Mobile home parks may not be your first target if you’re thinking about investing in real estate. Your list of prospective investments is more likely to feature apartment complexes, office buildings, vacation rentals, and single-family homes. But before you turn your back on the idea of becoming a mobile home park investor, you should consider the potential for success.
Mobile home parks can be a profitable, attractive alternative investment if you know how to handle them. The importance of spotting opportunities and partnering with experts in the niche applies to mobile home parks as much as any other investment. However, this area of the real estate landscape comes with its own unique set of parameters and benefits. Those benefits often get overlooked because of the perceived déclassé nature of mobile home parks.
Social stigma aside, mobile home parks can be a viable investment for folks looking to get their feet wet in real estate. Compared to other real estate investments, there tends to be greater tenant longevity, less competition, lower costs, and healthy demand. But to succeed at mobile home park investing, you must know what you’re getting into. Here are four tips to ensure you come out ahead.
1. Look Before You Buy
Buying a mobile home park from the current owners and operators typically constitutes an active approach to investing. After you sign the paperwork, you take over the day-to-day responsibilities of managing the park. You’re the landlord now and have to find ways to keep — and make — the park profitable.
Before jumping in, you must do your due diligence by reviewing the numbers. You’ll want to see the balance sheets, expenses, and lot rental rates. You should also dive into details like vacancy rates, zoning laws, and the current operator’s business model.
That said, expert Justin Donald cautions against taking the numbers at face value. With “any real estate property,” Donald notes, “most people just look at the numbers as is — versus how they can actually run the business to make them a profit.” In other words, there might be something you could do differently with a failing or break-even park to make the property more profitable.
The current lot rates might be below market value. Expenses could be well above reasonable rates. The current operator may cover utility bills you could pass on to the tenants. Look at what local competitors are doing and whether shifting the park’s business model makes sense. Determine how long it might take to implement changes and whether current tenants will accept them.
2. Target High-Demand Areas
High housing costs and restrictive zoning laws in certain areas can increase the demand for mobile home parks. Some local governments will implement restrictions on the use of land for new mobile home park developments. The result can be higher demand for space in existing parks. If the area has a housing affordability crisis, more people will consider options — including mobile homes — they may not have before.
In general, the nation is at a tipping point regarding affordable housing. According to Harvard University’s Joint Center for Housing Studies, households must earn an a year to afford a home. In 2023, average monthly homeownership costs amount to around $3,000 when you factor in mortgage, insurance, and property tax payments.
The typical buyer is getting priced out, and even average apartment rents in many areas are becoming cost-prohibitive. Market conditions like rising home costs tend to favor real estate investors who back more affordable housing options. The average mobile home can be more feasible for first-time homebuyers and working families.
Markets with a high percentage of retirees might be another area where mobile home parks are in high demand. Retirees seek ways to stretch their limited incomes by reducing big-ticket expenses like housing. They might also seek low-maintenance options, which mobile homes on small lots can provide.
3. Consider Partnership Opportunities
Buying a park yourself and becoming a landlord isn’t the only way to invest. Maybe you want to be more of a behind-the-scenes investor, which is okay. Although managing a mobile home park can be less maintenance-intensive than an apartment building, it’s not for everyone. That doesn’t mean, however, that there aren’t ways to reap the rewards of adding these real estate investments to your portfolio.
You could partner with an experienced owner-operator with the expertise to keep a mobile park profitable. You’re simply buying a stake in the park by providing a portion of the capital the operator needs. You can do this through real estate syndication and real estate funds.
With real estate syndication opportunities, you’re contributing a percentage of the capital the operator has to raise. You may not be the only silent investor involved. For instance, there might be five investors in the group. Each person’s ownership stake and potential return matches the percentage of capital they’re providing. Say you put up 30% of the park’s required capital; you’d therefore get 30% of the returns.
The downside is that real estate syndication opportunities aren’t usually publicized. You have to network your way in. Real estate funds can be more accessible for novices without industry visibility. These investments have a stake in multiple mobile home parks. Your returns would be based on the aggregate performance of all the parks in the fund.
4. Think Long-Term
Real estate investments, as a class, tend to be illiquid. You can’t put your money in and expect to pull it out quickly for a profit. On the other hand, you’ve got to think about what an acceptable return timeline looks like.
You might not expect to pull out after one year. Yet your definition of an acceptable timeline could be, at most, five years. And by the end of those five years, your goal is to earn a 20% ROI. Given the operator’s track record and existing business model, determine whether your goals are realistic.
With real estate funds, aligning your goals with return potential might be easier. But even passive opportunities will require long-range planning. Chances are you’ll need to hold your investment for several years to a decade in order to reach your targets. Like other investments, real estate values change with the economic weather. It’s the long-term appreciation value you’re after.
Adding Mobile Home Parks to Your Investment Portfolio
Mobile home parks may not seem an obvious investment to add to your portfolio. But they can produce positive returns if you want to enter the real estate game. Whether you choose to go the active or passive route, it pays to do your homework first. Look at what’s there, but don’t fail to consider what the investment could become.