Real Estate investing is a broad term which covers a multitude of investment opportunities and while most of the media coverage and investors attention is focused on residential housing and commercial property markets, there is a lesser-known niche which some investors have managed to profit from.
Mobile home park ownership is not exactly viewed as the premium sector of real estate investing but regardless of where it sits in the perceived quality spectrum, if it is an area of investment that can turn you a profit and a regular income, it is certainly worth putting any previous conceptions aside and investigating if it might be a suitable investment vehicle for you.
Two distinct types of ownership
There are two ways to get involved as a mobile home investor.
The first is to own the land and dividing it into lots. You own the lots underneath the mobile home and all of the surrounding infrastructure like the streets, all of the utility systems and any leisure or other amenities on the site.
You then rent out each lot to someone who wants to put their own mobile home on there and pay you an annual rent plus maintenance charges for doing so.
This type of ownership is more common and more popular with investors than the other option which involves buying a stock of mobile homes and the charging a rent for using the land and a further rental charge for the home itself.
Why you should consider mobile homes as an investment strategy
You often hear the phrase recession-proof being almost too widely used but it is justified in the context of a mobile home park investment.
Regardless of the state of the economy, there is a continual demand for low-rent housing and mobile homes offer a perfectly acceptable housing solution to a fair percentage of the population.
There are somewhere in the region of 60 million people who earn a household income that is below $20,000 and whatever opinion you hold on the fairness of that scenario, the fundamental point from an investor’s point of view is that you have a solid target market of potential tenants who, according to government affordability guidelines, can only pay about $500 per month in rent.
This threshold does not give them many options in the private housing market and therefore this group of the population mainly have two choices, a low rent apartment or a detached mobile home.
This is the basis of the appeal of mobile homes for people with low incomes and limited options, as it gives them the best type of property to live in for the money that they have available.
One particular aspect of mobile home investing that tends to put some potential investors off is the perception that these homes and their occupants are fairly transient, meaning you are constantly seeking new tenants to replace those that have moved on.
The reality of the situation is completely different and there is fact plenty of evidence to support the fact that what you actually get is much higher tenancy consistency that you may have thought.
You should not make comparisons with RV parks where people can turn up and leave with relative ease.
What you have with mobile homes are large structures which are expensive to move and are nowhere near as mobile as their name would suggest. It costs somewhere in the region of $3,000 to move one of these homes, which is a major financial disincentive to move around very often.
Research backs up this theory and shows that a large percentage of mobile homes are still the same location that they were originally delivered to.
As with any investment opportunity, it always pays to check out the level of competition available that might hurt your potential income levels.
The point about the mobile home park market is that it is fully matured and established, so if you get the chance to invest in one that is already up and running, you will often have few concerns about a rival operator setting up in competition near to your site.
The reason for this is that it is now quite difficult to get all of the appropriate permits and licenses required to develop a mobile home park and the substantial cash flow needed to get one up and running from scratch, means that it is very hard to make a profit and therefore the option to buy an existing site has much more appeal for any number of sound reasons.
The bottom line about any investment is often not in the beauty of what you are investing in as such but whether he can generate decent returns.
Mobile home parks may not be a glamorous addition to your property portfolio but if it delivers higher cash-on-cash returns than a typical multifamily real estate investment, isn’t that more important?
One of the fundamental reasons why these parks are able to offer such a good ROI is the fact that you don’t have some of the associate maintenance costs that go with owning a property that you are renting out.
With a mobile home park, you are just responsible for ensuring the grounds are neat and tidy and the amenities are maintained, which doesn’t eat into your profits as much as the costs you can incur as a landlord such as new carpets, new appliances and other property repairs.
Another angle that is worth mentioning when comparing mobile home park investments to a typical apartment building investment, is the differing terms of depreciation.
Investors can depreciate their apartment building investment over a 27.5 year period but because your mobile home park is viewed as improvements to land, there is an increased depreciation, allowing you to depreciate the asset over just 15 years.
This can sometimes be beneficial to your investment strategy and could allow you to benefit from this scenario in the early years of your mobile home park investment.
Mobile home parks might not be viewed as such an attractive investment to add to your portfolio at first glance, but when you look into the consistency of tenancies and the income you can generate, they can potentially be an attractive real estate investment.
Many low-income tenants actively seek out mobile homes to live in as opposed to low rent apartments, as it gives them privacy and a better quality of life. This means they are often more than happy to stay where they are,especially when you consider the prohibitive moving costs of transporting a mobile home.
The end result is a mobile home park full of tenants who can provide you with a stable rental income, so it may well be worth investigating some sites that are available to acquire from existing owners, as an alternative investment that could potentially deliver some solid returns.