Just about anybody who watches late night TV, or receives email, or reads, knows that there are hundreds of people promoting concepts to make money in single family homes. “Buy foreclosures”, “profit from short sales”, “wholesale houses” there are at least 1,000 different concepts. Unfortunately, the only people who actually make money in many of these ideas are the promoters. There are so many people chasing after single-family homes to invest in that the market is beyond saturated, and any profitability has been extinguished.
How about looking at something that few people are involved in and that actually generates money for the investor not just the promoter? That real estate niche is mobile home parks. And they have offered superior returns to the lucky few who understand them for several decades.
It’s all about the cap rate.
Single family homes suffer from low, or often negative, “cap rates”. A “cap rate” is the actual return on the debt and equity of the investment. A typical single family home investment of a $100,000 house normally rents for $900 per month. However, before you think that it’s a $900 per month return on your $100,000 investment (which is about a 10% “cap rate”), remember that you have to take out property tax (about $200 per month), insurance of about $100 per month, and repair and maintenance of another $200 per month (I’m talking about those big-dollar repairs like roofs, etc. averaged over time, too). So your net income is only $400 per month, which is a 5% cap rate.
Mobile home parks make at least double that amount. Good mobile home parks have a 10% cap rate or better.
So right off the bat, mobile home parks make about 100% more per year than single-family investments.
It’s hard to push rents in single family homes.
Single-family homes are plentiful. Your local newspaper is bursting with homes for sale or rent. As a result, it is very hard to increase rents in fact, the norm these days is to decrease rents with single-family homes. In many markets, there is a terrible spiral down in rents as investors effectively bid against each other to attract tenants.
Mobile home parks are in very limited supply, by comparison. In most cities, you cannot obtain permits to build mobile home parks and you have not been able to for decades. As a result, the supply is limited, and there are few competitive forces to contend with.
It’s another important point to note that it costs $3,000 to move a mobile home from point A to point B. That’s why 95% of mobile homes only move one time from factory to mobile home park in their entire lives. As a result, you can raise your rent level 5% to 10% per year and not lose a single tenant. Few tenants are willing, or able, to spend $3,000 to move their mobile home over a $20 per month rent increase.
Single-family home investors know too much.
Your average single-family home seller is pretty sophisticated. They’ve bought and sold several homes, and know pretty accurately what the correct price should be. And they normally have debt on the house.
Mobile home park sellers are typically “mom and pop” owners, who are very unsophisticated. They often price their park for a fraction of what it’s actually worth. And they rarely have any debt. As a result they can often carry the financing themselves at below market rates and with non-recourse.
There is a lot more money in mobile home park investing than in single-family home investing. That may be why there are five publicly-traded mobile home park real estate investment trusts (also known as REITs) and there are zero in single-family homes. That may also explain why Sam Zell, one of the top real estate investors in the U.S., is one of the largest owners of mobile home parks in America and not a single family home speculator.
If making money is your goal, you should look into mobile home parks, and not single family homes.