Four Ways to Profit From a Mobile Home Park by Ernest Tew
The manufactured home is undoubtedly the most efficient, practical and affordable housing ever created. But, today's "mobile" homes have become a lot less mobile. They are larger, more comfortable and, indeed, some are very luxurious. These are some of the reasons why more than 16 million Americans have chosen to live in manufactured homes. Those of us who invest in manufactured homes are seeing the kind of profits that are being earned. We know it isn't unusual to earn 25% to 100% per year on the money we invest. When we buy and sell mobile homes, we enjoy two of the four sources of profit:
Buy Low, Sell High
There is the initial net profit that can be made by "buying low and selling high." The best way to do that is to buy for cash and sell on terms. However, to do that, we need to have access to a lot of money. One of the easiest ways to get the money is to borrow it.
Considering the profits we can earn on the sale of homes, we are justified in paying lenders a relatively high interest rate—as much as 11% to 15%. Once we can demonstrate that the loan is safe, people who are earning only 2% to 6% on their savings, begin to appreciate what we can do for them.
Knowing that their money is safe is more important to most lenders than the rate of interest we pay. A promissory note, in which we personally guarantee the payments, goes a long way toward convincing the lender. The note should then be secured by a first lien on the home we acquire. We should not borrow more money on the home than our cost of buying and getting it ready for resale.
Provide Seller Financing
Interest on the financing—the additional profit we earn by waiting for our money—is almost always greater than the profit earned on the sale. And, each time we take our profits "in paper," we are increasing our monthly income. Now, for the rest of the story. . . The other two sources of profit become available when we own the park:
Rent the Land
Each time we sell a home in our park, we also rent the lot occupied by the home. The park's cash profits are increased by the additional lot rent. We now receive a monthly income from both the home and lot. Since homeowners are usually not allowed to move their home out of the park until it is paid for, the park's rental income becomes more dependable.
Increase The Value of the Park
As with other rental property, income and growth go hand-in-hand. By increasing the net income produced by the park, we increase its market value. If we purchase a park that has a lot of vacancies in order to get one at a distressed price, increasing the income is especially important.
Suppose, for example, each time we rent another lot we increase the net income by $100 a month. That results in another $1,200 of cash profit each year. A $1,200 per year increase in net income could increase the value of the property by as much as $12,000. Think about it! Each time we rent another lot, we could be increasing our equity in the park by several thousand dollars. Even if we finance 80% of the cost of the park and have only 20% equity, we can still receive 100% of the growth. None of the equity we create has to be shared with the mortgage holder. Another way to increase the value of rental property is to improve its condition and appearance. An attractive, well-maintained, property will sell for a higher price than one that is poorly maintained—even though it earns the same profit.
Obviously, we don't have to live in a manufactured home to enjoy the profits they can provide. The number of vacant lots in manufactured home communities is rapidly declining—and, for a variety of reasons, very few new parks are being developed. Owners of existing communities will benefit as rental rates increase and vacancies decline. As income from a park increases, so will its market value.
Growing Wealthy
Almost anyone can become wealthy—if they choose to do so! With sufficient income, we are able to enjoy a certain freedom and independence that would not otherwise be available to us. In fact, one's greatest wealth is the freedom to choose. Individual investors and private companies have discovered the benefits that manufactured home communities can provide. In recent years, several of Wall Street's public companies, along with several manufacturers, have bought hundreds of communities. As a result, bargain buys have become difficult to find.
Ernest Tew is the author of two popular books. "How To Get Rich Helping Others," which explains in simple terms how one can become wealthy by investing in manufactured homes and manufactured home communities and "How To Protect Your Assets" from lawsuits, excessive taxes, probate, and government seizure.
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Copyright 2002-2008 All Rights Reserved.
Published with Permission of Author.
No part of this publication may be copied or reprinted without the express written permission of the Author and/or REIClub.com.
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