Multifamily homes and commercial buildings might be popular real estate investment opportunities. But there is another category that has caught the eye of investors lately – mobile home parks.
Some of the biggest institutional investors and real estate companies are betting big on manufactured housing in the US. Titans like Warren Buffet are bullish on the prospects of the market.
Here are 6 Reasons Why Mobile Home Park Investing is Becoming More Popular.
1. Low Maintenance Costs
The owner of the mobile home park is only responsible for the maintenance and repairs of the park. This could include landscaping, maintenance of the community pool, and costs associated with shoveling snow. The owner does not have to bear the cost of home repairs. Thus, there are no plumbing issues to take care of or faulty wiring to fix. The mobile-home owner has to bear these costs. Land maintenance is, usually, an annual or a bi-annual affair. Thus, compared to investing in a rental property, investing in a mobile home park is a lot more hassle-free.
2. High Demand
The cost of housing in the US has been increasing faster than people’s incomes for several years, now. Almost 33% of households in the US spend more than 30% of their annual income on housing. It is even worse for people who earn less than $25,000 a year. This has resulted in a demand surge for affordable housing and mobile home parks are one way to meet the demand. There is also the factor of improved quality of more mobile homes than ever before. Manufactured housing is comparable to on-site housing, today, which is attracting a lot of young professionals to low-income housing and community living.
While there is a surge in demand for mobile homes, not enough are coming up, and not fast enough, anyway. There are land-use regulations in place in several areas due to factors such as zoning. And there are geographical constraints, too, which limit the number of free land spaces that can be converted to mobile home parks.
This supply-demand gap is unlikely to be bridged anytime soon, which is good news for investors.
3. Low Turnover
Typically, it can cost a mobile-home owner between $5000 and $10,000 to shift their mobile home to a different community. The high cost associated with moving keeps tenant turnover low in mobile home parks. The case is not so in rental properties. Tenants do not have to move the entire unit when shifting to a new community. They can simply pack their bags and leave, which means as an investor, you might have to deal with high vacancy rates.
4. Low Risk
High demand and low turnover translate to low risk. The higher number of mobile homes you have in your park, the lesser is your loss on potential revenue. And since tenants are less likely to leave, there is lesser risk of your investment turning bad. Mobile home parks have one of the best capitalization rates in the US. The average cap rate for mobile home parks in the US is 7-10%, which is at least 2 percentage points higher than apartment building (5.6%). The high capitalization rate translates to healthy cash flows.
5. Tax Benefits
You get tax deductions on depreciation. Depreciation for multifamily buildings can be calculated on a 27.5-year schedule. The same for commercial buildings is 39 years. However, most of the elements of mobile home parks depreciate on a 15-year schedule. That’s because a lot of the elements of mobile home parks are roads and utility lines. Accelerated depreciation means mobile home park owners enjoy higher tax deductions, which boosts their cash flow even further.
6. Several Income Streams
In multifamily buildings, rent is your only income stream. When you own a mobile home park, you can generate multiple income streams. There is income from renting out space in your park. You can also buy several mobile home units and lease them out to rent. The cost-per-unit of a mobile home is much lower than that of an apartment, which makes it a very feasible option, even for small investors. You can also lease out additional garage spaces for rent, and even give out master leasesif you see fit. There are several ways you can make money from mobile home parks.
Mobile Home Park Investing Can Also Be Recession-Proof
Whenever a recession hits, people look to downsize their homes. Since mobile homes are in the affordable housing category, it is impossible that a recession will hit the market adversely. A recession is likely to see a surge in demand for affordable housing. That can be an opportunity for owners to demand more rent from mobile-home owners, thus increasing their profits.
There is also the benefit of portfolio diversification with investments in mobile home parks. Multifamily homes and commercial real estate can be risky investments, given that they are much more sensitive to market movements. Investing in mobile home parks can provide the much-needed cushion to ride out a storm.
How to Find the Best Mobile Home Parks to Invest in?
You could browse listing platforms or reach out to owners directly and see if they are looking to sell. ProspectNow makes the process a lot easier, though. ProspectNow has one of the largest databases of commercial and residential real estate, including mobile home parks. We have accurate ownership details of millions of investment opportunities. We even use predictive analytics to inform you about listings that are not on the market, yet.
Get started for free with ProspectNow and find the next best opportunity to invest in real estate.