There’s no doubt about it. For the savvy businessman, entrepreneur or investor, mobile home parks present a solid and highly profitable business opportunity. However, there are some important facts you should be aware of before you jump in head first.
In this article, we want to tell you everything you need to know before starting a mobile home park business. No matter what form that business might take.
People will doubt your decisions for starting a mobile home park business
As soon as you’ve made up your mind to start a mobile home park business and start to tell your family and friends, expect a few surprised reactions. Few people still see mobile homes, and mobile home parks for that matter, as viable investment opportunities.
You can understand the skepticism. After all, mobile homes are still labeled as “affordable housing” and are seen as temporary in nature. For a while now, we believe that the only viable long-term investments are something as permanent as real estate. However, mobile homes and mobile home parks prove to be an exception for a number of reasons. We will make it clearer throughout this article.
You will see that solid principles make for the foundations of the industry. Additionally, you’ll be able to answer that same skepticism with confidence.
There are multiple ways to get invested in mobile home parks
Build your own
You could always go for broke and build your own mobile home park from scratch. We have to admit, starting with a clean canvas to create the mobile home community of your dreams does sound like a good idea. On the face of it, the requirements seem pretty simple; you will need:
- A large enough parcel of land, at least 3 to 5 acres, to accommodate the number of lots you need
- The proper permits and licenses from your local and state authorities
- The startup capital to build a park, install the utilities, and populate it with mobile homes
The first significant obstacle you would face is obviously the startup capital. Turning a blank piece of land into a space suited for a mobile home park does not come cheap. Complete with sewage, electricity, roads, lights, and security. Nevermind actually buying the home.
However, getting the necessary permits might just be your biggest hurdle. Especially considering that without them, you are at a dead end. Loathing the cities to zone new areas for mobile home parks happens simply for the use of much larger investments. And because of the stigma surrounding these parks.
This scares people, out of fear that it will drive neighboring property values down.
Flip an older park
Getting involved in the mobile home park business is probably one of the most popular ways in the mobile home park business. Plenty of mobile home parks are still owned by mom-and-pop owners who have owned that same park for decades. In many cases, these owners have lagged behind when it comes to raising the rent, sprucing up the park, etc.
To new investors, this presents a prime opportunity to buy a park with a lot of potential at a cheap(ish) price. They can also convert it into a money-printing machine. Without a doubt, actually upgrading the facilities is going to be hard work. But you will see it translate into more interest in your park and a higher overall value.
There are also plenty of real-life accounts where new owners were able to raise the rents basically overnight. This happens by doubling or tripling rent without losing a significant amount of tenants. This is down to how much cheaper mobile home park living is compared to other forms of housing. Also, with the rent not being kept with the times by their previous managers.
Invest in mobile home parks
If you don’t want to get directly involved with the running of mobile home parks, you can always become a mobile home park investor. Your job will be to scout for suitable mobile home parks to add to your portfolio. Depending on how much backing you have and your own available money, you could either purchase these parks outright from the owners or buy shares in the park.
Some investors even just buy lots or homes in various mobile home parks that they deem will perform well. Then take the future income of the lot while paying lot rent to the park owner.
Whichever form suits you best, once you have built up a proper portfolio that’s performing well, you can open up shares to other investors. This will effectively create a mobile home park investor fund. Here is an example of such a fund by Park Street Partners.
If you have an interest in starting a similar business, it’s worth reading about the journey of Dan Weissman and David Schlachter. These guys never looked back once they began. We have also provided a guide on getting you started in mobile home park investing.
You don’t have to run the park yourself
Just like there are multiple types of mobile home park businesses, there are also multiple ways to manage one. In this section, we’ll be addressing the concerns of those who directly own a mobile home park. Chiefly, we’ll look at managing the park yourself vs hiring a management team.
Manage the park yourself
Let’s make one thing clear from the very beginning: managing a mobile home park is a full-time job. There is no such thing as collecting passive income. Especially if you, or you and your wife, are the sole landlords of a mobile home park. These tasks will soon swallow up your free time: making sure all the utilities are in working order, addressing tenants’ concerns, collecting rent, and managing the other aspects of your business like leases, taxes, paying salaries, etc.
Unless it’s a very small park, you would probably need to hire at least a groundskeeper. Perhaps also professional accounting services. Get the help as needed. We have written a guide to help you manage a mobile home park.
Hire a management team
If you want your park to represent a passive source of income, you will want to go with this option. It might even free you up to, in time, buy another park and act as an overseer. You can’t afford to turn a complete blind eye to your park as this can slowly lead to the management becoming lax and slipping in their duties. However, it will take a lot of hard work off of your hands.
