Why Invest in Mobile Home Parks

When deciding to invest in any type of real estate, stock investment, or any other type of investment whether a CD or an oil well, these all include with them a risk however small or large. Depending on the risk you perceive in each type of investment you will expect or hope for a certain return. As the perceived risk goes up you will want a greater potential return and vice versa. According to most books and advice you get from investment advisors, real estate usually is regarded as being a safe investment as the downturns in real estate have usually been short-lived and have corrected themselves quickly. This is generally speaking and goes for most real estate markets. However, when you invest in markets that have one major employer or are dependent on a certain industry, you may run the risk of a long term decline in values and occupancy if something happens to that employer or industry. Like most investment real estate, mobile home parks are similar in that you typically expect them to increase in value, produce an increasing monthly cash flow as the rents increase, have income tax advantages, and include an increase in equity as you pay down the debt.

Types of Mobile Home Parks to Consider: When deciding on purchasing a mobile home park, you can basically look at four different types: 1. Building a New Park: This is starting from scratch and will take time, money, and patience. This is usually the riskiest and drawn out option but can be potentially a great opportunity. 2. Buying a Stable Park: these parks usually have low vacancy, are operating smoothly and have rents at or near market. You are buying a cash flow that should increase as rates increase over time. You will pay a premium price for this type of park. 3. Buying a Park that is mainly filled up but is not running efficiently. In these types of parks you want to buy them based on the current income and expenses and then increase the value through such things as raising rents to market, collecting rents, sub-metering utilities. This is the type of park that I am on the lookout for. 4. Buying a Turnaround Park: In addition to increasing rents and reducing expenses this is the type of park that is either half vacant and needs rent to own homes or the type of park that the owner has forgot about and is run down. This type of investment usually has the best potential to increase in value for existing parks but will take the most time, money, and efforts. Make sure that the extra time and efforts will be worth it. Turnaround parks are often better deals as the owner may have lost interest or is having financial difficulties. The opposite is true of the stable parks. When looking for a park, you can basically choose: Large Metro Areas – there is usually more competition here from investors but they are generally regarded to have greater stability and less market fluctuation. Small Cities & Rural Parks – there is generally less competition here from investors and you will usually be able to buy the parks with a higher cap rate. These parks will typically have a larger risk due to dependency on one or two major employers. However, in the right cities and markets these will often represent great investments. Adult & Senior Parks: These are usually more desirable as your tenant base willl have greater stability and tend to care for their homes and lots better and pay their rents on time. However, many of the residents in these parks will have a lot of time on their hands and require more amenities and offer more resistance to rent increases. Most REIT’s(Real Estate Investment Trusts) and larger mobile home park investors are looking to purchase parks that are in the 150+ site range so the competition as well as the prices are generally higher. I would suggest you focus on the parks that are in the 25 to 150 space range. Less than 25 spaces if you live nearby and are able to manage the park yourself. Any size of park can be run efficiently and profitably. Some 10 space parks are easier to run from a distance without a manager than one that is 100 spaces with a full time manager. There are many factors. Some parks require weekly visits, monthly, yearly, or whenever you are bored. When deciding what type of park to buy, you need to decide on your investment goals, evaluate the amount of time you have, talk to others in the business about the time requirements for your potential purchase and then begin your search for parks that will fit with those goals. Make sure your goals are reasonable. It is not likely your are going to buy a 100 space park in a good market operating well for a 15 cap and it is not likely you will find a park operating well in a good market that will be purchased for no money down, etc.

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