There are a lot of guru investor types that will tell you that investing in mobile homes is a bad idea. They will tell you that because of the nature of mobile homes, and how their values decline over time, that they are not good investments, and that you should stick to regular on-site built homes. Now I’ll agree with the guru supposition that mobile home value decrease with time, however, if your approach to real estate investing is one of long term asset building, then mobile homes are a great choice.
Mobile Home Acquisition and Rental Compared to On-site Built Homes
Let’s take an example of two investments that I currently hold. These two properties are located approximately 12 miles from each other; one is a mobile home of about 1150 square feet, and one is an on-site built home of about 1150 square feet. Each home brings in $650 per month of rent currently; the on-site built home has a total PITI of about $400, while the mobile home has a total PITI of about $350. You might say the difference isn’t much, but the mobile home is financed for 10 years, while the on-site built home is on a 30 year note.
So the point is that you have less risk with similar or greater returns with a mobile home versus an on-site built home. Sometimes, you can find deals on mobile homes that are low enough for you to be able to pay cash, own the home and property outright, and keep all the rental returns. I try to focus on mobile homes that include the land as well, versus homes that are located in a mobile home park. As you grow your business though, you may consider buying mobile home parks and collecting the lot rent.
Now to address the objection of appreciation. The guru types typically don’t like mobile homes because they tend to decrease in value over time. But here’s my take on it – if you can have a low risk investment that pays you monthly, pays itself off completely in 5-10 years, and then you can sell it for a cash return, what have you lost?
Yes, with an on-site home you will get the appreciation, but how much of that additional value will you be able to keep? You see, when you are financing for 30 years, there is an incredible amount of money being lost to the mortgagee (the bank or mortgage company). Much less money is lost in financing when you finance for 5-10 years, and with a mobile home you can still structure a deal that is profitable both in the short term and the long run. It just makes good business sense.
The Long and Short of Mobile Home Investing
The bottom line is this – with mobile homes you can enter into the world of real estate investing for a small dollar amount, and still compete with investors that are buying more home than you are. And if your strategy is that of long term asset building, than mobile home investing might be a great strategy for you. Further, with the mortgage market in turmoil at the moment, you may have trouble financing any deal, but with mobile homes, you may have a better shot of working out an owner finance or other creative financing arrangement than might be able to with on-site built homes.
One last thought. The tenants that you will be renting to in mobile homes are likely not as educated as those you would put into higher value on-site built homes. This is not necessarily a bad thing. My tenant in the on-site built home has nagged and haggled for multiple repairs, many of which were not necessary, while my mobile home tenant has helped me clean up the property, and given me very little trouble about repairs.