Get our carefully curated newsletter straight to your inbox.
Mobile homes can be a tremendous investment, but they may also be a good source of passive income. We’ve provided an in-depth look at the advantages and cons here.
Investing in mobile home parks has become more popular in recent years. While many investors fail to consider mobile homes as an investment, many investors do recognize the financial potential of investing in commercial mobile home parks.
A mobile home provides a place for people to live, just like a single family home or a multifamily property. A mobile home must be paid for just like a house or apartment. Mobile homes differ significantly from other rental units.
In most circumstances, mobile homes and the land on which they rest are deemed real estate. However, there are times when the house itself is considered personal property.
Real property is defined differently by each state, but it is differentiated from personal property. Most states assume that the land that the mobile home rests on is property owned by the person renting the home. But mobile homes and the land on which they sit are separate and distinct entities under the law.
Whether a mobile home is considered personal or the real property might affect the property taxes owed in states that charge a tangible property tax. Once placed on land, a mobile home is deemed private property, and the owner is charged a real property tax. When the mobile home undergoes a property assessment while on the land, the home and the land are then assessed a personal property tax.
The IRS treats mobile homes utilized as rental property. Residential rental properties also follow a 27.5-year depreciation schedule.
A trailer home is commonly referred to as a mobile home, but there is a difference between the two. Renting trailer homes are units with wheels permanently attached. By contrast, most mobile homes are built with brick masonry, which is more durable. However, this sturdier foundation makes moving them complicated and expensive.
There are two basic strategies when it comes to mobile home investing:
Besides upkeep and depreciation difficulties, there is no difference between owning a single-family home and owning a mobile home. You’re providing a place for a tenant to live, and they pay you monthly rent and look after the property in return. This arrangement could prove profitable for investors.
If the mobile home is located in a mobile home park, the rent will be significantly higher, especially if you don’t own the park. Mobile home lot rent is what property owners pay for the land on which the mobile home is parked. The use of the private road, the communal amenities, and access to water are included in the mobile home park’s lot rent price.
Compared to the rent for a single-family home or apartment, lot rent for a mobile home is usually relatively cheap. This is primarily because the mobile home landlord is not obligated to maintain the mobile home park. As a result, there are fewer expenses to cover.
The rental restrictions vary amongst mobile home parks; there are different rules in place for each property. Investors must get permission from the mobile home park owners to own a mobile home rental property within their park. Other communities may require approval from the prospective mobile home tenant before signing a lease agreement.
If you plan to invest in mobile homes, ask the property manager how leases are handled before you get started.
The initial investment in a mobile home is low; as a result, the ROI is also higher. The ROI will increase as the investment grows.
Let’s use an example: Let’s say you purchase a mobile home for $2,000, and, after expenses, you only profit $100 per month. That would be a 60% return on your investment.
Putting a mobile home on vacant land is cheaper than building a house. There is an exception to this–local ordinances will need to be checked to determine whether placing a mobile home on the property is permissible.
One of the best things about renting mobile homes is the low cost associated with doing it. Investors can purchase second-hand mobile homes for under $10,000. Even purchasing brand-new ones from the factory is relatively inexpensive. Some owners will sell their mobile homes for less than $1,000 to avoid paying lot rent.
The fact that real estate almost always gains over time is a benefit most investors enjoy. Even if a property doesn’t appreciate much, it rarely depreciates. A mobile house is no different–it rarely sells for the price you paid for it.
Built-in appliances aren’t standard in most manufactured mobile homes. They’re mass-produced to meet HUD criteria, not local building codes. Mobile homes demand more maintenance than other types of residences in terms of mobile home skirting, plumbing, intensive roof care, and regular inspections.
A rented lot requires payment of lot rent whether or not a renter is present. Lot rent typically makes up most of the rent payment when renting a mobile home in a park. A month’s lot rent may be as much as two months’ mobile home rent. The cost of a new mobile home varies depending on location and time of purchase. Many manufactured home buyers rent their lots, which range from $100 to $800 per month and may include HOA fees.
Getting approved for financing to buy a mobile home might be tricky. Mobile home financing is risky for banks due to their rapid depreciation. If they’re placed in a mobile home park, lot rent is also assessed. However, because mobile homes are so cheap, you can often buy them without bank financing.
If you were asked are mobile homes a good investment, the answer would be yes, they are. But you must be aware of the initial investment, which is rarely recouped. It’s all about cash flow. Know the local real estate market conditions before investing in mobile homes.
Mobile home sales rarely include real estate brokers because the sales price is low. Additionally, you can search for properties for sale on marketplaces like NYrentownsell.com. Depending on the property manager, you might also find current sellers.
Inspection of mobile homes is more challenging due to the lack of qualified technicians who can provide services. Mold and water damage are difficulties that mobile homeowners can also face; if the value of these fixes exceeds the purchase price of the home, then you run the risk of incurring a significant loss.
Renting mobile homes can be profitable for those who are willing to take some risk. Dedicate some time researching companies, talking to other investors, and working with your accountant before investing in one. If you plan to invest in real estate, starting with mobile homes might be a good idea.