In our article, How to Build An Outstanding Mobile Home Park Management Team, we help you assess your staffing needs in both these instances.
Mobile home parks present a prime business opportunity
Ok, so now let’s look at why being involved in the mobile home park business is such a good place right now. After all, we wouldn’t want you to just take our word for it. The things that make it such a good opportunity actually go right down to the basic economic principles of supply and demand.
The situation in the U.S. at the moment is that of more and more people sliding from the middle-class into what we would traditionally consider as “poverty”. Simply put, fewer people can afford to live in or buy real estate. In general, those in charge presents these people with two options: to either move to an apartment or to manufactured housing.
There are a number of reasons why mobile homes are much more attractive, especially to people who used to or aspired to live in real estate. For one, you can still get a sizeable home on a piece of land with a front and backyard. Secondly, it’s typically still cheaper to live in a mobile home than in an apartment. The typical rent for a home plus lot is around $600-$700 whereas the average apartment rent is still over $1,000. Thirdly, affordable apartments are small and mostly located in “bad, inner-city neighborhoods”.
This stands in stark contrast to the typical mobile home park that’s located just outside of city lines. And they look lush, green, and spacious.
As you can see, this puts mobile homes, and therefore mobile home parks in a unique position. They face very little head-on competition and provide amazing value for money. Mobile home parks generally have no problem maintaining decent tenancy rates. Furthermore, they have much smaller operating costs than a typical real estate development.
For investors or buyers, this means a much higher rate of return once they buy a park than with real estate. As high as 10% or more, in fact.
It’s a golden window of opportunity that’s slowly shutting
You might be wondering: “If mobile home park investments are such a great opportunity, why would it be closing down instead of bursting wide open?” Good question! The answer is that despite the growing demand and interest, research suggests that parks are actually declining.
The reason is not that they are shutting down because they aren’t making money. Mobile home parks are often located on prime property just outside of city limits that can be used for much larger projects. This leads to these parks regularly being bought out for exorbitant prices to be demolished and make way for malls, office parks, etc.
At the same time, the growth of new mobile home parks is stunted by the fact that cities are reluctant to approve them from being constructed. As we mentioned, this is partly due to the stigma attached to mobile home parks. Residents fear that it will adversely affect their property value, bring crime and will be an eyesore. Reality shows this is not to be the case. However, perceptions are slow in changing.
Another reason is also that they want to reserve that land for large developments.
This means that the supply simply can’t keep up with the demand. Unless other factors change, chances are that your park(s) will only become rarer and more valuable with time.
You might struggle to get traditional financial backing
Despite a lack of proof pointing to this, mobile home park investments are still seen as inherently riskier. This is partly down to it being a much newer occurrence than real estate investing and partly down to the perceptions surrounding mobile home parks. Moreover, partly due to a few dodgy dealings that still happen.
This means that you might find it hard to secure financing from a bank or traditional lender for the type of loan needed to buy or build a mobile home park. In most cases, you will be better off looking for alternative means like investment funds, seller financing, a wrap mortgage or hard cash.
These forms of financing, however, are riskier than those you get from a bank. So, we urge you to exercise caution when looking into them. One thing that could help you land more legitimate forms or financing is to come up with a professional and complete mobile home park business plan.
You may be in for a whole lot of hard work
We don’t want to scare you here near the end of our article. Rather, just give you the truth. No matter what form of ownership or investment you will pursue, how involved you will be or what day to day responsibilities you will have, a mobile home park business will be a lot of work.
A mobile home park is a multi-faceted piece of property with many layers to it. In terms of physical assets, you have the lots, utilities, homes, facilities, etc. When it comes to the people involved, you have staff, tenants, management, and the local authorities.
The further removed you are from the day to day running of the park, the less of these worries will be on your plate. However, that will also mean you get less out of it in the end, as you need to pay others to fill the gap.
That being said, a mobile home park still provides an amazing opportunity to create a healthy passive income for yourself that shows no sign of going anywhere anytime soon. But, you should make sure that you know what you get yourself into beforehand!
Now that you’ve got all the info …
Those are the most important things you need to know before starting a mobile home park business. On our blog, you can find plenty more articles dealing with the practical ins and outs of managing a mobile home park. We hope that this article provides you with a good starting point and the conviction to carry it through.
To find out if mobile home park management or ownership is for you, check our articles 5 Terrible Reasons To Buy A Mobile Home Park and 5 Kinds of Mobile Home Park Owners | Which One Are You?