Tag Archive for 'Mobile'

Mobile Home Park Money Trees

Mobile home park investors across the nation are raking in the dough while countless single family home real estate investors are struggling to turn a monthly profit. Okay, so it’s not exactly like investing on Madison Ave. However, if you have the knowledge you can do just as well as the Donald Trump in real estate. Just ask Jim Clayton of Clayton homes who sold his company and portfolio of mobile home parks to Warren Buffett for a cool $1.7 Billion dollars!

Why are mobile home parks the “red-headed stepchildren” of the commercial real estate investment world? Perhaps one of the reasons why most investors ignore this lucrative asset class, other than for obvious eye sore reasons and the negative connotation associated with mobile home parks (we like to call it the Jerry Springer effect), is because they believe it requires too much up front cash and a personal income statement well above their means. This might be true if you were trying to finance your property through a large bank, however many mobile home parks are purchased with much less than 20% down and with little financial reserves in the bank. In fact, many of these mobile home parks are purchased with seller financing.

Small to medium sized parks are typically owned by “mom and pop owners” that have been running or overseeing the managers of their respective parks for a long time. Many of these owners have mobile home parks that have a large vacancy due to the glut of repossessed mobile homes caused by the mobile home industry overheating in the late 1990′s. It is difficult for these owners to refinance or sell the mobile home parks conventionally due to the significant vacancies in their park.

Furthermore, some of these same owners prefer doing business the old fashioned way (without bankers / real estate brokers). In other words, a large percentage of mobile home park owners would rather take some initial financial consideration, make a nice profit each month off the interest on their note and not worry about the day-to-day issues of running the park. Additionally, many do not want to deal with a large tax problem if they sell the park outright. Sure they could 1031 exchange it into something bigger; but then they would be in the same situation all-over again.

Investing in mobile home parks is an absolutely beautiful thing! Not only is it a long term land play, but you have NUMEROUS ways to make money through multiple “profit centers” in a park. Single family homes and apartments are a “one trick pony” with only one source of revenue… the rent payment. It is much easier to achieve your financial goals with mobile home parks due to the following reasons:

1. The parks are usually in a less than favorable part of town. Therefore the land is cheap and you will be spreading that cost over numerous mobile homes.

2. Provided you purchased the right mobile home park, there will be vacancies for you to bring in extra mobile homes. (Yes, that’s right….you want at least 20% of the park vacant so that you have a huge upside!) You’re healthy, sharp and full of energy so you’ll improve the quality of the park, raise rents and maximize your rent roll. By the way, this will immediately increase the value of your mobile home park through the cap rate valuation.

Example

30 Space Park, $300 a month Rent Roll (50% Vacant) = $45,000 yearly rent

$45,000 – 15,000 (33% of rent goes towards Operating Expenses) = $30,000

$30,000 (N.O.I.) / 9.0 % (cap rate) = $333,333 (Your Purchase Price)

The Upside:

30 Space Park, 100% Occupancy, $320 a month rent roll = $115,200 yearly rent

$115,200 – $34,560 (30% park operating expenses) = $80,640

$80,640 (N.O.I.) / 9.0% (cap rate) = $896,000 (at 100% occupancy)

Over $500,000 profit!

3. If the cash flow of a park is low, you can add additional revenue by putting in a coin operated laundry mats, vending machines, lawn service, day care service, self storage, etc.

4. You can purchase mobile homes at a 40%-50% discount and resell them on terms (either with a lease option or note). Home ownership is the American dream so when you advertise “Own your own home, $2000 down, low monthly payments – Bad credit OK, call Boca Vista Mobile Home Park” your phone will ring off the hook, trust me. From there you take their down payment and have them sign your lease option paperwork that details the term of their loan with you. So why sell them one of your mobile homes….isn’t that an asset to the park you ask? Yes, but:

A. You now collect the lot rent. Pure profit with no additional expense.

B. Now you have someone in your park that has pride of ownership and will most likely take better care of the mobile home than a renter.

C. No costly maintenance. The buyer is responsible for all maintenance.

D. You can purchase the mobile home at wholesale cost and sell to your customer for retail. In many cases, you can double your money on each home. In addition, you charge an interest rate of 10-15%.

E. Some of your buyers will not finish out the loan term and will give you back the home in good condition. At that point, the property is 100% yours again, you’ve pocketed the $2000 option payment and you start the process all over.

As you can see, mobile home parks are an amazing real estate investment. Where else can you find an income property with so many profit centers (with the exception of self storage). Mobile home parks are huge cash cows and ultimately will become a land play. Take advantage of the untapped opportunity that exists today in the mobile home park industry before it is discovered by the masses!