Mobile home park investing is filled with urban legend and misconceptions. Just as Jeff Foxworthy set back mobile homes about twenty years through incessant humor about mobile home “hillbillies”, the mobile home park side of the business has been pummeled as a “lesser” form of real estate investment. However, the reality of investing in mobile home parks is very different from the fantasy.
It’s not as scary as it looks
If you don’t know any better, a mobile home park can be overwhelming when you first drive in. But that’s only because it’s something you’re unfamiliar with. Most investors have never lived in a mobile home park, or seen one up close until they drive in. As a result, they don’t know where to begin. We have simplified the key drivers to profitability to just a handful of items: 1) property condition 3) rules violations 3) collections.
A fourth area (if the park has any) is the renovation and sale of any park-owned mobile homes. It’s vital that you remember that you are simply renting land – not homes. Since all other forms of multi-family revolve around owning and renting the dwelling units themselves, you have to keep reminding yourself that your product is only land, and that you don’t have to worry about the homes or the condition that they’re in, unless they present a hazard to public safety.
You’re in good company
It’s always reassuring to know who else is side-by-side in the business with you. The biggest owner of mobile home manufacturing and financing is Warren Buffet. And the largest owner of mobile home parks is Sam Zell, who has also been the largest owner of office buildings and apartments in the U.S. So the bottom line is that two of the most prominent investors in the U.S. are your peers.
Because a mobile home park is simply a piece of land with mobile homes “parked” on it, the business model is extremely simplistic. This is not rocket science – there’s no new technology that’s going to wipe out the way things work. This is about the simple concept of affordable housing; providing a decent, safe place to “park” your mobile home at a fair price.
One of the big attractions to mobile home park ownership is the fact that you don’t have to deal with problems like fixing toilets and broken windows. If you are used to owning apartments or duplexes – anything short of triple-net buildings – then you automatically assume that any form of housing comes with a lot of repair problems. Mobile home parks have a tactical advantage in that you don’t own the homes, only the land. I can’t emphasize that enough.
Tough systems required on rules and collections
The most difficult part about mobile home park investing is adopting and maintaining systems on collections and rules violations. The reason is that your customers have a pretty low demographic, and paying bills and behaving are not their strong suits. Our policies are rigid. We call our collections system “no pay/no stay” – if you don’t pay your rent, we evict you, with no exceptions. We call our rules policy “no play/no stay”, so if you don’t stick to our rules, we kick you out, no exceptions.
The less you are there, the better
Since you are just renting land, you don’t actually bring any “value add” by being there. So don’t go there that much. We visit each park no more than twice a year. Anything more than that – except in special circumstances – is a waste of time and money.
Easy to manage from far away, with the correct systems
Most of our parks are at least 500 to 1,500 miles from where we live. Mobile home parks are pretty easy to manage from far away. Remember that as long as the water and sewer are flowing, the roads have no major potholes, and the common areas are mowed and free of trash, then we’ve done our job and expect to get paid. You can run a park from a million miles away if you only use the correct systems.
Good news on financials all the time
The sole reason we are in this business is to make money. And mobile home parks have a lengthy track record of delivering good news in the form of beating revenue budgets and keeping expenses low. That’s because you can raise rents constantly, as the customers cannot afford the $5,000 cost to move their mobile home and have no choice but to pay the new amount.
Ride side of curve on all megatrends
Mobile home parks are in the right place at the right time. The American economy is in a state of continual decline, which is increasing the demand for affordable housing daily. On top of that trend is the fact that 10,000 baby boomers per day are retiring and downsizing their housing. There really is no trend in the U.S. that is not propelling mobile home parks higher in occupancy, rents and valuation.
The reality of mobile home park investing is that it’s highly profitable and very easy to do. The urban legend is that it’s like an episode of COPS. If you are trying to make money with real estate, mobile home parks are the sector you should be in. If your goal is to have non-stop action and shoot-outs with hillbilly residents, then a mobile home park is not what you need. The choice is yours.