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Mobile Home Investing Isn't Sexy

By Brian Kline | December 7, 2020

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 low end of the homeowners market. Seller-financed mobile homes are among the most profitable. The bottom line is that Americans as a group are becoming poorer. 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 ages 52 to 61 (22%). In 2020, Texas has the highest number of mobile homes with 108,282. Florida and Louisiana followed behind with 38,792 and 37,868 homes respectively. Warren Buffett bought Clayton Homes for $1.7 billion (2003 dollars), possibly the country’s largest manufacturer of mobile homes.

Since 1976, these homes have been constructed according to a code administered by HUD. Modular 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 $19,000 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. When you seller-finance, you can buy a decent mobile home for as little as $3,000 and sell it for $19,000 on a ten-year contract. It's not only the sales price where you make a profit because the interest rate is much higher than you can get almost anywhere else (possibly 9%). When you seller-finance a mobile home, you invest as little as $3,000 but collect interest on $19,000.

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 hamburgers and retirees living on a fixed income. These are people that value ownership over renting. They understand the fact that if they are paying more than half of their earnings to put a roof over their head, it’s 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 buyer of a $19,000 mobile home at 9% on a 10-year contract. As a seller financer, you're going to ask for at least a $1,000 down payment (reduces your initial investment to $2,000) 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 $18,000. The buyer repays the loan for slightly less than $230 per month. Of that, the interest you receive on your $2,000 investment starts at $135 per month. You collect more than $1,570 in interest the first year. By the end of the second year, you'll have collected well above your original $2,000 investment in interest alone. The last eight-plus years of the mortgage is pure profit to you.

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 people that cause trouble and attract the police.

The past three years have seen trailer lot spaces increase rents an average of 30%. In parks where the trailers are mostly owned by the tenants, these tenants are willing to endure annual rent increases rather than try to come up with the $3,000 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 rents 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., more than 15 years ago.

Do you have investing thoughts or experience with mobile homes? Do you need the help of mobile home removal Alberta service to remove your old one and install a new one? Please comment below.

Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [email protected].

Photo by Stefan Widua on Unsplash

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News
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