Mobile Home Park Investing for Beginners

You're about to discover what every beginner should know about investing in mobile home parks (MHPs). You'll learn the 2 types of deals, the 4 key demand factors and why you should invest in mobile home parks. You'll also find out the top 3 misconceptions about this commercial property type, 5 major things to look out for before you invest, 3 big pitfalls to steer clear of, how and where to find the best deals and the 3 most common ways to finance your first mobile home park. MHPs often fly under the commercial investing radar but they can be terrific investment opportunities for individual investors like us. Here is mobile home park investing for beginners:

 

Mobile Home Park Investing for Beginners PodCast

PART 1: 2 Types of Mobile Home Parks

Land Only

The first type of mobile home parking investing is purchasing a piece of land and renting out the spaces for mobile homes. You will be receiving the rents from each of these spaces. The homes are owned by the tenants, you do not have to maintain those. You are in charge of the roadways, the amenities, and utilities.

Land and Mobile Homes

In this second type of mobile home park, you own the land/lot, but also manage the homes on the property.

PART 2: Demand for MHP (4 Key Numbers)

Listed below are 4 important values regarding mobile home property investing.

• 8.6 Million Mobile Homes in the United States
• 50,000 Mobile Home Parks
• 60 Million People Earn $20,000 per Year
• $1,000 per month is the average rent for an apartment in the United States

PART 3: Why Invest in Mobile Home Parks?

Here are 4 compelling reasons why you should choose to invest in mobile home parks.

#1. Growing Demand for Affordable Housing

The fastest growing segment of affordable housing in this century is affordable housing. There are 60 million people in this country that make $20,000 per year, so housing like this remains in high demand.

#2. Stable and Predictable

People often think that in mobile home parks, the tenants tend to move around a lot. This is a big misconception. In fact, most mobile homes are still in their original lots to this day. This just goes to show what a stable and predictable investment.

#3. Limited Competition for New Parks

Mobile home lots are often disregarded quite quickly because of their reputation. Many cities actually have restrictions preventing mobile home parks from being build, so your competition will be very low.

#4. Potentially Higher Returns

When investing in a mobile home park, you have a potential for higher returns. If you buy the lot correctly, you will not be responsible for taking care of the homes within the lot. This saves you precious time and money.

PART 4: Top 3 Misconceptions of MHP Investing

Misconception #1 - Crazy Lazy People live in Mobile Home Parks

The average person living in a mobile home park, has an average job, income, and family. There are always exceptions, but for the most part, your residents will be regular people with normal lives.

Misconception #2 - Mobile Homes can pull out at anytime

People believe that mobile homes can pick up and leave at anytime. This is simply not true. It costs about $3,000 to move a mobile home, something that the demographics living within these parks cannot afford.

Misconception #3 - You can't get loans on Mobile Home Parks

Mobile home parks actually have some of the most options to get loans. In addition, they also have the lowest default rates out of all the different commercial property types. We like to teach our students at Commercial Property Advisors that the easiest and most popular way to buy MHP is through creative financing.

PART 5: 5 Tips on What to Look For

#1. Increasing Population Areas

When an area has a decreasing population, there is most likely a stigma attached to the area where people are leaving. Do not go there! You want to look for an ideal location with a growing and bustling population.

#2. Stay Away from 5 Star Parks

Stay away from these! The name of the game in mobile home park investing is affordability. By choosing a "high star" mobile park, your tenants will likely have the monetary resources to leave, which will not be good for you.

#3. Seek Out Mom and Pop Owned Parks

Mom and Pop owned parks are small, individual owners. Do not mess with the large institutions, as those will leave you with low cash flow and returns. At least a third of mobile home parks in the U.S. are owned my Mom and Pop operators.

#4. Minimum 10% Cap Rate

Strive for at least a 10% minimum cap rate going in, not after owning the property. After you own the property for a few years, expect cap rates to be higher, around 15%.

#5. Best deals allow for easy rent increases and cost reduction options abound.

Going into your deal, look at places where you can increase the rents every few years with ease. Some possible cost reduction options for you may be passing a few of the utilities over to the residents or improving the utilities to reduce its cost.

PART 6: 3 Big No-Nos!

#1. Hurricane Zones

Apartment owners are lucky enough to have hurricane insurance. However, with mobile home parks, where the homes do not belong to you, will leave you with empty land and destroyed homes that you can not fix. Your insurance will not cover the restoration of these homes. Your residents, because of their income levels, will likely not have the proper insurance to restore their homes.

#2. No-No #2 - Park Owned Homes

Park owned homes are mobile parks where you own the tenants homes. By owning just the dirt on the lot, all you have to be concerned with is the lot rent. A mobile home is a depreciating asset that you do not want to be responsible for.

#3. No-No #3 - Operating Permit Status Issues

Most people who are unaware of this will buy a mobile home park without looking into the operating permit status. The city must come and check the lot to ensure that it meets their standards. Make sure you know when the permit expires and what the statutes are so your MHP does not get shut down.

PART 7: How & Where to Find MHP

There are resources available to you online to begin looking for MHP deals.

LoopNet.com and CIMLS.com are some of the first places you should look for mobile home parks that are for sale.

MobileHomeParkStore.com is one of the biggest sites for mobile home park sales, with brand new listings being added every month.

1031CommercialProperties.com is a personal favorite, and another website for you to browse for MHP deals.

Direct Mail Campaign is a personal favorite, as you connect directly with the sellers, getting the best deals. You mail letters to sellers to tell them you are interested in buying, with the hope that they reply and connect with you. Pay attention to the word campaign in this, as it means you will have to consistently reach out to MHP owners and companies over a few weeks to get results.

Of the deals you look at, 20% will be potentially good deals, 30% deals will be marginal deals, 50% will be over priced.

PART 8: 3 Most Common Ways to Finance Your 1st MHP

#1. Bank Financing

When going to a tradition bank, expect to put down between 30-40% as a down payment. The interest rates are very competitive. The banks will be looking at 3 different things for your mobile home park investment. First, they will be looking at the income and expense for the MHP for the current year and last 3 years. They do this to ensure that you will have sufficient income to pay the mortgage and bills. The second thing they look at is the park condition and surrounding area. This must meet the bank's standards. Third, they will look at your credit worthiness. If you do not have credit that is up to their standards, you will have to partner with someone to get the financing.

#2. Seller Financing

With seller financing, you can be as creative as you want. The terms are usually better than a bank loans, and the down payment is typically less. Most people do 10-20% down payment. About 30% of mobile home parks are "free and clear", meaning that there are no loans on the property, allowing the seller to be the bank for you. You and the seller get to set the terms, not a bank.

#3. Seller Financing with Note Assumption

This means that the seller has a current mortgage on the property, but the mortgage can be assumed by you. A Master Lease Agreement can be put into place, if you do not want to assume the mortgage yourself. This method is my favorite. You will take over the property, paying all the bills, and receiving all the cash flow. Whatever price you both agree on, is the price you are topped out at. The wonderful benefit of this is if the property is worth more in a few years, you get the profit since you bought it for less!