A mobile home is one of the cheapest types of homes on the market. They are cheap because they are mass produced, factory-built homes. Put together using cheap, light and thin materials in a production line system, like the assembly of cars. This is done in a controlled environment, free of wind, rain and snow, with the assistance of forklifts and overhead cranes. Due to these controlled assembly luxuries, you can easily see the cost advantage over site-built homes.
A finished home is placed on a flatbed truck and transported to a location where the home will be placed. Although a mobile home is technically mobile, it’s quite permanent once it’s set in place. You see, most mobile homes need to have some type of foundation that the home sits on, then the home itself is tied or strapped down and semi-permanently fixed in place with skirting to cover the foundation beneath.
Sure, a mobile home can be moved to its next location, but transporting a mobile home is hard on its weak structure, and it also can cost upwards of $5,000 to pack down, transport, and then set up. Most people who live in mobile homes don’t have $5,000 just lying around, so typically, once a home is set, it stays in its first location for the remainder of its life cycle.
There are 2 basic types of mobile home ownership in a Mobile Home Park.
Tenant Owned Homes
The first is when the tenant is the homeowner. In this case, the homeowner pay’s lot rent and utilities to the park and they are responsible for their own upkeep of their yard and any repairs and maintenance to their home. As a park owner this is by far my preferred set up. The tenant takes high pride of ownership. The best quality homes in a park will be typically tenant owned homes. In this case the park is a glorified parking lot and the park owner is only responsible for maintaining roads, signage, letterboxes, landscaping, mowing and tree trimming of common areas, collecting trash, and making sure the water and sewer lines are sound and operational.
Park Owned Homes
Second comes the park owned home scenario. This is where the park owns the home and the tenants still pay lot rent and utilities, but now they pay an additional “home rent” payment. The tenant is still responsible to keep their lot clean, yet in this case the park is now responsible for repairs and maintenance to the home itself. Granted that the park is technically only responsible to keep the homes in minimum habitability standards, from a park owners’ perspective this is by far less desirable than tenant owned homes, for a few reasons…
Firstly, managing park owned homes becomes a management nightmare. The park is responsible for maintaining the home, transient tenants can trash the home leaving the park with the task of repairing all the damage and finding a new tenant. Of course, on top of additional management, we now have additional expenses as repairs can get costly. Continue this cycle over and over and it’s enough to make you want to go on Jerry Springer to release your frustration and expose this insanity! Of course, this is worst case scenario.
Also, it becomes much more challenging to obtain financing for a park if at the time of purchase there are more than 10% of homes being park owned. In turn it can be equally challenging to sell a park with more than 10% park owned homes. This is typically no good for park owners on either end of the scale.
Having that said, there is a positive flip side to this scenario, where a tenant stays in the home, pays all home rent on time, then leaves the home in excellent condition where only cleaning is required to make rent ready for the next tenant. This cycle of clean and transient tenants can continue and over a span of 10 years where a home can for all practical purposes, be paid for 5 times over. This is of course best case, and I’d previously mentioned worst case, so you can expect something in between for the typical park owned home. It’s all part of the business and opinions on this topic vary, although I’d much rather have a park with 100% tenant owned homes than any other scenario.
Controlling Park Owned Homes
We’ve spoken about the ups and downs of park owned homes, so how do we control them? Let’s take a look at a few options from best to worst:
Option #1- (Best) Tenant Pays All-Cash for The Home: This is by far our best option. Now that sounds easy, but not all tenants are in the position to pay in full for what a home is worth. How do we get over this hurdle? Considering the home cannot be sold for all cash, this is where we have a few alternative options…
Option #2 – 3rd Party Financing: I like to work with national and local mobile home specific lenders that provide financing for new and used mobile homes. This way the tenant pays lot rent and utilities to the park and the tenant then pays a separate home payment to the 3rd party lender. The benefit here is the tenant is also responsible for the repairs and maintenance to the home just like anyone else who has a mortgage.
Option #3 – Same as Option #2 with an Extra Layer: Sometimes the 3rd party lender requires the park to guarantee the tenants home payment. In this case if the tenant defaults by not paying the home payment, then park is responsible to step in and take over those payments while the tenant is being evicted and replaced with a new qualified tenant. This is not ideal, although it typically ends up being cheaper than having the home be straight out park owned.
Option #4 – Market the Home Around Tax Season and Give a Moderate Discount: Tax-time is typically the main time each year most working-class tenants have an extra few thousand dollars to put to good use. Good marketing can put this money to good use for the tenant before it gets blown on flat screen tv’s, a new iPhone or booze.
Option #5 – Sell House at a Heavy Discount: This is where the park sells the home at a much lower value that what its current market value is, so it’s a win for the tenant. However, it’s also a win for the park as the park will no longer be stuck with managing that home and relieved of any future repairs and maintenance. So even though the park takes a loss up-front, it really takes a win in the long run.
Option #6 – Sell the house “as-is” to a handyman: This is where the house needs work to make it rentable, but instead of forking out the cost to refurbish the home, sell it as is to a tenant that will commit to doing all the repairs himself. This works out well for handymen who want to buy a home at a discount, although the park must be careful to have a system in place to make sure the tenant does the necessary repairs.
Option #7 – Homeownership Program: This setup can be done in a variety of ways although the general concept is typically the same. Synonymously known as “rent-to-own” or “rent-credit” programs (among other similar programs) where each time the tenant pays home rent, their home rent payment is essentially going towards paying off their home until they reach the final point of being a homeowner. In this case it’s still not ideal because the park is responsible for minimum habitability repairs and maintenance as it’s still a park owned home until the tenant pays the home off and takes ownership. Having that said it’s a step in the right direction. And the longer the tenant pays home rent and get closer to owning the home, the higher the pride of ownership we see in the home.
Option #8 – (Worst) Straight Rental: By far the worst option. They never pay the home off and the park is always responsible for management and repairs. Although this can be profitable over time as you can collect rents for the entire lifecycle of the home. It’s really stepping into a mobile home management business rather than a mobile home park business. It’s much wiser to focus on the big picture than on managing individual homes.
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Real Estate Investor | Best Selling Author | Syndicator | Educator