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Why Mobile Home Parks Can Be a Great Investment

Nice Mobile Home Park

Many mobile home parks have amenities as nice as country club resorts.

Mobile home parks are some of the best investment options today. Consistent monthly income and lower maintenance costs, as compared with other investment properties, make them an ideal investment.

I have visited numerous mobile home parks in recent years that had amenities as nice as many country club resorts with numerous pools, fancy clubhouses, mini storage facilities, adjacent condominium units, RV or Motor Home spaces, putting greens, lakes, and tennis courts.

In some cases, the mobile home parks were located in prime locations directly on the beach.

Due to more stringent zoning laws in many regions of the USA, it is more challenging to develop mobile home parks today. With less new supply of these parks, the demand from buyers should increase too.

Mobile, Manufactured, and Modular Homes — What’s the Difference?

Many times people use the generic phrase “Mobile Home” when describing these types of housing. There are some key differences though between all three of these property types:

Mobile Homes were built in 1976 or earlier.

After June 15th, 1976, HUD (U.S. Department of Housing and Urban Development) required that all “mobile homes” meet new safer construction installation and quality guidelines for all homes built in a factory. Mobile Homes may be located within a mobile home park or on an owner’s property if permitted by local building codes and zoning ordinances. These homes usually have steel I-beams which run along the underside of these homes, and rest on top of concrete or wood blocks, metal stands, or concrete foundations.

Without the HUD approval, mobile homes built prior to June of 1976 are much more challenging to finance today as FHA, VA, and other governmental agencies and lenders do not usually lend on these types of properties. Due to the lack of readily available financing options, some mobile home parks own many of these mobile homes “free and clear” as rental units. In other cases, mobile home owners may structure seller financing options for prospective buyers of these mobile homes.

Manufactured Homes are built to the Manufactured Home Construction and Safety Standards (HUD Code).

And they display a red certification label on the exterior of each section which is transportable. These homes are built at a manufacturing plant. As a result of having met the more stringent construction guidelines set forth by HUD, these homes are eligible for FHA (Federal Housing Administration), VA (Veterans Administration), and even Rural Housing Services (RHS) under the Department of Agriculture.

Modular Homes are built and designed to meet the same state, local, or regional building codes as site-built homes.

Modular Homes are the fastest growing segment of the U.S. home building industry today. The costs to build these Modular Homes may be just one-half the costs as compared to the standard on-site constructed home, due to the efficiency of the building process at a manufacturing plant.

Valuation Methods for Mobile or Manufactured Home Parks

The Income Comparison Approach is the best method to use. A prospective buyer may calculate the income generated by the pad rents based upon current occupancy rates first. Then, subtract the operating expenses to establish the Net Operating Income (NOI). The NOI, in turn, is divided by some acceptable capitalization (CAP) rate to better calculate the value based upon current income.

Many of the parks that are selling today have cap rates in the 7% to 12% range.

Average operating expenses for a mobile home park are usually around 35-40% of the gross income as compared to apartments, which can be in the 50-60% expense range.

Mobile home parks also have a much lower turnover ratio as compared to apartments. When people are ready to move, they will just resell the home in the park, and the park owner will have a new homeowner. The biggest reason for the low home turnover is that it costs so much to break down, move, and set up a home.

When the park owner raises the monthly rent by $10 to $20 in a mobile home park, it doesn’t make much sense for a tenant to spend several thousand dollars to move their home in order to save $10 or $20 per month.

Another reason for the lower operating expense ratio for mobile home parks is that the park owner is not responsible for painting, cleaning carpets, or appliances. The park owner is usually only responsible for the area up to where the home connects to the utilities and the maintenance of the common areas.

Financing Options

Financing underwriting options to purchase or refinance entire mobile home parks today include some of these guidelines:

  • High owner occupancy rates
  • 70% + LTV 1st mortgage options
  • 10% minimum cash down required from the buyer–15% to 20% + down is preferable
  • Maximum 20% 2nd position seller carryback mortgages.
  • Interest rates in the 4% to 6%+ range, depending upon the quality of the park.

Financing for mobile or manufactured home parks is largely based upon cash flow from the current rent roll combined with the quality of the borrower and the underlying asset.

Historically, newer parks with paved roadways and amenities are far more easily financed (typically 3-Star parks or higher). Additionally, doublewide tenant-owned coaches are also greatly favored over park-owned coaches.

Few real estate investments today generate more net cash flow than mobile home parks. Visit some parks in your region to better see firsthand the quality of these communities.

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About the Author...

Check out Rick's new book The Credit Crisis: 10 Years and Counting (August 2017 publishing date) as well as The Credit Crisis Deals: Finding America's Best Real Estate Bargains.

Rick Tobin has a diversified background in both the Real Estate and Securities fields for the past 25+ years. He has held seven (7) different Real Estate and Securities brokerage licenses to date. He also writes college textbooks and real estate courses in several states for some of the largest educational firms nationwide.

Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Equity Funds, and foreign money sources.

You can visit Rick Tobin at RealLoans.com.

Comments

  1. Barry Yetter says:

    Thank you very insight full . Answered a lot of the ? I had . I all so like the flack that did not have to read on and on . To get to those answers. !

  2. tom yung says:

    I enjoyed this article. It totally changed my point of view on investing into mobile home park.
    THANK YOU

  3. Rick Tobin says:

    Thank you for your positive feedback, Barry and Tom. I first started to get interested in mobile homes and parks back in the early ’90s after investing in mobile home notes. I think that my annualized yield was something like 88% after buying just one year’s interest in a discounted mobile home 1st mortgage loan note.

    After seeing how incredible the monthly cash flows were for individual mobile or manufactured homes or entire parks, I began to work with more mobile home park owners who were earning tremendous monthly cash flow (i.e., $100,000+ net per month) on potential mortgage loans for the parks. Modular Homes, though, continue to be the fastest growing home type in America today since they are so affordable to build as compared with on-site single family homes.

    • J Sanford says:

      Rick, thanks for this primer! Questions: 1) where to get more definite info on MH Park investing; 2) where best to find any for sale (brokers, papers, discount classified, specialized publications), and 3) how to approach lenders and what kind of lenders to approach? Thanks for bringing it up—thought this avenue might be dead end nowadays 🙂

      • Rick Tobin says:

        Answers for J. Sanford: 1.) CRE Online has some exceptional past articles on Mobile Home Park investments. I read Lonnie Scruggs’ book many years ago entitled “Deals On Wheels”. I found the book to be very informative.

        Other options may include visiting the parks (or use a targeted direct mail campaign to various parks letting them know you may be a potential buyer) in your region of interest, and asking the on-site property manager, owner, or leasing office staff as many questions as is reasonable. Many times, these people sit in their office for quite some time alone, and are happy to have some company.

        I have visited many parks in person over the past few years, and everyone so far has been very pleasant, thankfully. This is another great way to meet some potential sellers who may be burnt out, and want to cash out now.

        2.) Again, I believe that one of the best way to find potential sellers is to go visit the parks in person. Loopnet (the equivalent of a Multiple Listing Service (MLS) system for commercial real estate nationally) is another great source for mobile home park listings across the USA. Real estate agents who specialize in commercial and apartment properties may also know where the best listed or unlisted deals are in your regions of interest.

        3.) If the seller may not seller finance the mobile home park deal since they want to cash out completely, then certain pension funds, university funds, life insurance funds, credit unions, community banks, and / or mortgage brokerage / banking firms which specialize in mobile home park financing options may be some great potential lending sources today. My associates and I love to work on mobile home park financing so please let me know if you should need any assistance.

        I recently joked with an associate that it may be easier today to fund an entire $3 million mobile home park loan than it may be to fund an individual $20,000 mobile or manufactured home since residential lending has tightened so much in recent years. Sadly, there is a bit of truth in that statement today since commercial properties with great cash flow may be more desired in recent times than individual residential properties due to the much tighter secondary lending markets.

        Some of the best monthly cash flow properties that I have ever seen during my career were mobile home parks, nurseries, and mini-storage facilities. Since the net cash flows may be so high, then sometimes it may be a bit challenging to find a motivated seller willing to give up those incredibly high monthly returns. Yet, there are also many owners who don’t properly manage and / or maintain their parks, and who may be willing to sell them for a fraction of their true market value.

        • J Sanford says:

          Sorry for the delayed reply, but, Wow! What a great response! Thank you! I will definitely be following up with you!

        • J Sanford says:

          Second reply…may be missing it, but how do I contact you and your associates, as you suggest, about this matter? Thanks!

        • Ray Leone says:

          “I recently joked with an associate that it may be easier today to fund an entire $3 million mobile home park loan than it may be to fund an individual $20,000 mobile or manufactured home since residential lending has tightened so much in recent years”

          Beware of this problem. The credit crisis in manufactured home financing occurred years before the housing bubble burst, and I do not believe financing for manufactured homes in LLC parks (Land Lease Communities) for the working poor (e.g. low FICO scores and income) has come back, and my never.

          Yes, plenty of financing for high end, but not at the $20,000 level for not-so-well qualified borrowers. If there is no financing available to the homeowner, there is not much of a long term investment to purchasers of these parks.

          Before investing in an LLC, make sure you look at the profile of the homeowners.

          If you are aware of any new good financing in LLC parks please let me know.

  4. Rick Tobin says:

    @ J Sanford:

    I apologize that I did not see your latest question until today (March 26th). Should you have any additional questions, please feel free to email me directly at rtobin22@gmail.com, and / or visit one of my websites at http://www.thecreditcrisis.net.

    Thanks again for your interest.

  5. how do you value Park Owned homes and vacant lots in determining the value of a Manufactured home community ?

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