Mobile Home Park Investing

Mobile home park investing is one of the most misunderstood - and most lucrative - forms of real estate investing. With cap rates of 10% to 20%, and cash-on-cash returns of 20% to 40%, it stands as the highest yielding real estate asset class. And with over 50,000 mobile home parks in the U.S. - and 35,000 of those still in the hands of the original "Moms & Pops" - there is opportunity in virtually every state in the U.S.

So what is mobile home park investing all about?

It started off with the Vanderbilt's

And the Rockefellers, and all the other wealthy families in the U.S. Back in the early days of the automobile, when you travelled across the country, you had to stop your car and sleep in tents, as the motel had not yet been invented. As the wealthy preferred better accommodations, they built luxurious "trailers" that could be towed behind their cars. And since cities and towns everywhere wanted these well-heeled customers to stay - and shop - in their town, they built "trailer parks" to park house these guests when they passed through.

World War II extended the prosperity

The logistics of building housing for thousands of troops necessitated large purchases of mobile homes by the U.S. government. At one point in the 1940's, the demographics of mobile home residents was higher than that of stick-built homes, as so many high-achievement veterans were on the GI Bill as they attended college.

The shift to affordable housing

As the decades passed, the customer base for mobile homes - and mobile home parks - changed. The residents of mobile home parks transitioned into lower-earning individuals and families. With this shift, the dynamics of the mobile home park industry shifted. Today, 8% of the American population lives in mobile homes. The modern mobile home is a testament to American ingenuity, as it delivers the lowest-cost form of detached housing in the country, producing homes for $30 per square foot or less (down to as low as $1 per square foot for used housing) as compared to around $100 per square foot for stick-built homes.

Affordable Housing is a giant industry

There are around 60,000,000 Americans who live in families that have $20,000 per year or less in earnings. These are people who make $10 per hour and less. This slice of America represents 20% of the entire population. If you assume that one-third of income should be used towards housing (and that's what the U.S. government says), then these families have only $500 per month to spend. And that only leaves two forms of housing that meet this budget: 1) mobile home parks and 2) apartments.

A product far superior to apartments

The average two-bedroom apartment in the U.S. cost $1,035 per month in 2010. So the only type of apartment you can afford when you have a budget of $500 per month is a lower quality unit. When you live in an apartment - especially low-cost apartments - you have loud neighbors on all sides of you. You are also in the hub of criminal activity. It's a lousy place to live and even worse to raise kids in. A much more satisfactory choice is a mobile home park. In a mobile home park, you share no walls with your neighbors. You also have a yard for the kids to play and maybe a dog to be fenced in. You have your privacy and your dignity. It is the very problem with apartments that makes the level of demand continuously high for mobile home parks. And there is no likelihood that low-cost apartments will change in the near future.

An investment like no nother

Probably the most unique aspect of mobile home park ownership is the fact that it costs around $3,000 to move a mobile home from one property to another. The reason the cost is so high is that "mobile homes" are anything but mobile. It takes significant work to disassemble, transport, set, tie-down, and skirt a mobile home. And this cost must be paid in cash up front. The result? About 95% of the mobile homes in the U.S. never leave the spot that they are originally delivered. From a landlord's perspective, this is heaven. When your tenant cannot afford to move, they must tolerate and pay all rent raises without argument. In addition, since tenants can never leave, mobile home parks have phenomenally stable revenues.

Few management worries

When you own a mobile home park, your product - your business - is renting land. Period. What goes on in the mobile homes, from stopped up toilets to broken windows, is not your problem. Your responsibilities begin and end with making sure that the water and sewer is flowing, the power is turned on, and the entrance and common areas are mowed. Many mobile home parks do not have any more than a tenant look after the property in exchange for free lot rent. This lack of management problems is a huge factor in the superior numbers that mobile home parks provide. Without management hassles, you have lower repair and maintenance and labor costs. It's also a reason that many park owners operate properties a thousand or more miles away from their home or office.

Plentiful seller-carry

In a world of difficult commercial real estate lending, mobile home park investing really soars above the rest. The reason? Most mobile home park owners are willing to provide seller-financing with a reasonable amount down. That allows you to avoid the frustrations, fees and lack of control that traditional bank lending entails. In addition to sellers carrying the paper on the transaction, that paper is normally non-recourse. In certain cases, such as incomplete prior financials or turn-around situations, zero down seller financing can be obtained.

