Almost anyone who has saved significant amounts of money has considered investing it in real estate properties. It’s usually a safe bet, but real estate is quite expensive, and finding deals that will assuredly make you money can be tricky.
This is why many veteran investors have turned to mobile home park investments instead. Investing in these parks is similar to real estate investments but requires less capital, comes with a lower risk, and has a more limited competition.
Here’s how it works.
Key Takeaways
- Mobile home park investments require less capital and have lower risk.
- High demand, limited competition, and stability make mobile parks attractive investments.
- Opt for growing areas, avoid 5-star parks, and aim for a 10% cap rate.
- Avoid hurricane zones and focus on land ownership, not the homes.
Table of Contents
What Is A Mobile Home Park?
A mobile home park is a community of mobile, manufactured homes set on a plot with all the necessary utility connections, such as water and sewage.
These houses are designed to be mobile, meaning you can move them from one place to another, but unlike an RV, they don’t have wheels.
In other words, mobile homes are semi-permanent houses with attached trailer hitches and skirting.
Small mobile home parks contain about 10 to 25 lots, while larger parks can encompass up to 1000 homes or more.
What Is Mobile Home Park Investing?
As an investor, you can buy the property of a mobile home park and rent the land and utilities such as electricity, water, and gas.
With this land and infrastructure investment, you can lease the area to mobile homeowners, making it a source of passive income.
It’s important to note that with mobile home park investments, you own the land but not the houses on that land.
Benefits of Mobile Home Park Investing
High Demand
According to MHInsider, about 20.9 million people in the United States live in a mobile home, and the demand for mobile, affordable housing is growing yearly.
Mobile homes are especially popular with low-income individuals who can’t afford the relatively expensive fixed homes. Even those who can afford a mortgage prefer to buy a mobile home instead to avoid the hefty costs and rising interest rates.
As more traditional homes are built and land becomes scarce, the demand for these semi-permanent homes also grows.
Little Competition
Unlike traditional real estate properties, mobile home park investments have limited competition.
Mobile homes are typically less known among investors and often discarded as less glamorous or less lucrative than private real estate investments. This lack of attention by real estate investors leaves more opportunities for those who want to specialize in this investment area.
As a mobile home park investor, you’ll be able to find more favorable deals and quickly build your mobile park portfolio without much interference from other investors.
Another reason there’s limited competition in this field is that mobile home investing requires specialized knowledge about managing and regulating these communities.
Savvy investors need to do their due diligence and study the unique characteristics of their mobile home park before buying a community.
However, investors can quickly generate consistent cash flow armed with the proper product knowledge and limited competition.
Stability
One common misconception about mobile homes is that they are unstable investments because tenants tend to move around a lot.
However, those who choose mobile home parks often stick to their communities for many years, especially to avoid the increased cost of renting or buying a new property.
These investments also provide stable cash flow that is less likely to be affected by real estate or stock market volatility.
With the high demand, limited competition, and stable investment profile, mobile home parks can eventually become a hands-off investment and a source of passive income.
How To Start Mobile Home Park Investing
There are generally two ways to start investing in mobile home parks:
- Buy a mobile home park yourself
- Partner with a mobile home park syndicator or online marketplace
Choosing the right underperforming park to buy so that you can quickly turn a profit can be difficult without the knowledge, capital, time, and accessibility to deals.
That’s why it’s usually easier for first-time investors to choose the second method: partner with a syndicator or online marketplace.
These companies find the best deals, do all the paperwork, supervise the day-to-day management of the properties, and oversee all aspects of the investment. Your primary role as an investor is to contribute capital.
Some popular online marketplaces to invest in mobile home parks include:
- Loopnet
- Mobile Home Park Store
- Reonomy
- Keel Team
- CoStar
Tips For Choosing the Right Mobile Home Park Investment
Whether you decide to invest yourself or partner with an experienced company, the more knowledge you have about mobile home parks, the more substantial your investment will be.
Here are a few tips and strategies you should know as a future mobile home park investor.
Growing Population Areas
Always look at an area’s population before deciding whether to invest.
If the population has been growing over the past few years, this indicates that people are willing to live there, which translates to higher demand and more potential tenants for you.
Mom and Pop Owned Parks
Mom-and-pop communities are small mobile home parks owned by individuals, usually baby boomers, who own just one park or community.
These mom-and-pop-owned parks are usually a better investment option than communities owned by large institutions because they require a smaller capital.
Avoid 5-Star Parks
While elite or 5-star mobile home parks seem like a wise investment option in terms of quality, you’re better off investing in smaller, more affordable ones.
The problem with these “high-star” trailer parks is that the tenants will likely be better off financially, which means they have the resources to leave at any time or upgrade to another park or even a fixed home.
Five-star trailer parks also have higher insurance costs and require more capital, as they usually have additional amenities such as pools and community centers.
All of this equals less stability, poor cash flow, and added expenses for you as an investor
10% Cap Rate Goal
When investing in a mobile home park, you should try to be as close as possible to a 10% cap rate for your investment to be profitable. This means you can expect around a 10% annual return on your investment before taxes.
When calculating your cap rate, you’ll need to consider your purchase price, rental income, interest rates, and other expenses, such as the cost of hiring a property manager and tax strategist.
Most investors buy properties with a 6-8% cap rate and wait for it to rise to 10% within a couple of years, but it’s better to go in at a higher percentage from the start. Lower cap rates equal higher risk, less cash flow, and poor value optimization for you as an investor.
Opt for higher cap rate investments that balance risk and reward while aiming to maintain or increase your cap rate over time.
After securing an investment, you can try to improve your cap rate by increasing your income through value-added initiatives, such as:
- Submetering water/sewer
- Billing back for trash or storage
- Increasing the rent, but within limits so as not to drive away your tenants
Check The Operating Permit Status
Before investing in a mobile home park, ask the owner to show you its operating permit status. The city issues this permit and verifies whether the park meets city standards and is suitable for people to live in.
Each permit also has an expiration date, so you should be aware of this to avoid legal issues or potentially getting shut down after buying the property.
Avoid Owning The Homes
Mobile home park investments should only be land investments. That means you own the dirt on the lot and rent out the area but have nothing to do with the homes themselves.
Many investors consider buying mobile homes and renting them out, as well as the land. However, they soon discover that these mobile homes are depreciating assets that increase their risks, responsibilities, and expenses.
Avoid Hurricane Zones
When choosing a mobile home park, avoid known hurricane zones because most of these houses don’t have hurricane insurance.
If a mobile home is destroyed, many owners might not have the resources to restore it and will choose another house in a different location.
This leaves you with empty land and destroyed homes that you can’t fix or do anything about.
Final Thoughts
Mobile home park investments can be highly lucrative as long as you choose the right plot, community, and investment strategy.
If you’re worried about choosing a suitable park, book a free consultation with Physician Thrive’s team of financial experts. We’ll help you find the best option for you.
