Does your shortlist of real estate investment opportunities include mobile homes (MHs)? There’s excellent reasoning for including them. This asset class is often overlooked due to the previous stigma of mobile homes. A shortsighted person might think they’re a less desirable place to live or that these homes are linked with being less well-off or unkempt. Times they are a changin’.
However, some investors and banks don’t realize mobile home parks are a hidden goldmine. They’re the best-kept secret that you’re about to discover. The reasons, such as low supply and high demand, aren’t necessarily obvious. If you’re like most, you’ve allowed past stigma to get in the way of seeing what’s beneath. Yes, there is a steady demand for mobile homes, and some MH communities are beyond pristine.
Whether you’re new to real estate investing or a seasoned vet, it’s not too late to consider adding mobile homes to your list of asset holdings. These communities might be the best-kept secret now, but there are signs the word is getting out. Here’s why.
Low Default Rates
Investors need money to make money and their investments – that’s a fact of finance. And when you’re buying a property, you may not have 100% of the funds to purchase it outright. You might have 20% of the asking price. Typically, you’re going to ask the bank to loan the rest. Before the loan officer gives the stamp of approval on your application, there are a few details they want to verify.
Underwriting is going to look at the risk of lending you the dough. Your risk profile is essentially the probability you’ll default, meaning you won’t pay the money back. Your profile contains considerations like debt-to-income ratio, liquid assets, and credit history. Besides this critical information, the bank looks at the risk of investing in the asset you’re asking a loan to cover.
You don’t have to be told a lender has an ownership stake in a property while the loan is being paid back. Underwriting will consider the overall risk of investing in an asset class like single-family homes. National, regional, and metro area default rates also come into play. Banks and investors may not realize that mobile homes’ default rates are extremely low.
These low rates make mobile homes a solid bet, and convincing lenders to partner with you becomes easier. Regarding mobile home parks, Lifestyle Investing expert Justin Donald says, “They’re the least consolidated asset class out there, the least defaulted asset class. A lot of people don’t know that. A lot of banks don’t even know that fact. I educate banks all the time to let them know.”
Low Supply, High Demand
It’s easy to blame inflation on the lack of affordable housing in the United States. Rent and home prices keep rising while average household incomes aren’t matching the pace. First, mortgage interest rates aren’t exactly at the lowest point in history. These factors make it challenging for typical Americans to find and secure a home within their means.
Yet, there’s also a supply issue behind the finger-pointing at inflation. Data shows a shortage of between four and seven million homes in the country. This is a huge gap that requires multilayered solutions.
Of course, new home construction can ramp up. Cities can enact less restrictive zoning laws to allow new construction. However, you’re not likely to find much easing in local zoning with mobile home parks. City councils would rather approve single-family developments, condos, and apartments. These decisions are usually linked to the outdated stigma, and councils may need to be educated.
Combine more restrictive zoning with a growing need for affordable housing, and you’ve got a winning scenario for investors. There are fewer mobile homes than the market demands. When you invest in a park, you won’t be short on tenants. Vacancy rates are low, tenants tend to stay put, and you can easily attract replacement tenants with open lots.
Lower Expenses
After the upfront costs of acquiring a property, investors have recurring expenses. As with all real estate, you must put money into your asset property to maintain it. When you invest in single-family and multi-family properties, you’re usually responsible for everything. A building is in dire need of a roof replacement? That’s a hit to your pocketbook. Ditto the electrical, furnaces, and air conditioning.
Expensive maintenance costs can eat into your potential returns, especially if they’re extensive and occur often. Market constraints may also limit your ability to recover if vacancy rates are high and average rental rates are stagnant. With mobile home parks, you generally don’t have the most significant drivers of maintenance costs — the homes themselves.
In most cases, the tenants own their homes. They pay rent for the lots and any shared perks the community has, such as a park or on-site swimming pool. Tenants aren’t responsible for maintaining shared resources like the roads and amenities, but they are responsible for maintaining the interior and exterior of their homes.
For investors, this means lower maintenance and capital expenses. Parks with fewer amenities naturally come with less upkeep, although you may later decide to add exciting features to improve the community’s appeal. Regardless, less of your rent revenues will go toward operating costs.
Co-Ownership
Renters sometimes get a bad rap. There’s the perception they don’t care as much about the property because they don’t have skin in the game. They’re not responsible for fixing it when something goes wrong. Plus, they’re not as invested in the property’s appearance and upkeep since they may not reside there for long.
While this stereotype isn’t as accurate as it once was, most renters in any property don’t have a longstanding stake in the property. They may care for it and do what they can to ensure the home stays in good shape. Yet, they aren’t responsible for fixing the pipes when there’s a leak or hiring a contractor to paint the exterior when the color fades.
With mobile home parks, this isn’t your typical scenario. Tenants usually own the homes they live in. And it costs them thousands of dollars to relocate the home to a different lot, so they’re more motivated to leave it parked in one park location. They’re joint stakeholders in the community’s well-being.
The risks of property damage are lower for landlords and investors. While some instances may still happen, would you intentionally destroy a property if it was yours? With single-family and apartment rentals, there is a greater risk of intentional damage, particularly if the tenant relationship sours. Then, you’ll face increased repair and insurance costs and potential legal battles. Mobile home parks offer tenant relationships based on the idea of co-ownership.
Real Estate’s Best Kept Secret
It’s not every day a real estate investor enthusiastically adds a mobile home park to their portfolio. But given the advantages of investing in this asset class, they likely should. Once you invest in this asset class, you’ll find the potential goldmines beneath the surface.
