Lots for Mobile Homes
The mobile home/land deal is a hybrid investment property. Using any one of the techniques found in creative real estate investing, we buy land with a mobile home on it, or we buy a mobile home and place it on land we have purchased. The mobile home itself is initially treated as personal property, much like a car. The land is treated as real estate.
By combining the two, we create a land/home deal. This new package is typically worth much more than the two components individually. In other words, by combining the mobile home with the land, we create value.
1. Less competition
We do not have to compete with all of those investors who advertise: "I Buy Ugly Houses." We do not have to compete with new investors who just purchased a No Money Down type course from some late night infomercial. Just as we were skeptical in the beginning, many others are, too. Mobile home investors are comparably fewer and farther between.
2. Less money at risk
What first attracted us to mobile home investing was the small amount of money we needed to invest. We found that in most cases, we invested no more money when buying both the mobile home and the land than we did when we bought a mobile home on someone else's land.
With mortgage payments between $200 and $400 per deal, we were able to overcome the fear of someone not paying. We knew that if all else failed, we could find some sort of work to make that kind of payment. We initially would not have felt confident if the payment was the $700 to $900 per month we found in traditional real estate investments.
We figured we could buy a double-wide mobile home and land for $40, 000 and receive a minimum positive income of $200 per month (after all debt and expenses are paid). Why would we pay twice that much or more for an older, smaller, stick-built, single-family home that gave us the same $200 per month positive cash flow?
We have found that double-wide, land/home properties appreciate in a manner similar to comparable stick-built homes. We view appreciation as a bonus and focus primarily on creating a positive cash flow and capturing equity through wholesale purchases.
By focusing our marketing and property acquisitions to address the needs of the lower/middle income housing market, we find that the demand for our properties remains high in both good and bad economies.
Typically, when times are good, more entry-level jobs are available, which means more people who need affordable housing. In poor economies, downsizing occurs. People are no longer able to afford to live above their means, forcing them to find affordable housing.
5. Less expensive maintenance
Our properties all fall within the low to lower/middle-income family range. These tenants cannot reasonably have the same quality expectations as families who pay more to live in stick-built homes of comparable size.
Often, an investor who is reasonably patient and minimally skilled can make the repairs-saving him the cost of hiring someone else to do it. If the investor does not wish to make the repairs himself, the job can be hired out to a handyman.
6. Long-term investment benefits
We prefer to rent our land/home properties. Each new property provides us with a larger positive monthly cash flow. Each new property we gain is like receiving a raise at work.
Additionally, tax laws allow us to depreciate the properties and write off expenses. These paper losses offset our income, which means we legally get to keep more of our money and pay less in taxes.
7. Competitive product
If a mobile home becomes outdated or the floor plan no longer appeals to the market, we can simply remove the mobile home and replace it with a newer home that meets consumer demands.
By purchasing used or repossessed mobile homes, we can make these upgrades very quickly and inexpensively. Try doing that with a stick-built, single-family home or apartment!
8. Greater control
When we do not own the land, we are subject to the whims of the park manager or property owner who can always ask us to move the home. They are also able to choose the tenants who move into the park.
This can cost us time and money-some park managers are slow decision makers. They have little incentive to act quickly if they believe the investor will pay the lot rent each month.
By owning both the mobile home and the land, we become the landlords with the final say about our properties. When we own the land, we control the decision of to whom we rent and how long they stay. We also had the well-defined landlord/tenant laws to use should a tenant stop paying or breach the lease.
Typically an eviction is easier and faster than repossession-everyone in the process understands an eviction. Because mobile home repossessions are not done frequently, we found that a new sheriff's deputy, magistrate, or judge would often confuse the issues and create unnecessary delays and expenses for us.
Leverage is the greatest advantage that land/home deals have over buying a mobile home in a park. Rather than invest money to buy an older mobile home in a park, that same money could be leveraged through loans to buy a land/home package.
This property becomes a long-term rental property providing the investor with a similar cash flow, but with added advantages of equity build up and tax savings through depreciation. In essence, we are controlling a much more valuable property with the same amount of money.
We have found that lenders are more comfortable with real estate investments than they are with mobile home note investments. Lenders can quickly confirm real estate values through appraisals, comparable sales, and tax assessments. We suspect lenders naturally discount the value of mobile home notes when looking at the investor's net worth.
10. The ultimate retirement plan.
The single most unique aspect of investing in mobile homes on land is the ability to sell the mobile home and rent the land. It is hard to imagine a more passive real estate investment than owning and renting only land. As Lonnie Scruggs says, "it is hard to hurt the dirt."
About the Author:
Tony Colella began investing part-time in mobile homes while working full-time as a police lieutenant. He holds a Bachelor of Science Degree in Business Administration. Creative Real Estate Online awarded him a contributor award for his many years of helpful posts as co-host of our Mobile Home Forum.
After several years of buying, selling, and financing used mobile homes, Tony began to buy and develop land/home properties and small parks. He has written a unique, must have home study course for mobile home investors, Investing in Mobile Homes with Land.