The demand for affordable housing options has been on the rise in recent years, as a significant portion of American households have low incomes and are unable to afford higher rents. At the same time as this affordability crisis, the supply of mobile home parks, which offer relatively low rents and a sense of community, has remained limited. The combination of high demand and limited supply has made mobile home park investing a potentially profitable and strategic opportunity for real estate investors.
The mobile home park industry has evolved over time, with the development of different types of parks including all-age parks, age-restricted parks, lifestyle choice and affordable housing communities. Each type of park has its own unique characteristics, such as the type of residents it attracts and the amenities it offers.
There are over 44,000 parks in the United States that provide housing for over 22 million people. However, the number of mobile home parks has been declining in recent years due to a variety of factors, including economic pressures and changes in land use. Now is the time more than ever to learn about the advantages, security, and freedom that mobile home park investing can provide.
The Benefits of Investing in Mobile Home Parks
Mobile home park investing offers a number of advantages compared to other types of real estate investments:
- Lower operating expenses: Mobile home parks typically have lower operating expenses compared to apartment complexes, typically 20-30% lower. This is because mobile home park owners are not responsible for maintaining the individual homes and only need to worry about the maintenance of common areas and the utilities.
- Less maintenance: Since homeowners are responsible for taking care of their own homes, the result is time and money being saved. This creates a more passive investment, requiring fewer moving parts to run the business. The investor can easily scale this business or invest time elsewhere.
- Lower turnover rates: Mobile home parks often have lower turnover rates compared to apartment buildings, as it is expensive to move a mobile home and residents often stay for long periods of time. This can lead to a more stable and predictable income stream for the investor.
- Pride of ownership: Another advantage of mobile home park investing is that homeowners typically take care of their own homes, resulting in a better looking product. Contrast this to apartment investing where you commonly have tenants trash the place.
- Ability to force appreciation: Mobile home parks offer owners the ability to force appreciation through rent increases, filling vacant lots, and submetering utilities to name a few ways. This allows park owners to generate additional cash flow and add value to their property leading to huge profits upon a sale.
- Barrier to entry for competition: Mobile home park investing can also be a strategic opportunity due to the barriers to entry for competition. Building a new mobile home park can be expensive and is also subject to zoning and land use regulations. This can make it difficult for new competitors to enter the market, which can provide a competitive advantage for existing mobile home park owners.
- Considered recession-resistant: Mobile home parks can be considered recession resistant and a lower-risk investing opportunity due to the demand for affordable housing remaining consistent during economic downturns. The relatively low cost of living in mobile home parks can make them an attractive option for those who may have lost their jobs or experienced a decrease in income during this time.
- Financing options: Mobile home park investing can also be attractive due to the availability of financing. Many banks and commercial real estate lenders offer financing specifically for mobile home parks, as the income from these properties is often predictable and default rates are typically very low. Additionally, seller financing is a particularly common option for mobile home park investments, as many mom-and-pop owners have owned their park for 30+ years and have no mortgage. This can make it easier for investors to secure financing and allows for a more flexible and mutually beneficial arrangement between the buyer and seller.
Finding Mobile Home Parks as an Investor
So, how do you go about finding mobile home parks to add to your portfolio? Here are some tips to get started:
- Research local markets: Look for markets with strong demand for affordable housing, such as areas with high employment or population growth. A great website for analyzing economic trends and demographics of an area is Bestplaces.net. I like to look for metropolitan areas that have populations of 100,000 people or more, a high median housing cost so I’m not competing with single family homes, and median incomes of at least 3-4 times the lot rent that mobile home parks are charging.
- Online resources: There are many online resources available for finding mobile home parks for sale. Websites like MobileHomeParkStore.com and LoopNet.com allow investors to search for mobile home parks by location, price, and other criteria. Additionally, investors can connect with brokers and real estate agents who specialize in mobile home park investing on these sites.
- Connect with a broker: Mobile home park brokers specialize in this niche market and can help you find parks that meet your investment criteria. They have access to the MLS (multiple listing service) and can also provide valuable insights into local market conditions and trends.
- County tax records: Another way to find mobile home parks for sale is by searching county tax records for properties that are owned by individuals or companies that may be interested in selling. County tax records can be accessed online or by visiting the county assessor’s office, and they list information about the current owners and value of properties within the county. By searching tax records, investors can identify potential sellers and use websites such as WhitePages, Intelius, and PeopleFinders for finding their contact information. These websites allow users to search for people or businesses by name, phone number, or address, and provide information such as contact details, addresses, and associated properties. They are subscription based services, but it saves time and makes life a lot easier.
