Mobile Home Investing


There are some distinct advantages to mobile home investing as opposed to investing in regular houses. There are also a number of different ways to make money with investments in mobile homes. This particular page will look at how to buy mobiles on land as rentals and for faster equity building.

To start with, there is a myth that mobile homes depreciate in value unlike regular houses. Well, all homes have seen depreciation in recent years (this is being written in 2011), so I suppose the myth now is that it is worse with mobiles, and people suspect they go down in value even during good times. There is an element of truth to this, because they generally do lose value in a park, or on a lot that is rented. When they come with real estate, however, they tend to do what the larger housing market does, which means they rise in value as real estate prices in general rise.

The first home I owned was a mobile. I bought it for $19,500 and sold it for $45,000 after fourteen years, an rate of appreciation that was greater than that for the "stick built" houses in the area. in value in the twelve years I lived in it. Even as it deteriorated (don't all homes), the value of the land kept going up. At some point I also rented it for decent cash flow.

When you get past the usual prejudices and look at the numbers, mobile home investing makes sense. Where we live in Colorado, for example, a three bedroom house rents for $900/month, and costs about $125,000. Meanwhile you can buy a mobile home on land for about $45,000 and collect $550/month in rent. Your cash-on-cash return on investment is clearly higher with mobiles. In fact, with the same money for a down payment, you might buy two rental properties if you get mobiles, rather than one regular rental house.

Despite better cash flow from mobiles, many investors prefer houses. In part this is because they anticipate more problems with mobile homes (there may be some truth to that), and they also think they build equity faster with regular houses. But is this really true? Let's look at a hypothetical example.

Let's suppose investor A buys a rental house for $125,00, with $25,000 down. A $100,000 mortgage loan amortized over 30 years at 6% interest, means he'll have a payment of $599.60. $500 of the first payment will go towards interest, $99.60 towards principal. In other words, he built equity of $99.60 so far. We're going to ignore appreciation for the moment--but I'll return to that issue soon.

Now let's suppose that investor B finds two nice mobile homes for sale, one for $40,000, with a down payment of $10,000 and the other for $45,000, with a $15,000 down payment. He borrows $30,000 for each, at 8% interest, amortized over 10 years--note that higher interest and shorter loans are common with "factory built home mortgage loans." Even with higher interest and a shorter term, the payment will be only $363.99 for each, and the first month, $200 will go toward interest, and the other $163.99 goes towards principal, or about $328 for the two. This investor built more than three times as much equity in the first month.

It is true that the picture changes over time, and there is more equity to build through loan-pay-down with a bigger loan on the house. But for many years you can expect to build equity faster with the mobile homes. Meanwhile you get better cash flow as well. If the mobile homes on land appreciate more slowly than the "regular" house, the faster loan pay-down likely more than covers this.

You can re-invest that extra cash flow into more mobile homes to make this an even more effective strategy. In addition, because you build equity faster, you can refinance sooner, as another way to put together down payments for additional investments.

Mobile Home Investing - Other Considerations

In the example given you have paid off the mobiles in ten years if you don't refinance. At this point your cash flow jumps dramatically (by $369 per month--the amount of the payment you no longer make).

The typical mobile home is cheap to maintain or repair. I once had a furnace die in rental I owned, and I replaced it for $1,200, much less than a furnace for a larger house would have been. You can have the roof tarred for $200 instead of $5,000 to re-shingle a traditional roof that is getting old. Door, windows, plumbing -- they're all cheaper as well. In general then, the unpleasant surprises that come with being a landlord are not as expensive with mobiles.

Regular expenses, like property taxes and insurance, are cheaper as well. This makes for a margin of safety when your rentals are vacant, since your costs will not eat up your bank account as fast.

Disadvantages? The truth is that renters who have to rent for less--meaning your tenants versus regular home renters--probably pay late more often. Repairs, as cheap as they are, seem to be necessary more often in my experience.

How Much Can You Make?

What you make will vary according to rental rates and prices of homes in your area, and many other factors. I can tell you that when I lived in a small town in northern Michigan, the two investors who owned most of the mobile home rentals always had cash flow, and built millions in equity over the years, while other investors, following their prejudices, struggled to make money with their "nice" rental houses. It is also worth considering that when real estate prices drop, the low end of the market never falls as hard as the higher-priced homes, giving you some protection from market slumps if you need to sell.

Ways to Make More | Related Opportunities | Tips

I used to rent three bedrooms and a shed (as a bedroom) in a mobile home I owned, including all utilities as part of the weekly rent. This is more time intensive to manage, but it netted a lot more cash flow as well.

Qualifications / Requirements

You'll need money for a down payment, decent credit, and mobile homes that can be insured. Check out the latter as part of any offer before you are committed, because some older homes may not be insurable.

First Steps

Start looking at the mobile homes on land in your area to see if the prices allow for decent cash flow. Call landlords who rent mobile homes to see what the going rental rates are. Check local lenders rates for investment loan terms on mobile homes.

Resources - Articles and a forum about mobile home investing. - Real estate forms which you can download and print for free.

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Other Relevant Pages

Real Estate Profits

Fixer-Upper Mobile Home Investments

Selling Mobile Homes in Your Park

Every Way to Make Money | Mobile Home Investing