider how many units you can place on the land. And then you’ll need to determine if that number will allow for a reasonable ROI.
The last con you need to be aware of when investing in mobile home parks or mobile homes is natural disasters. These kinds of homes are more vulnerable to earthquakes and other disasters than most other types of homes. Thus, you may want to carefully consider if natural disasters are common in the area and if the risk is worth it.
Mobile home investing can be a great option for many investors because of the reasons listed above, so don’t rule it out without looking into it.
Remember to conduct as much research as possible. You want to have enough knowledge to make an informed decision. And now that you know mobile homes’ pros and cons related to investing, you should have a great foundation for your research.