The best choice of your home living

Posts Tagged ‘Mobile’

Just about anybody who watches late night TV, or receives email, or reads, knows that there are hundreds of people promoting concepts to make money in single family homes. “Buy foreclosures”, “profit from short sales”, “wholesale houses” – there are at least 1,000 different concepts. Unfortunately, the only people who actually make money in many of these ideas are the promoters. There are so many people chasing after single-family homes to invest in that the market is beyond saturated, and any profitability has been extinguished.

How about looking at something that few people are involved in and that actually generates money for the investor – not just the promoter? That real estate niche is mobile home parks. And they have offered superior returns to the lucky few who comprehend them for several decades.

It’s all about the cap rate

Single family homes suffer from low, or often negative, “cap rates”. A “cap rate” is the actual return on the debt and equity of the investment. A typical single family home investment of a $100,000 home normally rents for $900 per month. However, before you think that it’s a $900 per month return on your $100,000 investment (which is about a 10% “cap rate”), remember that you have to take out property tax (about $200 per month), insurance of about $100 per month, and repair and maintenance of another $200 per month (I’m speaking about those big-dollar fixes like roofs, etc. averaged over time, too). So your net income is only $400 per month, which is a 5% cap rate.

Mobile home parks make at least double that amount. Good mobile home parks have a 10% cap rate or better.

So right off the bat, mobile home parks make about 100% more per year than single-family investments.

It’s hard to near rents in single family homes

Single-family homes are plentiful. Your local newspaper is bursting with homes for understanding or rent. As a result, it is very hard to increase rents – in fact, the norm these days is to decrease rents with single-family homes. In many markets, there is a terrible spiral down in rents as investors effectively bid against apiece other to attract tenants.

Mobile home parks are in very limited supply, by comparison. In most cities, you can't obtain permits to build mobile home parks – and you have not been healthy to for decades. As a result, the supply is limited, and there are few competitive forces to contend with.

It’s another important point to note that it costs $3,000 to move a mobile home from point A to point B. That’s why 95% of mobile homes only move one time – from works to mobile home park – in their entire lives. As a result, you can raise your rent level 5% to 10% per year and not lose a single tenant. Few tenants are willing, or able, to spend $3,000 to move their mobile home over a $20 per month rent increase.

Single-family home investors know too much

Your average single-family home seller is pretty sophisticated. They’ve purchased and sold several homes, and know pretty accurately what the correct price should be. And they normally have debt on the house.

Mobile home park sellers are typically “mom and pop” owners, who are very unsophisticated. They often price their park for a fraction of what it’s actually worth. And they rarely have any debt. As a result they can often carry the financing themselves – at below market rates and with non-recourse.

Conclusion

There is a lot more money in mobile home park investing than in single-family home investing. That might be why there are five publicly-traded mobile home park real estate investment trusts (also known as REITs) and there are zero in single-family homes. That might also explain why Sam Zell, one of the top real estate investors in the U. S. , is one of the largest owners of mobile home parks in USA – and not a single family home speculator.

If making money is your goal, you should look into mobile home parks, and not single family homes.

When you hear the words “mobile home”, what do you immediately think? Hillbillies with rebel flags in their windows? The show “Cops”? Sure, that’s the stereotype, but the truth is that a large number of Americans– about 20 million of them–live in mobile homes. And the demographic make-up of this group is not much different from normal residential subdivisions and apartment complexes.

Another little-known fact about this niche is that you can make excellent returns by investing in them- with amounts as low as $5,000 to $10,000. Returns in the neighborhood of a steady 10% to 20% per year. Compare that to your current successes in the stock market and the rate on CDs at your neighborhood bank and you’ll see that those type of year-over-year returns are really pretty extraordinary.

So how do you invest in in this area successfully?

Get an understanding of the product.

Mobile homes are not constructed like the type of traditional “stick-built” housing that you are more familiar with. For example, a mobile home has no load-bearing interior walls. It is like a shoebox–only the exterior walls are load bearing. In addition, the utilities normally follow certain “troughs” that grant for easy access. You can find some cut-away drawings of mobile homes on the world wide web and you will be shocked at their simplicity. This simplicity, however, pays huge dividends when it comes to fixes and remodeling. Unlike traditional home construction, a mobile home grants for an amateur to do a perfectly fine job.

You should go to a local dealer and achievement through some homes–including some older trade-ins that are probably at the back of the lot–to get a feel for what the product is.

Get an understanding of what the customers’ needs are.

These type of homes are the least costly form of detached housing in the U. S. As a result, they appeal to lower-income Americans- often folks who acquire minimum wage. This group is not almost as demanding as buyers with higher earnings who are looking at much more costly housing options. That’s not to state that they have no standards, because they do. But their standards are much lower and much easier to satisfy. Many of the cosmetic issues that you would find objectionable in a $100,000 home are perfectly fine in a $10,000 mobile home. These include stains on flooring, surround taping and bedding, calibre of paint job, condition of appliances, etc. These reduced expectations make the investor’s life much easier, as it takes less to make this type of investment ready for sale, and it is much easier to meet the demands of the customer.

You should look at some of the mobile homes for understanding in the newspaper to see what is offered in your market, as well as the price points. You will be astonished at how “rough” many of the offerings are, and how low the price points are.

Team up with a mobile home park owner.

Many owners would love to work with investors to purchase and sell homes in their parks. These types of relationships are essential, as a successful investor will need certain concessions from the park owner to ensure that they get a good return on their investment. These concessions include free lot rent at any time that the home is vacant, help on marketing the home, and sometimes financial bonuses for apiece home sold.

Start small and add-on based on performance.

The proof is in the pudding. Begin off with one investment in a mobile home- maybe $10,000 to purchase one home. From this one investment, you will learn a tremendous amount about the process, from choosing a decent home to marketing and real-life profit and loss. A normal deal will have a return on your money of 10% to 20% per year. There are certain instances when you will have a much higher return- 50% or more- but these are rare and should not be taken as the norm. Anything less than 10% is objectionable and you should examine what you did wrong and learn from it.

When you “partner” with a mobile home park owner, they will take a vested interest in your success and your odds of making a higher return are much greater.

Conclusion.

There are few options this day that offer 10% and greater real returns on your investment dollar. One of the safest is mobile home investing. It’s a easy product that appeals to a easy customer. It is not subject to changes of technology that render it useless, or to changes in taste that make it no longer attractive. It has been around, undisturbed, for over 60 years.

Jeff Foxworthy makes very funny trailer park jokes. COPS has a heyday filming scenes of intoxicated people at some of the worst mobile home parks in the U. S. But you have to comprehend that these are promotional stereotypes–and not the norm. The normal mobile home park resident is just a regular mortal making their way through life–and offering you a very handsome return on investment.