Mobile home investing: A complete profit guide
Here’s the intro (not for you to revise but for your own purposes of emulating the voicing and conversational tone)
Whether you’re here to learn about investing in mobile home PARKS… or the trailers (lots of money in this niche), we’re going to give you the complete guide to investing in them.
And not just investing…
But how it differs from other asset classes…
How to find these deals…
How to negotiate these deals…
When to sell…
Let’s dive into the complete PROFIT guide of mobile home investing.
Mobile home park investing vs mobile home investing
This article is going to split:
Between investing in mobile homes vs PARKS. Cause there’s a HUUUGE difference between the two. And you probably fall into one of the two categories.
So let’s dive into the differences:
Mobile Home Park Investing:
This is where you’re diving into the world of owning the land itself. Picture it as buying a shopping mall, but instead of stores, you’ve got spots for mobile homes. When you invest in a mobile home park, you’re primarily becoming a landlord of the ground.
Pros:
– Stable Income Stream: Tenants pay lot rent, providing a predictable revenue flow.
– Lower Maintenance: You’re mostly concerned with the land and shared amenities, not the individual homes.
– Scalability: One transaction can provide multiple streams of income.
Cons:
– Higher Initial Investment: It usually requires more capital to purchase the land.
– Regulations: Depending on your area, you might face more stringent zoning laws and regulations.
– Vacancy Concerns: If tenants move out with their mobile homes, it can be a hassle to fill those vacant lots.
Mobile Home Investing:
Here, you’re buying the mobile home itself (the trailer). Think of it as purchasing the individual stores in the shopping mall analogy, without actually owning the mall.
Pros
– Affordable Entry: Generally, mobile homes cost less than traditional real estate.
– Flexibility: You can sell the home, rent it out, or even move it to a different location.
– Higher ROI Potential: With the right deal, you can sometimes see quicker returns than traditional real estate.
Cons
– Depreciation: Unlike traditional houses, mobile homes can depreciate in value over time.
– Land Lease: If you don’t own the land, you might have to pay a monthly lot rent.
– Maintenance: You’re responsible for the upkeep of the actual home, which can sometimes lead to unexpected expenses.
While both avenues offer promising potential for savvy investors, it’s crucial to align your choice with your personal and financial goals.
What’s a good ROI for a mobile home park investment?
ROI, or Return on Investment, is that magical little percentage that whispers to investors just how sweet (or sour) a deal might be.
It’s a metric we lean on to quickly assess how fruitful an investment might become over time.
But with mobile home parks, as with all investments, there’s a depth beneath the surface number.
At its core, ROI is calculated by dividing the net profit of an investment by the cost of the investment.
Cash flow:
In the context of mobile home parks, this net profit is typically your cash flow. And oh, cash flow in the mobile home park realm can be a delightful affair. The amount of trailers or homes in a park directly influences this. More homes usually mean more rent, which can mean a higher cash flow. However, it’s essential to account for the park’s operating expenses. A larger park might have more significant maintenance and administrative costs, which can nibble away at that juicy cash flow.
Now, here’s where things get a touch intricate. Mobile home parks fall under the “commercial investment” umbrella.
Cap rates and NOI
This means that their value is typically determined by the park’s income rather than just the market comps. Enter cap rates and NOI (Net Operating Income).
NOI is the total revenue from the property minus all operating expenses (before tax). The cap rate, on the other hand, is the rate of return on a real estate investment based on the income that the property is expected to generate.
t’s calculated by taking the NOI and dividing it by the property’s current market value. In the mobile home park world, a lower cap rate often implies lower risk, while a higher cap rate suggests higher potential returns but at a higher risk.
When evaluating the ROI of a mobile home park, understanding the cap rate and NOI is paramount.
They provide a comprehensive view of the park’s profitability and potential future performance.
So, what’s a good ROI for a mobile home park investment?
Well, that depends on the cap rates of the area… and what YOU (and your investors — cause most likely you’ll be dealing with a syndication or private lenders) are comfortable in receiving on the yield.
Typical anything from 6% and up can be considered good if it’s 100% passive.
But if you’re the operate, finding the deal, and managing it, you’re going to want more on your money– anything from 15%+ on YOUR money.
How to find mobile home PARK deals
With any investment, it takes finding the deal first.
You can go off-market (directly to seller or from another wholesaler)… or make offers on listed properties.
Here’s a break down on methods to find these deals.
Networking: Begin with good ol’ fashioned networking. Connect with local real estate agents, property managers, and even other mobile home park owners. These connections can be goldmines for leads, as they often have firsthand knowledge of properties that might be up for sale soon. Clubs and associations like the Real Estate Investor Association can be invaluable resources.
Direct Mail Campaigns: Target owners directly by sending out letters or postcards. This strategy, known in the biz as “driving for dollars”, can be a numbers game, but persistence can pay off. Get a list of property owners in your area, craft a compelling offer or expression of interest, and start mailing.
Online Listings: Sites like LoopNet, MobileHomeParkStore, and CREXi list mobile home parks for sale. While these sites are more visible and might be competitive, they provide a good starting point. Don’t forget to set up alerts, so you’re notified the minute a new listing goes live.
Wholesalers and Virtual Wholesalers: Yes, there are wholesalers who specialize in mobile home parks. And with the digital age in full swing, you might come across a virtual wholesaler, bringing deals from regions beyond your immediate vicinity. Building a relationship with them ensures you get access to their inventory, often before it hits the broader market.
