Ever thought about investing in mobile homes? Here’s what you should know.
Ways to Invest in Mobile Homes
- Rent-to-Own (RTO) — Offering RTOs is a common way to invest in mobile homes. An RTO agreement done right will benefit both you and the end buyer of the home. You will purchase the home and hold the title yourself. Then, you’ll find a buyer who wants to make affordable monthly payments with the idea that they could eventually own the property. You’ll act as landlord, collecting rent each month. You’ll set aside a portion of each month’s rent to be used as your renter’s down payment. After a certain number of years, the renter can purchase the property from you by paying the balance and you can move on to your next investment. Alternatively, they could choose not to buy and you’ll pocket the extra money that you set aside from each month’s rent.
- Straight Rental — You can simply purchase and rent out a mobile home just as you might do with any type of property. This will give you monthly cash flow.
- Rehabilitate and Resell — If you don’t want to hang on to the mobile home but you still want to get into the mobile home investing business, you should look into flipping used mobile homes. There are plenty of older mobile homes out there that need work.
The Pros of Mobile Home Investing
- Many sellers will accept payments — In mobile home investing, seller financing is common. It allows you to make payments to the seller without having to deal with banks. Alternatively, if you have the cash, you can have excellent results by paying cash up front. This is also a good way to beat any competition that you might have because very few other mobile home buyers will have the cash to purchase a mobile home without making payments.
- Cash flow every month, if renting out — If you choose to rent out your mobile home or you go the rent-to-own route, you’ll be getting a steady flow of cash each month. It might not be much, but if you set it up right, it’ll be enough to make a profit. Even if the mobile home continues to depreciate over time, the cash flow will stay.
- Resell for profit, if you go the rehab route —Mobile homes are usually easy to fix up because they are so simple in their design. Repairs are less costly than they are for traditional homes. As with any flipping business, you’ll need to develop a good eye for properties that are undervalued and relatively cheap and easy to fix. Get good at this and you could make thousands of dollars on each flip.
- Low competition (probably) — In many areas, there are few or no mobile home investors. Maybe it’s the stigma surrounding mobile home parks. Maybe it’s the fact that mobile homes depreciate faster than other types of properties, or investors don’t want to deal with HOA and site rental fees (both valid concerns; we’ll get to those in a bit). Do your research and find out if there are many other mobile home investors in your area. If not, you might have hit the jackpot!
- Buyers need a way to make monthly payments — Let’s say you have purchased a mobile home with the intent to rent it out or sell it. In this case, a rent-to-own situation is excellent because it benefits both you and the end buyer. People who want to buy a mobile home usually don’t have a whole lot of savings. This means that they need to make monthly payments. Unfortunately, though, most banks won’t lend them money to buy a mobile home that is part of a park. Since they can’t go through a bank, and since they want to be able to make affordable monthly payments, you are one of their only options.
- Buyers are motivated to stop renting — Most mobile home buyers are in the stage where they want to stop spending their paychecks on rent each month, but they also aren’t able to save enough for a down payment on a house. With the rent-to-own agreement we talked about, they can still pay an affordable monthly amount while working toward owning their own place.
The Cons of Mobile Home Investing
- Depreciation — The biggest downside of mobile home investing is depreciation. Except for in a few select areas (such as Silicon Valley) where demand for properties is very high, mobile homes are pretty much always depreciating in value. Since there’s rarely any appreciation, you’re unlikely to be able to sell it for a profit unless you get a distressed property for a good price and are able to rehab it for a good ROI.
- Restrictions by mobile home parks — Unless you own the whole mobile home park, you won’t have total control over who can live in the mobile home. You won’t have full control over remodeling, either, because most parks have rules similar to an HOA.
- Site rental fees — Since most mobile homes are in a park, you probably won’t actually own the land that the home is sitting on. You’ll have to pay rent to the mobile home park.
- Repair and maintenance expenses — Just like renting out any property, you are responsible for the repair and maintenance expenses for as long as you own the property. You’ll need to make sure that the monthly rent is enough to cover these expenses, or it’s a bad investment. This issue can be mitigated by having a great maintenance person. If you already own properties, you likely already have a good maintenance person or team on hand, so you’re good to go here.
- You might have to pay cash —Like we said in the “pros” section, many sellers will let you make payments to them — but sometimes, the only option is to pay cash up front. If you don’t have the funds to do this, mobile home investing might not be the right choice for you.
The Bottom Line
When it comes down to it, it all depends on the market you’re in. In some areas of the country, it could be a total wash. In other areas, mobile home investing could be exactly the niche you’re looking for.