Investing in Mobile Home Parks
In 2019, a real estate broker we used to find our primary residence informed us about an opportunity to invest in a mobile home park in North Carolina. It had about 20 lots and the purchase price was $190,000. The entry investment was $10,000 that offered a couple of options for payment: a deal that would be a higher cash flow and less equity, one that offered some cash flow but higher equity, and another that was balanced between cash flow and equity.
As I’ve mentioned in other posts, real estate investing is still a gamble. Results are not guaranteed and there is always risk. Here are some of the pros and cons weighed when deciding whether to invest in this arrangement:
|Experience with different mode of real estate investing||Investor could take our money and run|
|Potential high payout whenever mobile home park is sold*||Opportunity cost – money could be deployed in a higher yielding investment (i.e. another single family home in OKC), stock market, other real estate opportunity|
|Potential opportunities for additional investments with this party if venture is successful|
|Opportunity to learn more about mobile home parks|
|Mobile Home parks tend to have stable occupancy due to high expense to move dwelling|
We didn’t and still don’t really know that much more about the property itself. The investor planned to do minor improvements and increase rents to bring them closer to market value and bring up occupancy. We decided to take the risk on the opportunity, with the understanding that we could lose it all.
Chad spoke to the investor who was the boots on the ground and eventually negotiated for 5.26 percent equity stake and we would receive five percent of our investment annually. This would be paid out quarterly–a whopping $500 annual return in total. We chose this option because we believed the mobile home park would appreciate at a higher rate than any cash flow we could get from this investment.
The Mobile Home Market
For mobile homes, the landlord owns the roads, some common areas, which are often just landscaping though some have amenity centers, and the utility hookups. In this area, renters bring the trailer or mobile home and rent a lot. This includes access to the water, electrical and sometimes gas. Moving a trailer can be expensive and can cost almost as much as it would to buy a trailer. Tenants tend to stay long-term to avoid an expensive move so occupancy can be fairly stable.
A few weeks ago, we were notified that the trailer park was sold and we would receive our final payment, plus our cut of the equity. In two and a half years, we made about ten percent annually on our $10,000 investment. Then we made about a 25% return on our investment, just under $2500 in total, after the sale of the mobile home park.
The mobile home park was sold in September for $230,000.
Yearly Returns : $500 x 2.5 years = $1,125
Profit from Sale: $1,333
Return on Investment: 25%
Yes, that’s 25% in less than three years. Good luck trying to make that in the stock market.
We acknowledge that $2,500 is not a lot of money, but it worked harder than if it was left to a savings account, index fund, etc. That is the beauty and power of real estate investing.
Have a mobile home park investment experience you want to share? Make a comment below or email [email protected]