- Direct marketing: Another effective way to find great deals on mobile home parks is through direct marketing efforts such as cold calling and direct mail. Cold calling involves making unsolicited phone calls to potential sellers, in an effort to generate leads and eventually secure a deal. Direct mail involves sending promotional materials, such as brochures or flyers, to a targeted list of recipients through the mail. Both of these methods can be used to reach out to owners of mobile home parks and can be an effective way to find properties that may not be publicly listed or advertised.
- Driving through parks: This method can involve driving through mobile home and rv parks and looking for “for sale” signs on individual mobile homes or phone numbers to contact park owners directly. Mobile home park residents are very social people and there is a lot you can learn from speaking with them. This method can be effective for finding off-market properties, that are close to where you live, and can allow investors to get a firsthand look at the property and its surrounding area. However, it can be time-consuming and may require a significant amount of legwork to locate potential investment opportunities.
- Network with other real estate investors or industry professionals: Connect with other people that are interested in mobile home park investing or who work in the related industries such as appraisers, lenders, and wholesalers. You can do this through forums, organizations, and events as you never know when someone is thinking about selling or knows someone else who is. MHU has a great mobile home park investing forum!
- Consider smaller parks: While larger parks may seem more attractive due to their size and potential for economies of scale, you may want to invest in a mobile home park that is a bit smaller. I’m talking about parks that range from 20 to 150 lots. There may be less competition from institutional investors allowing you to secure a better deal and receive a higher return on investment.
It is important to conduct thorough research and due diligence in order to identify the best opportunities and make informed decisions. Investors should take the time to understand local market conditions and trends, and consider a variety of strategies and resources. By using a combination of online resources, brokers, county tax records, direct marketing, driving through parks, and networking, investors can increase their chances of finding a mobile home park that meets their investment criteria. It’s also worth noting that patience is key when it comes to mobile home park investing and finding the right park, as the process may take some time and require a bit of legwork.
Analyzing A Mobile Home Park Investment
Once you have identified potential mobile home parks that could fit in your investment portfolio, it’s important to carefully analyze them to ensure they meet your investment goals. I plan on writing an in-depth mobile home park investing analysis guide in the future, but to get started here are some key factors to consider:
- Occupancy and turnover rates: It is important to understand the current occupancy rate of the park and how quickly homes turn over. High occupancy rates and low turnover can be a good sign, indicating that residents are happy and willing to stay long-term. I wouldn’t recommend buying a park with low occupancy rates for your first investment unless you can clearly pin down the reason behind it (such as poor management). It is going to be hard to find a lender to finance the property and you don’t want to set yourself up for failure right out the gate.
- Rental rates: Look at the current rental rates for the park and compare them to rates in the local market. Are the rates competitive or are they below market? If they are below market, there may be an opportunity to increase rents and boost income. One way to determine market rates is to go to Google, search for parks in the area, and call pretending to be a resident looking for a lot to rent. Be sure too ask what the mobile home parks provide as far as amenities and what is included in the lot rent to be sure you are comparing apples to apples.
- Operating expenses: Determine the operating expenses for the park, including utilities, management, maintenance, insurance, and taxes. These expenses should be compared to the park’s income to ensure that the property is operating at a profit. Most investors are looking for cash flow when choosing to invest in this type of asset class. You should also check that each expense is in line with the industry standards. For example, if from your research you see that parks in the area have a water and sewer expense that equates to 10-12% of the revenue, you should be skeptical of a park where the water and sewer expense is 30%. On the other hand maybe there is a value add opportunity by just fixing some water leaks.
- Capital improvements: When doing due diligence, it is important to review any big recent capital expenses, assess the current condition of the infrastructure, and consider any potential big capital expenses that may be needed in the near future. This can include things like upgrading or replacing utilities and making major repairs to infrastructure such as roads or sewage systems.
- Age and condition of homes: Consider the age and condition of the homes in the park. Older homes may come with higher maintenance costs, while newer homes may be more attractive to potential residents. Our goal is to rent the land, but sometimes it is inevitable that you may end up with some park owned homes. It is important to budget for repairs and maintenance for these homes so that you can continue to rent them and eventually sell them off. Also consider if a park has older homes that are smaller in size, it may not have the space to accommodate newer, larger homes. This can limit the park’s potential for growth and revenue.
