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4 Ways to Profit from Mobile Home Parks

by Ernest Tew   

The most important thing we can do to improve our income, net worth, and our lifestyle is to do things today that will result in additional income in the future. Indeed, fortunes are being made by those who recognize needs when they exist--and then go about finding ways to fill those needs.

The mobile home is undoubtedly the most efficient, practical, and affordable housing ever created. But today's "mobile" homes have become a lot less mobile. They are larger, more comfortable and, indeed, some are very luxurious. These are some of the reasons why more than 16 million Americans have chosen to live in mobile homes.

Those of us who invest in mobile homes are seeing the kind of profits that are being earned. We know it isn't unusual to earn 25% to 100% per year on the money we invest. When we buy and sell homes, we enjoy two of the four sources of profit:

1. Buy low, sell high

There is the initial net profit that can be made by "buying low and selling high." The best way to do that is to buy for cash and sell on terms. To do that, we need to have access to a lot of money. One of the easiest ways to get the money is to borrow it.

Considering the profits we can earn on the sale of homes, we are justified in paying individual lenders a relatively high interest rate--probably 11% to 15%. Once we convince them it is safe, people who are earning only 3% to 6% on their savings accounts and CDs, may appreciate what we can do for them.

Knowing that their money is safe is more important to most lenders than the rate of interest we pay. A promissory note, in which we personally guarantee the payments, goes a long way toward convincing the lender.

The note should then be secured by a first lien on the home we acquire. We should not borrow more money on the home than our cost of buying and getting it ready for resale.

2. Carry the paper

Interest on the financing--the additional profit we earn by waiting for our money--is almost always greater than the profit earned on the sale. And, each time we take our profits "in paper," we are increasing our monthly income. Now, for the rest of the story...The other two sources of profit become available when we own the park:

3. Rent the lot

Each time we sell a home in our mobile home park, we also rent the lot occupied by the home. The park's cash profits are increased by the additional lot rent. We now receive a monthly income from both the home and lot. Since homeowners are usually not allowed to move their home out of the park until it is paid for, the park's rental income becomes more dependable.

4. Increase the value of the park

As with other rental property, income and growth go hand-in-hand. By increasing the net income produced by the park, we increase its market value. If we purchase a park with a lot of vacancies in order to get one at a distressed price, increasing the income is especially important.

Suppose, for example, each time we rent another lot we increase the net income by $100 a month. That results in another $1,200 of cash profit each year. A $1,200 per year increase in net income could increase the value of the property by as much as $12,000.

Think about it! Each time we rent another lot, we could be increasing our equity in the park by several thousand dollars. Even if we finance 80% of the cost of the park and have only 20% equity, we can still receive 100% of the growth. None of the equity we create has to be shared with the mortgage holder.

Another way to increase the value of a rental property is to improve its condition and appearance. An attractive, well-maintained, property will sell for a higher price than one that is poorly maintained--even though it earns the same profit.

Obviously, we don't have to live in a mobile home to enjoy the profits they can provide. The number of vacant lots in mobile home parks is rapidly declining--and, for a variety of reasons, very few new parks are being developed. Owners of existing mobile home parks will benefit as rental rates increase and vacancies decline. As income from a park increases, so will its market value.

Growing wealthy...

A growing number of private investors are discovering the benefits of investing in existing mobile home parks. Add to that the fact that several of Wall Street's public companies, along with several manufacturers, are buying communities at a record rate. Only one conclusion can be reached: Existing communities will be selling at much higher prices in the near future.

Almost anyone can become wealthy--if they choose to do so! With sufficient income, we are able to enjoy a certain freedom and independence that would not otherwise be available to us. In fact, one's greatest wealth is the freedom to choose.

About the Author:

Ernest Tew majored in real estate at the University of Florida and has been involved full-time in real estate investments since 1960. He has been actively involved in the acquisition, development, management, and marketing of more than $200 million worth of real estate.

He was president of the Gainesville, Florida, Board of Realtors in 1965, the youngest Realtor to hold the presidency at that time. In 1983, he was one of only seven in the country to receive the Academy Certified Exchanger designation from The Academy Network.

In 1989, he received the Golden Eagle Award, the highest award given by the Academy, for the creative way he structured the purchase of the 20 story Founders Tower office building in Oklahoma City, one of the best known landmarks in the state.

 
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