ARE MOBILE HOME PARKS A GREAT INVESTMENT?
Are mobile home parks great investments? This is a question that could take a long time to fully cover, so I am going to focus on one particular scenario only... the one that makes the most money! Most large mobile home parks are there for the space rent only. Meaning that the park does not own the homes that are in it, but rather collects rent only for the space that a home is setting on. There is a potential to make good money by buying a park that simply rents out the spaces but it takes a lot of spaces to make good money and it can work you to death. In a future article I will discuss how to buy one of these types of parks and make money at it, but for now I am going to focus on starting your own park.
POTENTIAL FOR A GREAT INVESTMENT!
The BEST way to make a lot of money is to own ALL of the homes yourself. In a previous blog titled Are manufactured homes good investments? I show how much money can be made off of only a few mobile homes. If you apply that principal over and over then, in only a short period of time, you can own quite a few mobile homes free and clear that bring in a lot of money. Your other option would be to get a loan, buy land and all of the homes that you would want (all at the same time), then start collecting rent. Either way you go, it is a winning situation! If you purchase 10 single-wide homes for around $20,000 a piece and put them on land that has utilities (such as in the city), then you can minimize your investment by not having to install septic tanks, sewer lines, etc. Anyway, just to see what you could make, let's do the math.
THE MATHEMATICS
You have 10 houses at $20,000 each = $200,000
Lets say the land and utilities cost $50,000
You get a loan for $250,000, get your homes setup, and then rent them out. I am going to use a rent figure of $550/month each because that is the going rate in our area. Some areas of the country can get double that! Anyway $550/month X 10 = $5,500/month...$66,000/year. If you get a bank loan at 6% interest for 5 years, the payment would be around $4,800. So, after 5 years, you have a paid off "park" with 10 homes that bring in $5,500/month!! The strategy that I talked about in the previous blog mentioned above will do the same thing without getting such a big loan, but it will take longer to acquire this many homes and generate this amount of income. The benefit, however, to the other strategy is that it is less risky than the big loan strategy because you are not going "ALL IN" at once. For exact details on that strategy then you will need to read that other article by clicking the link to it above.
OWN IT
Usually when you read articles that talk about great investments in mobile home parks and their profitability, they will be discuss things such as occupancy rate, cap rate and other terms such as those. These are important things to consider but are generally confusing to people that are not familiar with mortgage terms and financial math. In my honest opinion, if you own all of your own homes then it is pretty simple... how much can you bring in per month for rent compared to what it is going to cost you (loan, repairs, taxes, etc)? Anybody with simple math skills can sit down and do the numbers to figure out whether or not its a great investment in a mobile home park will be profitable. If you will be the one owning all of the houses, then it will most generally always be profitable if operated correctly!
THINGS TO CONSIDER
The last thing to consider is maintenance. This should NOT be taken lightly! There will generally always be something to fix on rent houses because of wear and tear. Unless you are a handyman and have the time to work on them, or you know a Jack-of-all trades that'll work for cheap labor, then you could spend more than you make on repairs. To avoid this then you need a good rental contract. It needs to have a provision in it that gives you the right to make monthly inspections to check for things that are broke, leaking, or simply to see if someone is destroying your house! This will save you a lot of heartache in the long run because most of the time you will not get a call to fix something until it is completely destroyed. Key maintenance will be the deciding factor whether you make really good money or don't make any at all!
GREAT INVESTMENT OPPORTUNITY
There is way too much for me to talk about in this one article so I am going to leave it at this... If you have the opportunity to buy land and mobile homes, start you own park/rental business and you have the ability to keep them maintained, then you have the potential to make huge profits with minimal work! It is scary to think about going into debt and starting a business but think about this... how many people do you know of in the rental business that aren't making really good money? Owning your own park and homes certainly has the potential to be a great investment.