Mobile home park investing is a high-risk type of real estate investment, but with solid returns. Because you are investing in affordable housing, investors in the sector historically could depend on high demand among tenants for mobile homes. But that is changing. Effort now more than ever is needed to be successful in flipping mobile homes.
Investing in mobile homes is much less capital intensive than investing in single-family homes, and it still allows chances for investors to buy low and sell high for profit. Keep in mind much of the dealings in this manufactured home sector are in cash. For these reasons, flipping a mobile home can prove to be a lucrative investment.
Reasons to flip mobile homes
Flipping mobile homes is an excellent strategy to make profits, as the ultimate goal is to purchase a manufactured home for a low price, renovate the property, and sell the property for a net gain. This strategy will require much less capital than investors need for flipping houses, and the space fields much less competition. Demand for affordable real estate is also very high in the United States, so investors benefit from high demand from tenants and low competition from other buyers in the mobile homes space.
In order to wholesale a mobile home, investors can transfer the mobile home purchase contract to another buyer for a higher price. In other words, the investor never technically owns the home but instead acts as, in a way, the middle man. The reason to wholesale a mobile home is to make quick cash, minimize risk, and skip the credit check process.
Wholesaling a mobile home seems like a fairly straightforward process but is much more difficult to accomplish in actuality. The steps are as follow:
- Find a cash investor.
- Make an offer to sell the property to the buyer.
- Acquire the purchase contract.
- Transfer the mobile home purchase contract to your buyer.
- Close the deal.
Wholesaling is a valuable tool to use when you cannot close on an attractive mobile home opportunity yourself.
In order to make money flipping mobile homes, investors suggest first tailoring a budget. Keep in mind that some of this budget will go into repairs of the property, so factor that number into your calculations when coming up with how much money you are willing to put into the property.
From there, find mobile home properties up for sale and have a team ready to work on repairs. Doing these renovations yourself can also save a big chunk of your investment dollars. Once these repairs are complete, put the manufactured home up for sale. Compare the listing prices of other similar properties in the market, and price the mobile home accordingly. This is important because you do not want to overspend on repairs and outprice your property in the market. Keep your target market -- those seeking affordable housing -- in mind. There is a fine line between updating the structure and outpricing the market.
Also, you may be eligible to deduct both the mortgage interest and property tax.
Benefits of flipping mobile homes
First and foremost, as mentioned, the manufactured home sector requires much less capital per unit when compared to house flipping. In other words, investing in manufactured home communities involves much less money than investing in the single-family space. This allows real estate investors to scoop up multiple properties at scale, as opposed to just one single-family rental.
This leads to the second advantage of flipping mobile homes, which is that it minimizes risk, as your investment is spread across a wide number of different mobile homes.
Third, demand for affordable housing remains high, meaning you have a good shot at finding a tenant for the mobile home in case you decide against flipping and opt to instead rent it out.
Fourth, because mom and pop operators mostly dominate the mobile home sector, there are ample opportunities for finding a lucrative deal.
Fifth, investors will deal with less competition here than in other sectors, such as single-family rentals.
Flipping a mobile home can be a worthwhile investment because you can make significant profits. Along with the cash, investors will also gain experience managing a high-risk investment.
Challenges in flipping mobile homes
The key challenge of mobile home investing is the depreciating nature of the asset. Unlike traditional brick-built homes that can benefit from remodeling and upgrades, many manufactured homes, especially those over 25 years old, are not good remodel investments as "value add" items, such as replacing/removing walls, are generally not cost-effective relative to the overall price of the unit. Investors need to be calculating and have a strong sense of market comparables to evaluate whether remodeling is worth it because if the cost of upgrades cannot be justified by higher rents or sale value, then any further investment could turn into a cash trap.
Apart from the low value add that remodeling has on mobile homes, investors can encounter difficulties in obtaining loans for older assets, as the Department of Housing and Urban Development, or HUD, requires manufactured homes to have "HUD tags" in order to be eligible under lending guidelines. These certifications are ultimately designed to ensure that the manufacturer complies with safety standards and state that mobile homes built before 1976, even if they have modifications, cannot be confirmed as compliant with the HUD code. As a result, The Federal Housing Administration, or FHA, won't insure mortgages on manufactured homes built before 1976, and most other mortgage insurance forms follow the FHA policy.
