Mobile home parks offer some unusual advantages over other forms of rental properties, and most of these attributes just get better with age.
The first advantage of mobile home parks is supply and demand. The supply of available parks is limited, and most cities intend to keep it that way. In most major U.S. cities, ordinances make it impossible to build a new park. At the same time, every year a few more parks are torn down to make room for new development. As a result, the permit value of your park today will actually gain value over time, as there can be no competition built near you in the future. Is there any other type of income property with this advantage? I’m not aware of it.
The second positive attribute of the mobile home park business is the low tenant turnover. In a mobile home park, the tenant has a barrier to leaving of about $3,000—the cost of taking down, moving and re-installing the home. As a result, the tenant often has no negotiating room and must put up with rent increases when they occur. No other business has the blatant restraint of trade that the park business does.
A third benefit is the absence of structures to maintain in a mobile home park. Unlike the owner of an apartment building or strip center, you are renting land. As a result, you do not have to make constant capital expenditures such as roofs and painting. In a typical park, the only structures are laundry rooms and clubhouses; many parks have neither.
Older parks, of course, require more maintenance expenses than new parks. Utility infrastructure and roads are the most major items that need repair. Clay tile sewer lines that are collapsing or full of roots and water lines with galvanized piping where the unions start to link need to be updated, and electrical boxes with 50 or 100 amps need to be updated to 200 amps to service the newer all-electrical manufactured homes.
A fourth benefit of parks is in income tax depreciation laws. Apartments and other structure-intensive commercial real estate are generally depreciated during a period of 27.5 years. However, for mobile home parks, the depreciable costs are typically in the roads, water lines, sewer lines, electric poles and so on. These are considered land improvements for income tax purposes and are depreciated during a period of 15 years. This increased depreciation over the first 15 years can be a major tax benefit for investors.
Other benefits of park ownership include the solid, continual demand for affordable housing and the ability to obtain institutional non-recourse financing. I’ve heard from several lenders that their desire for mobile home park loans is a result of the low default rates on those loans. Many banks and conduit lenders are aggressively seeking mobile home park loans. And, in an age of greater loan scrutiny, there are fewer trends of concern in parks than in any other real estate asset type. Indeed, some would argue that the park business gets better in times of national recession, as many stick-built home buyers are forced to buy mobile homes instead.
Even though the supply of parks available to purchase is limited—there are approximately 50,000 mobile home parks in the U.S.—and more and more savvy investors are discovering this asset class, there are still opportunities to get into the business. While there are a few websites out there that list about 1,000 mobile home parks for sale, the least advertised or newest listings often offer the best opportunities. In addition to staying on top of the listings online, you should stay in contact with brokers who specialize in selling parks, drive through parks in areas in which you are interested, make cold calls, send direct mail to parks expressing your interest to buy and any other means you feel would be beneficial to finding a great property.