Some investors are living under a cloud of shame over their investing strategy.<\/p>\n
Now, how could someone think an investment is something to be ashamed of? Nevertheless, a small number of investors have quietly lived under this cloud for years. That time is done for mobile home park investors.<\/p>\n
The stigma surrounding mobile home parks<\/h2>\n
Mobile home park (MHP) operators used to feel inferior to other real estate investors. There was a stigma attached to this realm, with despicable terms out there like \u201ctrailer trash.\u201d People thought these investors were nuts to own and operate a park catering to these tenants.<\/p>\n
This has changed dramatically over the past five years. Analysts from Green Street are even saying that mobile home parks are the darling of commercial real estate these days.<\/p>\n
The popularity of mobile home park investing has truly skyrocketed. BiggerPockets\u2019 own Brandon Turner<\/a> wrote about mobile home park investing in Forbes<\/a>. He is investing heavily in MHPs because of the difficulty in finding fairly priced options in other sectors, plus for various reasons he outlines in that article.<\/p>\n There was a popular strategy promoted in decades past by Lonnie Scruggs<\/a>. It involved buying used mobile homes and leasing them out. It seemed to work in the past, but most MHP operators run from this strategy as fast as their legs will carry them. Learn more about why in this post<\/a> from BiggerPockets.<\/p>\n Today, knowing how to buy mobile homes is an important skill needed to increase the profitably of a mobile home park.<\/p>\n Why? Because the park\u2019s value is a ratio between the net operating income and the rate of return. More specifically:<\/p>\n Value = net operating income \u00f7 cap rate<\/em><\/p>\n Everyone knows real estate investing can be a powerful way to build wealth and achieve true financial freedom\u2014but because each person\u2019s journey is different, knowing the first steps to take can be challenging.<\/p>\n<\/div>\n<\/div>\n If an MPH operator acquires a 100-space mobile home park with 60% occupancy and an annual net operating income of $200,000, the value would be about $2,500,000.<\/p>\n $2,500,000 = $200,000 \u00f7 8%<\/p>\n What if they decide to fill 30 of the 40 vacant lots with paying tenants? Assuming no other changes, this could raise the net operating income from $200,000 to $300,000 (50% increase in occupancy [90 \u00f7 60] = a 50% increase in income).<\/p>\n $3,750,000 = $300,000 \u00f7 8%<\/p>\n But let\u2019s say they bought the park with 66.7% debt and 33.3% equity. With the value of $2,500,000, that\u2019s about $1,666,500 in debt and about $833,500 in equity.<\/p>\n At the new value of $3,750,000, the $1,250,000 gain in equity translates to a return on equity ($1,250,000 \u00f7 $833,500) of 150%.<\/p>\n The leverage takes the asset appreciation and multiplies it by 3 times [1 \u00f7 (1.0 \u2013 0.67)].<\/p>\n So, a $100,000 investment in this park would be valued at $250,000 at the asset level. And this is before any other improvements or cost-cutting measures.<\/p>\n In addition to higher income and value, there are several benefits to raising the occupancy of a mobile home park. These include:<\/p>\n There are a variety of ways to find new and used homes for mobile home parks.<\/p>\n There are great financing options for park owners to purchase new mobile homes. For example, Warren Buffett\u2019s 21st Mortgage provides financing for park owners while they look for a tenant-buyer and up to 100% financing for mobile home tenant-buyers. As a park owner, you can shop for overstock mobile and modular homes that you can acquire at dealer cost.<\/p>\n When you become a dealer, you can buy new homes directly from the factory. This can save significantly on costs, and it will open up the opportunity to sell a few homes to outside buyers. You also can sell homes at a discount to tenant-buyers in your park and make a profit along the way.<\/p>\n You can drive (or have staff drive) through other area parks to look for FSBO (for sale by owner) signs in mobile home windows. Then you can make a deal to buy the mobile home and move it to your park. Plan to pay cash on the spot in exchange for the deed. If needed, go to an escrow agent\u2019s office to get the cash and sign the deed.<\/p>\n When other parks are shutting down, you can sometimes arrange to move their tenants to your park. You may be able to save on moving costs (in bulk) and fill up your empty spaces. Paying the cost to move the home is usually a big win for park owners (see the value formula above). In the example, 30 spaces translated to $1,250,000 in value. That\u2019s over $41,000 per lot. You can move the home and pay the tenant a \u201csigning bonus\u201d and still be ahead financially.<\/p>\n Many are surprised by the number of mobile homes that are listed on Craigslist. You should expect a mixed bag of older models that have been renovated and are move-in ready and mobile homes that need some love. Popular real estate marketplaces, like Zillow, also have mobile homes for sale on their websites. The ever-reliable Google is a good place to start a search, too.<\/p>\n The multiple listing service (MLS) always has a few mobile homes for sale listed. A requirement to access the MLS is being a real estate agent or broker. If you aren\u2019t one, you can easily partner with a licensed broker or agent.<\/p>\nWhy and how to find mobile homes for sale<\/h2>\n
\n![\"how](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/08\/how-to-invest.png\" "\\"Don't")
<\/source><\/source><\/picture><\/a><\/figure>\nUncover your investing strategy<\/h3>\n
\nMobile home park investing by the numbers<\/h2>\n
Benefits of raising occupancy of a mobile home park<\/h2>\n
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\n\nMore on mobile homes from BiggerPockets <\/h2>\n<\/div>\n<\/div>\n<\/div>\n
\nHow to find mobile homes for sale for mobile parks<\/h2>\n
Buy new<\/h3>\n
Become the dealer<\/h3>\n
Drive for dollars<\/h3>\n
Park closings<\/h3>\n
Craigslist and other websites<\/h3>\n
The MLS<\/h3>\n
FEMA homes<\/h3>\n