If the unit complies with the HUD tags, a realistic budget can be established, and an investor can confirm that value-add items are positively impacting the prices of other mobile homes in the area, then certain remodel items could be warranted. Many mobile home investors have found returns on their money by investing in low-cost cosmetic issues, such as interior/exterior painting, lighting fixtures, carpets, and countertops and cabinets. Although these fixes can appear insignificant at first thought, the reality is that these items can make a big difference on first impressions as well as the aesthetics of a unit.
More extensive remodels present another challenge for investors. Open floor plans are generally the most requested in mobile homes, so removing existing walls in the structure is a common task. To do this, you will first have to identify whether the wall in question is a load-bearing wall. Only the manufacturer of the home will have this information, so call and inquire about this. If the manufacturer is out of business, finding out this information will be next to impossible. Removing a load-bearing wall could result in very expensive repairs, so avoid that issue at all costs.
When removing a wall, you'll also want to make sure you're not cutting into wiring or plumbing. Remember, every mobile home is constructed a bit differently; therefore, removing a wall in the home simply may not be possible or may not make financial sense. Be sure to perform this research before beginning the task.
Similar to other forms of real estate flipping, location is arguably the most critical component to successfully executing a mobile home flip. A desirable location can create high demand, rent rates, and ultimately sale price. Although the condition is an important factor for a mobile home, if the location is not in fair proximity to essential staples such as grocery stores and public transportation, potential buyers could be convinced to pass up on well-maintained mobile homes for the older but better-located homes.
The grounds maintenance and hospitality of the mobile home parks in which many units are situated is also a key item for potential flippers to assess, as locations with increasing crime rates or subpar upkeep of lawns and facilities can reflect poorly on community quality and deter potential buyers and renters.
To determine whether a mobile home is a strong flip candidate, it's necessary for investors to diligently study the market in which they are looking to buy, focusing on the positives and negatives of nearby units because property appraisers and real estate agents will ultimately determine the value of a mobile home by using relevant comparable sales.
How much money can you expect to make flipping mobile homes?
Real estate investors need to walk a fine line when attempting a manufactured home flip, as upgrades to the structure in an attempt to increase home value can quickly run into the risk of outpricing the market. Investors today can find used three-bed, two-bath double-wide units (typically around 2,000 square feet of space, including a kitchen, dining, and living room) for under $20,000 in decent shape and at even lower prices, depending on the manufactured year and condition.
While new and refurbished models can typically be sold for between $75,000 and $50,000, per US Mobile Home Pros, in markets such as Colorado, non-remodeled three-bed, two-bath double-wide units built in the 1970s can be purchased for between $5,000 and $10,000. The buyer can expect to incur $14,000 to $28,000 in repair costs to upgrade the value of the home. This includes the costs of major repairs and upgrades such as flooring, appliances, interior/exterior painting, lighting, plumbing, and roofing. By doing this, you can realize a greater return on your invested money upon successful exit of the investment, according to this case study.
Typical remodelizations of this scale can take anywhere from four to eight months, meaning investors can target one to two mobile home fix-and-flips per year, assuming there is no serious lag between finding the next investment unit and closing the deal. The highest return deals in the market will likely require the most amount of work and limit overall flip volume, a key factor for investors to be aware of.
Alternatively, after successful remodeling, investors can also consider renting out the unit and charging a higher lot rent than was previously charged to tenants. Although returns on investment are not as immediate under this strategy, the buy-to-rent model can create a stream of passive income until a buyer emerges for the unit.
Today manufactured home renters pay lot rates of anywhere from $100 to $1,000 per month, depending on home size and location, and may pay additional fees, and the average rent for the homes themselves currently ranges from $527 per month in the South to $580 per month in the West.
Despite the challenges, investors can still find solid deals to make profits. Flipping mobile homes can be a great investment if you find a valuable property, can make some slight repairs and touch-ups, and then sell it on the market for a higher price. Investors should strongly consider entering the mobile home space, because there is money to be made in this sector for savvy investors.