Why You Should Invest in Mobile Home Parks
Risks and Benefits for Property Investors
Property investors are always looking for unique ways to make money. Single-family homes, multifamily properties, and even mixed-use investments are all popular with the masses. One type of investment that deserves consideration is the mobile home. Learn why you should invest in mobile home parks.
What Are You Investing In?
When you purchase a mobile home park, you are essentially buying land that has been zoned to be rented out as separate lots to different mobile home owners. You will then lease these lots to the mobile home owners for a monthly, or yearly, fee. You own the mobile home park, while the residents own their mobile homes.
Pros and Cons of Mobile Home Park Investing
What We Like
Lower per unit cost than a rental property
Tenant responsible for repairs and maintenance
Lower tenant turnover rate than in a traditional rental property
High demand due to difficulty in getting zoning approval
What We Don't Like
Getting the tenant to comply with maintenance responsibilities
Limited number of mobile homes allowed in a park
Fluctuating, inconsistent demand
Targeting your marketing to a niche audience
Pros of Mobile Home Park Investing
Mobile home parks have the potential to be great investments for a number of reasons.
- Lower Per Unit Cost- When you purchase a rental property, you are purchasing a physical asset that you can rent out to a tenant. When you purchase a mobile home park, you are purchasing land that you can rent to a tenant who can then put their physical asset, the mobile home, on that land. Since you are paying for an existing structure when you purchase a rental property, the cost per unit is higher than the cost per unit of the land in a mobile home park. For example, if you purchase a six-unit building for $1M, the cost per unit would be about $167,000 dollars. When you purchase a mobile home park, you may be able to pay $1 million dollars and get 100 available lots to lease out, which would make the cost per unit $10,000 dollars.
- Tenant Responsible for Repairs and Maintenance- The landlord of a mobile home park is only responsible for repairs and maintenance on the actual land or any physical structures on the property that he or she owns. This could include cutting the grass, shoveling snow, garbage removal or maintenance and repairs on a communal pool or clubhouse. It is the responsibility of the actual owner of the mobile home to complete any necessary maintenance or repairs. If they have a plumbing issue, they need to call a plumber and pay to have it fixed.
- Low Tenant Turnover- Signing any lease is a commitment. When a tenant moves into or out of a property, they have to move their possessions with them. It is much easier to move a couch and some clothes than it is to move an entire mobile home. Therefore, the tenant turnover rate is much lower in a mobile home park than it is in a traditional rental property. Turnover in a mobile home park averages between 10 and 15% a year, while turnover in a traditional rental property averages between 50 and 60% per year.
- High Demand- According to 2017 US Census Statistics, there are approximately 8.5 million mobiles homes in the country, which accounts for approximately 6.4% of all housing units. Since it can be difficult to get zoning approval to build new mobile home parks, these mobile home residents have to choose from a limited number of existing mobile home parks, which helps to increase demand in these parks.
- Risk Decreases With Additional Units- Having more mobile homes on your lot decreases your risk. If you only have 5 mobile homes on your lot and a tenant leaves, you are 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.
Cons of Mobile Home Park Investing
There are several risks to consider when investing in mobile home parks.
- Repairs and Maintenance- If tenants do not keep up with the repairs and maintenance on their property, it could make the rest of the park look rundown. This could cause other mobile home owners to pass up your park and look elsewhere for their permanent residence. While the lease you sign with your tenant should have requirements about property upkeep, it can be a battle getting the tenant to comply with these maintenance responsibilities.
- Density per Acre- Legally, you will only be allowed to have a certain number of mobile homes in your park based on your lot size. If you are buying a mobile home park, make sure the current owner is not exceeding this legal number.
- Demand in Specific Area- You have to make sure there is actual demand for mobile homes in the area of the country where you are investing. Certain areas of the country, such as the South, have a higher concentration of mobile homes. Demand will fluctuate within a state as well; one town may have a large demand for a mobile home park while another town in the state will have zero demand for one.
- Filling Vacancies- Mobile homes are a niche market, accounting for only 6.4% of all housing units in the country. When you have a vacancy, you are not marketing to the general tenant population. You have to target your marketing efforts to mobile home owners or to tenants who want to rent a mobile home from the owner.