Big Bang for Your Bucks with Mobile Home Investing

It's not a sexy cocktail hour conversation but there is good money to be made in the mobile home market. There are several ways to make money at this lower end of the homeowner’s market. Seller-financed mobile homes are among the most profitable. The bottom line is that housing continues to become less affordable and Americans as a group are becoming poorer. But does this mean they shouldn’t have somewhere affordable to live?

According to the U.S. Census Bureau, almost 95,000 new mobile homes were manufactured in 2019. There are about 8.6 million existing mobile homes in the United States with an estimated 12 million people living in them. These do not include manufactured houses (which number about 22 million). The majority of mobile-home residents (23%) are between the ages of 18 and 29. The second-largest group is baby boomers (22%). In 2020, Texas had the highest number of mobile homes with 108,282. Florida and Louisiana followed behind with 38,792 and 37,868 homes respectively. The well-known billionaire Warren Buffett bought Clayton Homes for $1.7 billion (2003 dollars), probably the country’s largest manufacturer of mobile homes.

Since 1976, these homes have been constructed according to a code administered by HUD. Mobile homes are constructed to the same state, local, or regional building codes as site-built homes. Mobile homes meeting the code display a red certification label on the exterior of each transportable section. These homes are eligible for government-insured loans offered by the Federal Housing Administration (FHA), the Veterans Administration (VA), and the Rural Housing Services (RHS) under the U.S. Department of Agriculture. 

People Will Pay $80,000 for a Used Mobile Home

Mobile homes (not the dirt) are a popular option when people want to own a home but can't afford a traditional stick-built home. New mobile homes easily cost $110,000 or more, depending on options. When you seller-finance, you can buy a decent mobile home for as little as $19,000 and sell it for $80,000 or more on a ten-year contract. It is not only the sales price where you make a profit because the interest rate is much higher than you can get almost anywhere else (near 9%). 

The biggest thing some investors need to overcome is that investing in mobile homes isn't the sexy end of the industry. If you own and manage an entire trailer park, you’ll probably have to deal with some of the more troublesome members of society such as drug addicts, criminals, and the unemployable. However, not all mobile homeowners fit these stereotypes. Owners also include two-income families making minimum wage by flipping burgers and retirees living on a fixed income. These are people that value ownership over renting. They understand the fact that they are paying more than half of their earnings to put a roof over their head, but it is better to have a fixed mortgage rather than be subjected to unending rent increases. In 10 years, they’ll own the home outright. These people make sure the seller-financed mortgage is paid every month.

Consider the seller of an $80,000 mobile home at 9% on a 10-year contract. As a seller financer, you're going to ask for at least a $5,000 down payment (reduces your initial investment to $75,000) just to be sure the people you're financing have some skin in the game and can demonstrate some financial responsibility. That means you're financing $75,000. The buyer repays the loan at $950 per month. Of that, the interest you receive on your $75,000 investment starts at $562 per month. You’ll collect almost $6,000 in interest in the first year. Over the 10-year contract, you’ll earn slightly more than $39,000 in interest. That’s in addition to the $61,000 you made on the sale price.

Senior Only Parks Are Lower Risk 

A good strategy for owning a trouble-free trailer park is investing in a 55 and older park. Many of these parks have rules such as requiring dogs to be under 20 pounds. Another common requirement is that owners always be present when guests are staying at the home and limiting the number of days a guest can stay. People willing to comply with a few sensible rules typically aren't going to be the people that cause trouble and attract the police.

The past three years have seen trailer lot spaces increase rents by an average of 30%. In parks where the trailers are mostly owned by the tenants, the tenants are willing to endure annual rent increases rather than try to come up with the $4,000 or more that it costs to move a single-wide mobile home to another park (if they can find another space). Another tactic that investors are employing is offering park managers a monthly bonus for collecting 100% of the rent on time. There is a substantial amount of money to be made in the mobile home business. That's probably why Warren Buffet bought Clayton Homes Inc., almost 20 years ago. 

Do you have investing thoughts or experience with mobile homes? Please comment.