Why You Shouldn’t Rule Out Investing in Mobile Home Parks
Does the term “mobile home” or “trailer park” make your hair stand up on end? If so, you may want to take a step back and do some research. As a real estate investor, you’re probably more familiar with single family homes and multi-unit rentals. You might wonder... are mobile home parks really profitable?
Don't overlook this opportunity based on assumptions! An excellent real estate investment is one that makes you money. And you may be surprised at how lucrative this relatively undiscovered market can be.
What’s the Draw to Mobile Home Investing?
The day-to-day operations of mobile home parks are simpler and more streamlined. But for many landlords, choosing to invest in them requires overcoming a psychological hurdle more than anything. It’s more prestigious to own several houses or a luxury apartment building.
But keep in mind that as an investor in single family or multi-unit housing, you buy and are ultimately responsible for the buildings, structures, and land. Meanwhile, when investing in mobile home parks, you ONLY own the dirt and its infrastructure—AND still, you collect rent every month.
How Do Mobile Home Parks Work?
Though there may be slight variations from park to park, the basics are pretty straightforward. As the investor, you purchase the real estate and thus are responsible for the infrastructure. You can finance your purchase very similarly to most other types of real estate. Various lenders may have some standards that will need to be met. For example, the lender may require a minimum number of lots or require a certain percentage of lots to be owned by tenants.
The tenants rent the lot from you. They pay their fees monthly like any other rental unit. Depending on the park, utilities or amenities may or may not be included in the basic lot fee. As with any other community, there are regulations that homeowners must abide by or face eviction. These rules range from age restrictions to pet policies to requirements for maintaining property.
The rental process is very similar to regular residential properties. There are leases, security deposits, late fees, rent increases, and evictions. And even though the tenant owns the home in most cases, there are regulations against subletting, as well. As an owner, you will find that rules and laws are not unlike a typical apartment.
Two Sides to Every Argument: Pros & Cons of Mobile Home Parks
Let’s take a look to see if mobile home parks can be an excellent addition to your real estate portfolio.
Advantages of Mobile Home Parks:
You are responsible for maintaining the property, not the home. This means roadways, access roads, and in some instances, utilities fall under your purview.
There are maintenance issues, but only as they pertain to the grounds and infrastructure. This translates to fewer visits from contractors. Frozen pipes, clogged toilets, or the like are the responsibility of the homeowner.
Again, since you are only responsible for the property itself, operating costs are a fraction of owning multiple single family houses or multi-unit housing—hence profit margins are higher.
Homeowners are more stable than renters, so there will likely be fewer issues with vacancy. Most folks who choose to live in mobile home parks are looking for a secure home, a good neighborhood, quality schools, and a sense of community.
Municipalities are leery about issuing permits for new mobile home parks, partly because of the stigma associated with them. In fact, more parks are being redeveloped than there are being built. As an investor, you don’t have to worry about a new park becoming your competition.
Disadvantages of Mobile Home Parks
The prospective tenant pool is smaller. Most people are interested in more traditional housing. And because of the initial cash outlay, it is easier for people to rent.
Just as with any HOA, there are rules about maintaining units, and owners are obligated to obey them. Depending on the quality of tenants and the park’s location, it can be challenging to get homeowners to comply with community regulations.
From an investing standpoint, there are fewer properties to choose from. You may have to look outside of your immediate area or even out of state.
Other than rare cases, electricity is provided by a utility company, but the water supply often comes in the form of wells and/or septic systems. Some larger parks have their own water treatment facilities. Generally, your bills are similar to what the public water department charges, but installation, replacement, or maintenance can require considerable, one-time cash outlays.
Many older properties are family-owned “mom-and-pop” operations. Revenue may be more difficult to verify, and the infrastructure may require more upgrades upon purchase.
Related: Mobile Home Tenant Screening Guide
A Good Option for the Long-Term Investor
Not everyone can afford to purchase a traditional home, but yet they still don’t want to rent. A smart investor realizes that there will always be a need for affordable housing, and mobile homes are one option to fill that void. By offering a living arrangement that’s significantly less than rental rates in the area, you’re able to operate without competing with the apartment complex up the road. Plus, residents gain the advantage of ownership.
Homeowners are less likely to move. A person who decides to purchase is looking for stability. Sure, by their nature, mobile homes are “mobile.” But for most homeowners, moving them is cost-prohibitive. Owners rarely have the $5,000 to $10,000 it takes to transport their home to a new location.
If they need to relocate, they often sell their homes. Either way, it’s a win-win for the park owner. In the case of moving and selling, they still owe you rent whether or not they are occupying the unit. No matter how long it takes to sell, you’re still getting your monthly payments. And although not ideal, if a resident abandons their home, you can eventually gain legal title and sell it to a buyer. Therefore, it’s not a total loss.
Owing a mobile home park gives you the opportunity to be exactly what you wanted to be—a real estate investor. You won’t have to worry about the usual day-to-day rental headaches. You’d be right where you want to be: in the business of owning land.