Mobile Home Park Investing 101: Are Park-Owned Homes an Asset or Liability?

Introduction to Mobile Home Park Investing & Park-Owned Homes

The question of whether park-owned homes within mobile home parks are good or bad for investing purposes is multifaceted and can depend on a variety of factors including investment strategy, management capacity, and financial goals. In this article, we dive into the advantages and disadvantages of park-owned homes, how they can potentially help with your investment and proven strategies to aid in your mobile home park investing journey.

Here are some arguments on both sides of the debate:

Advantages of Park-Owned Homes in Mobile Home Park Investing:

Higher Revenue Potential: Park-owned homes can usually generate higher income because the investor is renting out both the home and the lot, rather than just the lot. This can potentially increase the mobile home park’s overall revenue.

Greater Control Over Property: Owning the homes typically gives the mobile home park owner more control over the condition and appearance of the properties, allowing for a more uniform and potentially appealing aesthetic throughout the mobile home park.

Flexibility in Offering: Owners can offer rent-to-own agreements on park-owned homes, providing an attractive option for tenants who aspire to homeownership. This can also lead to longer tenant retention. It’s important to note that the income from this should be non-capitalized and doesn’t add to the value of the mobile home park.

Market Appeal: In markets where affordable housing is in high demand, park-owned homes can fill a critical need, attracting a larger pool of potential tenants.

Disadvantages of Park-Owned Homes in Mobile Home Park Investing:

Increased Maintenance and Management: Owning the homes increases the responsibility for maintenance and repairs, which can significantly add to the operational costs and management burden.

Higher Initial Investment: The upfront cost of acquiring park-owned homes can be substantial, increasing the initial investment and potentially affecting the investment’s cash flow and return on investment (ROI).

Risk of Vacancy: With park-owned homes, the owner not only risks the lot being vacant but also the home itself. A vacant home can rapidly deteriorate without occupancy, leading to further investment in repairs and refurbishments.

Financing Challenges: Some lenders are wary of financing mobile home parks with a high percentage of park-owned homes due to perceived higher risks and management intensiveness. This can make financing more challenging to secure.

Infilling Vacant Lots with New or Used Mobile Homes

Infilling vacant lots in mobile home parks with new or used homes and renting them out as park-owned homes can potentially be a strategic approach to maximize revenue and enhance the value of the investment. Legacy Housing is one of the companies that offer financing options for the purchase of mobile homes, which can be an accessible way for mobile home park owners to acquire homes for their vacant lots.

Financing New or Used Mobile Homes

Legacy Housing provides financing for mobile homes, making it feasible for mobile home park owners to purchase new or used homes to place on vacant lots. This arrangement can be particularly attractive because it allows investors to fill empty spaces without the need for large, upfront cash payments, thereby increasing occupancy and income potential. Financing the homes can also potentially spread the investment risk and improve cash flow management.

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By Andrew Keel

Depreciation and Conversion to Tenant-Owned Homes

A key financial strategy in mobile home park investing is the depreciation of park-owned homes. Depreciation allows investors to recover the cost of the mobile home over its useful life, typically over 27.5 years. This often provides valuable tax deductions that can offset income. This tax strategy can potentially affect the net income and overall financial performance of the investment.

Before a refinancing or sale event, converting park-owned homes to tenant-owned homes can be advantageous:

Potentially Increased Value: Mobile home parks with a higher percentage of tenant-owned homes are often valued more favorably by lenders and investors, as they are perceived to have lower management overhead and more stable, long-term tenancy.

Likely Simplified Operations: Shifting the responsibility for home maintenance and repairs to the tenant can reduce operational costs and management complexity for the mobile home park owner.

Historically Stable Tenancy: Home ownership is an important thing. Furthermore, it is much easier to vacate a home that you are renting versus a home that you own and rent on a lot. The cost for moving these homes is also expensive ($5,000+), meaning that it is often a last resort for them to relocate. This naturally depends on the community as a whole and whether they appreciate their quality of life there. Remember, the residents are usually your bread and butter. A happy, stable community means that you likely have happy investors too.

Conclusion

Whether park-owned homes are an asset or liability for mobile home park investments largely depends on the investor’s perspective, strategy, and capabilities. Investors who are hands-on and have the resources to manage the additional responsibilities may find park-owned homes to be a lucrative investment. Conversely, those looking for a more passive investment might prefer mobile home parks where tenants own their homes, thereby reducing the investor’s management responsibilities and operational costs.

Ultimately, the goal should be to convert the park-owned homes to tenant-owned homes before the refinance or sale event as it is overall viewed as a more sustainable model, which both lenders and investors can agree on. Furthermore, tenant-owned homes are historically homogeneous with stable tenant retention, stickier tenants and an overall more profitable strategy when considering the long-term.

In either case, thorough due diligence, including a clear understanding of the local market demand, potential rental income, and the costs associated with maintaining park-owned homes, is essential before making an investment decision.

Disclaimer:

The information provided is for informational purposes only and should not be considered investment advice, nor a guarantee of any kind. There are no guarantees of profitability, and all investment decisions should be made based on individual research and consultation with registered financial and legal professionals. We are not registered financial or legal professionals and do not provide personalized investment recommendations.