Unbelievable numbers

Many people have the misconception that many mobile home park deals must be flawed or mis-represented since they show cap rates in the double digits. This is not true. Mobile home parks - as an industry standard - are bought and sold at much higher cap rates than other forms of real estate. The single biggest reason for this is simple supply and demand: there are more parks for sale than there are qualified buyers. Another factor is that most people have the wrong impression of the "trailer park" business, as a result of media hype and comedians such as Jeff Foxworthy, and do not consider it a worthy strategy. These same people would be shocked to find that Sam Zell is the largest owner of mobile home parks in the U.S. (famous for apartment and other real estate ventures) and that Warren Buffet is the largest owner of mobile home manufacturing and financing through his ownership of Clayton.

Operating parks is all about systems

Due to the few items that mobile home park owners are responsible for, successful management is entirely based on steady use of good systems. The key systems that owners must perfect are collections, bookkeeping, repair & maintenance, and tenant relations.

Collections are a top priority for park owners. Without cash in the door, there is nothing to pay bills with and make a profit from. And, obviously, lower earning residents have a much harder time paying their bills when due. The key to collections in mobile home parks is to press for payment relentlessly, with the immediate threat of eviction, at the earliest possible date. Normally, the rent is due on the first and late after the fifth. On the sixth, the legal demand notices go out and the evictions process begins. This constant urgency is required to not let tenants get behind.

Bookkeeping is very important in mobile home parks. The average park has 50 to 100 tenants, and the complexities are far beyond pen and paper. There are many accounting operating systems available for mobile home parks such as Rent Manager and Park Sidekick, but many operators are just as happy with simple Quick Books and Excel.

Repair and Maintenancein mobile home parks is very basic, and often centers around sewer clogs. Since many tenants cook with large amounts of grease, there is a continual issue with clogged pipes. This is fairly easily remedied by Roto-Rooter. Other common issues are pothole repair and water line breaks, which are simple issues of dispatching repairmen and making sure that the work is completed satisfactorily.

Tenant Relations in mobile home parks are very simple. All you ask is that the tenant pay their rent and follow some basic rules, such as no non-running vehicles and mowing their yards. Everything else that happens in the park is a matter for the police. Loose dogs? Call 911. Domestic violence? Call 911. Loud music late at night? Call 911. One of the key factors in a successful park is that it be treated like a residential subdivision. The tenants must not be babied, but act on the same principles as a traditional neighborhood - if someone is breaking the law, the police are called, not the park management.

How to find a park to buy

There are 50,000 parks in the U.S., and 35,000 are still owned by Moms & Pops. So how do you begin to find parks to buy? There are several ways, and they should all be worked simultaneously:

• Websites. The best of these are Mobilehomeparkstore.com and Loopnet.com. There are normally between 1,000 and 2,000 parks available on these two sites.
• Brokers. You can find a complete list of brokers on Mobilehomeparkstore.com. Call and/or write each one and tell them what you want to buy.
• Direct Mail. Postcards are an effective way to reach park owners. But remember that response rates to direct mail average 1%, so be sure to send enough post cards to make things happen.
• Cold Calling. This can be very effective if done continually and with good records kept of each call.
• Dropping by and talking to the owner. Normally reserved for the parks you are most interested in acquiring, this can sometimes break the ice.

Above all, get going now while there's still time

We are currently in a great environment to buy mobile home parks. Moms & Pops are getting old and want to sell. The economy is in a shambles. Not many people are bidding on parks. But this buyers' market won't last forever. You need to take action now, while the opportunities are still here.

There are many books, courses and boot camps on the subject of mobile home park investing. You can find most of them through Mobilehomeparkstore.com. Read and learn. You can get up to speed very quickly using these resources.

Conclusion

Mobile home park investing is the most attractive asset class in all of commercial real estate at this moment. It serves an ever-growing affordable housing market, and offers spectacular returns and frequent seller financing. It is easy to manage. More than anything else, it just takes knowledge. Get the knowledge. It's out there.