County Records: Dive into public records to identify owners who might be in pre-foreclosure or behind on their taxes. These owners might be more motivated to sell, providing an opportunity for you to swoop in and strike a deal.
Drive Around: The simplest strategies can sometimes be the most effective. Take a drive through areas with mobile home parks. You might stumble upon parks with “For Sale” signs that aren’t listed anywhere else. Plus, you’ll get a firsthand feel of the community and its condition.
NOTE: This is also called “Driving 4 dollars”. You don’t have to pull a list through expensive data providers like ATTOM. You can just drive around taking down the address of the parks and skip-tracing them. The best app to do this is Deal Machine.
However, your strategies to find these deals… make sure you utilize the best tools for data (see our list of top ten software)… and you’re utilizing the top CRM. For example, using RealeFlow for the CRM.
Armed with these strategies, your quest for the next lucrative mobile home park deal becomes less about luck and more about method.
Managing Mobile home parks
This is the next big skill you need.
You can either:
1.) self-manage — highly un-recommended.
2.) Hire an on site property manager — highly recommended. You can utilize this property management software to manage rent payments.
Lonnie Deals – Flipping mobile home TRAILERS
We spoke a little about mobile home PARKS.
Let’s shift into mobile HOMES…
A “Lonnie Deal” is a term derived from Lonnie Scruggs, the individual who popularized a specific method of investing in older mobile homes. He wrote several books on the subject, including “Deals on Wheels” which outlined his approach to earning high returns through buying and selling used mobile homes, typically those located in mobile home parks.
The biggest “con” to this is that you don’t own the land.
This turns a lot of people off.
But if at the end of the day if ROI and yield matter the most to you as a real estate investor… what matters is WHERE the profit is coming from — which with Lonnie Deals, people report yeilds of 30%+ on their money.
The only real one to this is that the income stream is not forever. It’s utilizing an investment strategy called “Note investing”.
The basic concept behind a Lonnie Deal involves:
1. Purchasing an Older Mobile Home at a Low Cost: Often, these homes might be a bit run down or unwanted by their current owners, making it possible to acquire them at a very affordable price.
2. Carrying Out Essential Repairs: The investor then makes the necessary improvements to the mobile home. It’s essential to strike a balance here; you want the home to be attractive to potential buyers or renters, but you don’t want to spend so much on renovations that it eats up all your potential profit.
3. Selling or Renting with Financing: Instead of looking for a cash buyer, the investor offers seller financing to the new buyer. Essentially, the buyer makes a down payment and then monthly payments (including interest) until the home is paid off. The interest rates for these deals can often be relatively high, resulting in good returns for the investor.
4. Creating a Stream of Passive Income: By offering financing, the investor turns a quick mobile home flip into a stream of monthly payments, potentially lasting for several years.
One of the key advantages of Lonnie Deals is that they require relatively little capital to start, making them accessible for many new investors. However, it’s crucial to understand local regulations and the mobile home market in a particular area before diving in. Some states or localities might have restrictions or licensing requirements concerning seller financing or mobile home transactions.
Investing in Mobile Homes on Land
Picture this: You’ve just stumbled upon a mobile home. Not just the structure, but the very ground it rests on. At a glance, it might look like any other real estate deal, but dig a bit deeper and you’ll find it’s an entirely different ballgame compared to those well-talked-about Lonnie Deals. The difference? Land. And in real estate, as they say, it’s all about location, location, location.
Ownership is the Name of the Game
One of the most significant advantages of investing in mobile homes on land is that you own both the property and the land it sits on. This means, unlike Lonnie Deals where you might be paying a monthly lot rent for the space in a mobile home park, here, there’s none of that. Every dollar you invest goes straight into an asset you own, both above and below ground. This kind of ownership gives you more control over the property, which can be especially attractive for long-term investment strategies.
Rent, Flip, or Both?
With land in your portfolio, you’ve got options. For those looking at a steady cash flow, renting out the mobile home can be a lucrative venture. Think of it as traditional real estate investing, but with potentially lower upfront costs than a brick-and-mortar home. On the other hand, if you’ve got an eye for improvement and a knack for selling, flipping these properties can yield significant returns. Given that the mobile home market is less saturated than traditional real estate, finding a buyer might be easier than you think.
The Big Perk: Appreciation Potential
Land appreciates. That’s a golden rule in real estate. While mobile homes themselves might depreciate over time, the land they sit on often does the opposite. This is especially true if the area around your property sees growth in infrastructure, amenities, or becomes a hotspot for other reasons. So, even if you’re focused on the short-term income from renting or flipping, there’s a long-term play in the appreciation of the land that can significantly boost your ROI.
Conclusion
Mobile home investing is a unique niche, teetering between traditional real estate and a world brimming with untapped potential. As you’ve learned, it’s essential to differentiate between mobile home PARK investing and mobile home investing. Both offer distinct opportunities and challenges.
This sector is dynamic, adapting to the ever-evolving needs for affordable housing. Whether you’re just starting or seeking to diversify your investment portfolio, the world of mobile homes offers intriguing prospects.
In sum, mobile home investing is a road less traveled, but the potential rewards can be compelling. Here’s to finding those golden opportunities and crafting your own success story. Happy investing!