- Zoning and land use: Check with the local zoning department to understand any restrictions or regulations that may affect the park. This can include rules around the number of homes allowed in the park, the types of homes allowed, and any potential future development in the area. Be aware of the zoning classification of the mobile home park to ensure that it is legally conforming and in compliance with local regulations. Some parks may be grandfathered in, meaning they were established prior to the adoption of current zoning regulations and are allowed to continue operating under their current use. Other parks may be legal nonconforming, meaning they do not comply with current zoning regulations but are allowed to continue operating due to their preexisting status. Nonconforming parks may be at risk of being shut down if they are not in compliance with local regulations, so it is important to thoroughly investigate this before making an investment.
- Operating permits: It is important to check that the mobile home park has all necessary operating permits and that they are up to date. These permits are typically issued by local governments and may be required for various aspects of park operations, such as septic systems, water treatment, and electrical systems. The last thing you want to do is buy a mobile home park that has 100 lots, but is only permitted for 50. It is also a good idea to check whether the park has any outstanding violations or fines, as these can create issues for the new owner. In park’s that I have owned typically the health department has issued these permits.
- Location and surrounding area: Mobile home park investing is the same as any other form of real estate investing when it comes to the location and surrounding area. Is the park in a desirable location with good schools, access to transportation, and amenities? Or is it in a less desirable area that may be less appealing to potential residents?
- Future development: Consider any potential future development in the area that may affect the park. For example, if a new shopping center or industrial park is being built nearby, it could increase traffic and noise, but also could provide jobs and demand for affordable housing. So would that be a good thing or a bad thing? In my experience, I have found that the need for an affordable place to live outweighs noise ten times out of ten. This would most definitely be a good thing.
By considering these factors, investors can get a better understanding of the potential risks and rewards of investing in a particular mobile home park. This is by no means a complete due diligence check list. There are many things to evaluate once you have signed a contract for a park you wish to pursue. I plan on expanding on due diligence in a later post, but this gives you some basic information to consider while sifting through deals on your mobile home park investing journey. If you are interested in how to buy a mobile home park with no money down, here is an article I wrote on the subject.
Managing a Mobile Home Park
Mobile home park investing can be fairly passive if you hire a good manager and develop good systems. Managing a mobile home park involves overseeing the day-to-day operations of the property and ensuring that it is well-maintained and profitable. This is best done by an onsite property manager, which does not have to be the owner. Here are the owner’s basic responsibilities when it comes to managing a mobile home park:
- Rent collection: Overseeing rent collections is the main responsibility of mobile home park owners. This can involve setting and enforcing policies for rent payments, including late fees and eviction procedures. It is important to establish clear communication with residents about rent expectations and to maintain accurate financial records.
- Maintenance: Mobile home park owners are typically responsible for maintaining common areas, such as roads, utilities, and amenities, as well as enforcing rules related to the appearance and upkeep of individual homes. This can involve coordinating with contractors and vendors to perform necessary repairs and improvements, as well as working with homeowners to ensure that they are maintaining their properties in accordance with their lease and the park rules.
- Tenant relations: Building and maintaining positive relationships with tenants is essential for the success of a mobile home park. This can involve addressing concerns and complaints in a timely and professional manner, as well as organizing social events or activities to foster a sense of community within the park.
- Legal compliance: Mobile home park owners must ensure that their properties are in compliance with all applicable laws and regulations, including zoning, land use, and fair housing requirements. This can involve working with legal professionals or government agencies to ensure that the park is operating within the bounds of the law.
- Financial management: Managing the financial aspects of a mobile home park is crucial for maintaining profitability and long-term success. This can involve setting and sticking to a budget, as well as keeping track of income and expenses, and seeking out opportunities to increase revenue.
Final Thoughts: Mobile Home Park Investing
Mobile home park investing is a profitable and strategic opportunity due to the high demand for affordable housing and the limited supply of mobile home parks. With lower operating expenses, less maintenance, and lower turnover rates compared to other types of real estate investments, mobile home parks can offer a stable and predictable income stream for investors.
Additionally, the ability to force appreciation through rent increases and other strategies, as well as the barriers to entry for competition, can provide a competitive advantage for mobile home park owners. While finding and analyzing mobile home parks may require some effort and due diligence, the potential rewards of this niche market can make it a worthwhile investment opportunity for those who are willing to put in the work.