(4 Reasons) Mobile Home Parks are a Powerful Investment

First posted on the Rags to Riches Real Estate Blog: Powered by Northstate Equity

When talking about multifamily real estate, many investors think of apartments, duplexes, and triplexes. But what about mobile home parks? A multifamily asset that is largely overlooked by investors! Yet, investing in mobile home parks provides an opportunity to add value, maintain ROI, obtain good financing, and more!

When looking to purchase a property, most investors are not looking for perfect conditions. They look for opportunities to add value. Generally, the best value-add properties in multifamily real estate come from small businesses. When a mom and pop operation is not maintaining the best use of a property, for reasons such as time or money, an opportunity to add value appears. These situations can create many opportunities to increase gross income and maximize the value of a property.

Unfortunately, only 7% of traditional multifamily properties with 50 units or more are estimated to be owned by a small business. This is where mobile home park investing comes into play. It is estimated that?90% of mobile home parks?in the US are owned by family businesses. The Colorado Sun discovered many of these owners are moving on and are selling to large investors. Starting sooner rather than later will be beneficial when locating good mobile home parks for sale. It is crucial to take your time, do your due diligence, and wait for the right deal. If you can locate one of these parks at a fair price, you are in great shape to make a strong investment.?

Pros of Mobile Home Park Investing?

1. Decreasing Supply, Increasing Demand?

It is estimated that 1% of all trailer home parks are destroyed every year. However, value and demand for mobile home investing is growing. From 2014 to 2019, the median value of mobile homes has increased by almost 40% (REALTOR Magazine?and?PSP). Demand is also increasing because mobile home parks provide a much needed solution to the affordable housing crisis, especially in the wake of Covid-19. In November 2019,?Jack Kelly?wrote about the rise of low paying jobs in the US, further contributing to the affordable housing crisis. This is where trailer homes shine, as they offer a much more economical choice to those who have been affected by a fiscal downturn.

2. Low Capital Expenses and Maintenance?

When considering the maintenance of a mobile home park, keep in mind they have the lowest maintenance costs among multifamily real estate. This is due to how trailer parks commonly consist of tenant-owned units. Basically, you own the land and infrastructure, but not the mobile home itself. With low maintenance costs, combined with consistently low capital expense regulations, this strategy is good for investors who are looking to minimize their reserves and save time. Notice the graph below, which measures capital expenditure as a percent of revenue for multifamily and manufactured housing pre-covid. Manufactured housing had more than 8% less capital expenses as a percent of revenue compared to traditional multifamily properties.?

3. Favorable Loan Terms

Investing in mobile home parks was once overlooked by banks, creating barriers for those interested in obtaining loans to finance them. However, as more investors began to purchase mobile homes, such as?Equity Lifestyle Properties, banks began to drop their opposition and support the investment.

Do you know what an Earnest Money Deposit is? Click?here?to find out!

Freddie Mac and Fannie Mae now offer programs with favorable terms for properties with an affordable rent. You can secure a mobile home park loan from these programs with up to?80% LTV / 75% for cash out refinances?and competitive interest rates compared to real estate loan programs. 75% for cash out refinances allows you to replace your existing mortgage with a new loan for more than you owe on the house. This difference is a credit in cash that you can put towards a future real estate investment. If mobile home parks are not your forte, cash out refinancing can be applicable in almost every type of real estate investment. Do your research! Personally, I recommend it for expanding your residential rental portfolio.?

4. Mobile Home Parks, A Great Long-Term Investment?

Mobile homes have proved to perform better than other asset classes during downturns in the economy and real estate, allowing an investor to maintain ROI, or?return on investment. This shows mobile homes could be a good investment for your money for the long-term. The graph below represents the impressive rise of total returns for manufactured homes from 2010-2019 compared to other property sectors.

Conclusion

As investors, we are looking for properties that can add value, generate returns – and if you’re prepared – house multiple tenants. Mobile home parks currently check off all those requirements due to the factors listed above. But how do you know if this strategy is right for you? Let us help you find out!

Interested in mobile home park deals? You can join our buyers list?here?for off-market deals. I also recommend speaking with a local realtor, and utilizing online resources such as?LoopNet,?Mobile Home Park Store, and REO Auctions at?Auction.com.?If you are looking for a realtor in your area, contact our team member?Samuel Culpepper?for a referral.?

What is your experience with investing in mobile home parks and the subsequent property management? Do you know another good real estate niche with value-add opportunities? Leave a like and comment.?