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Despite the stigma, mobile home parks are often well-maintained communities that offer access to the affordable housing many areas need. They’re also attracting attention in the investment community, as investors look for recession-proof assets to diversify their portfolios.
Is investing in a mobile home park truly lucrative? Let’s look at the pros and cons of investing in a mobile home park.
What is a mobile home park?
A mobile home park (MHP) is a designated lot for communities of mobile or manufactured homes, which are built in a factory on a permanent chassis. Technically, homes built after 1976 are referred to as manufactured homes, which are considered safer than the previous types of mobile homes.
Most mobile home park residents own their homes but rent the lot or space the home is located on within the park. MHPs can have dozens of units depending on the lot size, as well as common spaces and community amenities.
Ways to invest in a mobile home park
Real estate investors looking to expand their portfolios into mobile home parks have many options, including:
- Purchasing the land to establish a park
- Purchasing an existing park
- Passive mobile home investing through joint ventures: An LLC purchases the property and sells a stake in the property while holding most of the equity
- Investing in manufactured housing REITs
The largest profits will come from purchasing a mobile home park outright. Since many mobile home parks are owned individually, checking for properties listed for sale by owner (FSBO) can lead to a good deal.
5 pros of investing in a mobile home park
1. It’s lucrative
The affordability of manufactured and mobile homes ensures high demand, which translates to a steady stream of residents.
The average cost of a mobile home in October 2022 was $128,300, according to the U.S. Census Bureau. At a time when many Americans are straining to find affordable housing, the prices for a mobile or manufactured home can be persuasive. Mobile home parks also have some comfort advantages over apartment units, such as increased living space, privacy and separation from neighbors.
Most residents own all or part of their manufactured home, so they pay the park owners to rent out the lot itself. The more lots you have, the more money you can make. The affordability of mobile homes also allows owners to explore rent-to-own programs for residents without enough credit to purchase outright, adding another potential source of income.
2. MHPs require less maintenance
Most MHP residents own their homes, so they’re responsible for the regular home maintenance activities and associated costs. You, as an owner or investor, would not have to cover the cost of maintenance and upgrades to the extent you would in an apartment building.
You will, however, have to cover the cost of maintaining communal spaces, such as parks, pools, fitness centers, or playgrounds.
3. Incentives as an affordable housing provider
Owning and operating a mobile home park may qualify you for special government incentives related to affordable housing.
The government has acknowledged mobile homes as a potential solution to the housing crisis, and many states have created incentive programs to aid buyers and developers in financing an MHP purchase.
4. Low tenant turnover
Manufactured home parks make it easy for tenants to purchase and stay in their homes. If a resident decides to leave, however, the costs and hassles involved in moving a unit make it more practical for tenants to sell their mobile home outright.
Mobile homes do not appreciate in the same way as regular builds, so once a mobile home is in a lot, it’ll stay there. This means you, as the owner, wouldn’t lose that income if a resident decides to sell and move. You’d simply have a new tenant paying the lot rent.
5. Tax advantages
Mobile home parks are tax efficient. Investors in MHPs qualify for some tax advantages because of the community’s rate of depreciation, or the value lost over time. Expensing that depreciation helps owners lower their income taxes from the properties.
4 cons of investing in a mobile home park
1. Difficulty evaluating potential properties
Because so many mobile home parks are owned by individuals, it can be difficult for investors to get a clear picture of an MHP’s financial details. Without consistent financial reporting standards across the market, investors can expect to spend a lot of time and hard work understanding an MHP’s true income and worth.
It can also be challenging to evaluate the condition of units if you’re buying a park and its available homes, as well as the condition of utilities like sewage.
2. Everyday management can be challenging
Even though you aren’t responsible for maintenance on individual units, you are responsible for maintaining community rules and standards, and addressing community-wide problems as they arise.
It’s in investors’ best interest to have standards for maintenance on each unit, but enforcing those standards can be challenging. You would also be responsible for enforcing community policies around common space and the park’s income and age restrictions.
3. You may face local restrictions on MHPs
Investors looking to purchase land to develop into a mobile home park may face roadblocks from state and local laws. Not every empty parcel of land is zoned for use as a mobile or manufactured home park.
Your city or county may also have rules about where you can build a mobile home park, or limit how many lots are allowed. These rules could impact the demand for manufactured homes, especially if local regulations restrict MHPs in certain areas.
4. You’ll see less appreciation
Mobile home parks typically experience less appreciation as parcels of land than other real estate assets. Mobile home park investors won’t be able to expect the park’s value to increase or appreciate without investing in expensive renovations or upgrades in common areas.
The manufactured homes themselves don’t have the longevity of traditional builds, even with regular maintenance. This requires having a critical mass of occupied lots to avoid losses as some of the homes start to deteriorate or need replacing.
Mobile home parks can be profitable investments
Mobile home parks are growing in popularity among savvy real estate investors. Manufactured home parks have a high potential for profit with less maintenance and upfront work than a traditional multifamily investment.
Still, the responsibilities of a mobile home park are not for everyone. Many investors can develop a diverse portfolio of real estate investments without taking on the risk of a mobile home park.
Luke Babich is the CSO of Clever Real Estate in St. Louis. Connect with him on Facebook or Twitter.
