So, you’re ready to start investing in mobile home parks? Then we have a question for you: can you spot a bad investment? Do you know what to avoid?
With these questions in mind, let’s discuss a few of the red flags to look out for as you pursue investing in mobile home parks. These tips will help you to decide if a mobile home park is a terrible buy. Plus, they’ll help prepare you to make better, more informed decisions.
#1 High numbers and shady sellers
High numbers and shady sellers are a bad combination. You don’t want to be drawn into a situation where you are pressured or being taken advantage of in any way. But how would you know? How can you spot a fraud, especially if you’re a new real estate investor? Let’s take a look at one of the most common warning signs.
If the mobile home park has been sitting on the market for months or years…chances are there’s a good reason! This situation is worsened if the seller hasn’t lowered their price in that space of time. A high price combined with a low level of interest from buyers is a definite red flag. There’s no reason you can’t try to negotiate a more reasonable price, but if the seller won’t budge, don’t stick around.
Obviously, such an investment wouldn’t be worth the price. And this is why: As an investor, after you purchase the property you’ll be making changes. Maybe you plan to fix up the park and look for tenants who are willing to pay a slightly higher dollar figure to live there. However, if you cannot purchase the park and have a renovation budget and make a profit, then it’s not worth it.
#2 Bad location
How do you know if a park is in a bad location? One indicator is tenant records. Ask the seller to show you records of things like profit margins and number of rentals vs. number of vacancies. Reviewing the right records can tell you if many renters are moving in or out. If there is a large number of people moving out, and they’re not being replaced by new tenants, that’s a sign that the park is in a bad location.
Know the local real estate market inside and out before you purchase a mobile home park. In addition, take a look at the surrounding areas for yourself. Are there good schools nearby? Grocery stores, recreational areas, and other essentials such as hospitals? If not, you should probably reject the area as a possibility.
Although discounts aren’t always the scheme of an underhanded seller, be very careful when approaching a situation involving discounts. If a park is priced at a shockingly low point, the first step is to find out why. Don’t rush in and give the seller an offer. That would be a mistake.
Are low numbers a bad sign?
There could be a few reasons a park owner is lowballing it. Low numbers are not necessarily a bad sign. A legitimate reason would be something like personal circumstances. Is the seller moving, retiring, or switching jobs? Is it vital he or she get rid of their investment properties in a hurry because they are unable to care for them anymore? If so, that might be a perfectly safe investment.
On the other hand, discounts can mean trouble. Maybe the park is in a terrible location. Once again, it’s critical that you, as an investor, know the market in the area you’re planning to buy in. Scout out the area. It could be that the seller is desperately trying to pawn the park off to get out of a rapidly slumping market.
Low numbers can also indicate a boat-load of underlying maintenance issues. Imagine buying a pristine park in a fabulous location only to discover that the sewer system is a mess.
Think about it
The bottom line is, don’t let a shiny, low price tag distract you from looking at every aspect of the investment. Think long and hard about potential investments and you’re sure to make good decisions. If you buy a cheap park, are you prepared to spend thousands of dollars to repair the issues you find later on? No one likes being surprised in that way. Don’t let the seller talk you into skipping any part of the evaluation process, either. Always have a professional to do a thorough inspection before you buy.
Be a savvy park investor
The longer you immerse yourself in the world of investment, the easier it will be to spot a bad deal. We predict that before long, you’ll be making fantastic investment decisions left and right!
In short, know the seller, buy for location, and inspect the property thoroughly! If you do those three things, chances are your mobile home park search will be rewarded.