Why You Should Consider Investing In Used Manufactured Homes

For the small or new investor, investing in used manufactured homes can be a good entry strategy.  For this discussion I am referring to investing in what are most commonly referred to as used Mobile Homes, although there is nothing really that mobile about them.  You need a semi-tractor and skilled crew to move them.

Investing in used Mobile Homes is a lot like investing in houses in that you need to find a motivated seller to find a good deal.  Fortunately this isn’t always that hard to do because these owners advertise themselves.  I’ll provide a real world example below.

Another reason to invest in mobile homes is that cash is king, banks don’t generally like to finance used mobile homes therefore you have a stronger negotiating position.

And the last reason to invest in used mobile homes is that the entry price can often be less than $10,000.  So if you find a good used mobile home for $10,000 and can rent it out where it provides $200 of cash flow every month your rate of return would be $2,400 of yearly cash flow divided by the $10,000 invested or 24%.  Does that beat what you are earning at the bank or in your IRA?

But suppose you didn’t want the headaches of being a landlord or you found a home in a mobile home park that didn’t allow rMobile Homeentals, just owner occupants what do you do then?  Well you can become the bank.  You buy the home from the current owner and then sell it to a new owner and carry the paper.  Here is a real world example of what such a transaction might look like.

I went to our local Craig’s List and found this example of a mobile home for sale.  Here is what the advertisement said:

  • Buying a house and need to sell this quick it’s older and needs cosmetic work but is live-able.
  • Has central ac electric heat
  • 2 bed 1 bath covered front porch and a shed
  • Lot rent is $265 park is nice has a playground and ponds for fishing I’m on a huge corner lot backed up to woods really quiet.
  • Like I said house needs some work like paint trim maybe carpet in living room floor covering in kitchen. There is a soft spot in the floor by laundry room. All easy fixes all appliances go with it.
  • Asking $6000 obo might do a rent to own.
  • Mobile home does not need to be moved but can be if you wanted

The bullet points above indicate to me the that the owner is not in love with the mobile home, in fact I think they like the lot better than the home and they have bought a house and are ready to move.  So I am thinking motivated seller with a home they know needs work and in a park that is probably friendly to renters.

Here is one way I would structure this deal.  I would offer $4,000 cash for this home and then put $2,000 into fixing the floors, carpet, paint and other cosmetic work.  So my total investment is $6,000 then I would sell it for $10,000 with owner financing and ask for at least $1,000 down.  The selling financials would look like this.

MH selling Note

You can see from the financials above that the home payment of $203.63 plus the lot rent of $265 is less than $500 which is a great rent in this local economy and would discourage people from moving out once they moved in.  Our rule of thumb is to compare the payment to a similar size apartment or rental home in the area and adjust the terms of the deal to make it more desirable than either of those alternatives.

People buying these homes are generally more concerned about the amount of the payment than they are about the interest rate and they most likely don’t have 700+ credit scores so the interest rate is justifiable and the payment is livable.

Now let’s calculate your rate of return on this transaction.  You bought the home for a total investment of $6,000 and received at least $1,000 down so you have only $5,000 left in the deal.  Being the investor and the bank can earn a pretty significant yield on your investment, in this case 42.92%. So you can see why this might be an attractive investment option.

yeild MH 1

Now there are some items you should be aware of.  Yes a person can come in and buy the home and then not pay, or move out and leave it trashed.  They could also do that with a conventional home, and your investment costs and repair costs would be much higher.

Buy homes where you don’t have to move them.  Moving and setting up a mobile home will run $2,000 or more and you can double that amount if it is a double wide mobile home.

Make sure you contact the park owner/manager to verify a rental or sale in their park is acceptable.  There are a few that don’t allow it.  For higher quality parks, also make sure the particular home you are talking about will be allowed to stay in the park.  For some parks once the home gets older and the owner leaves they will want it moved out of the park because newer homes add more value to the park itself.

If you are going to do this more than three times a year, you need to make sure you are in compliance with Dodd-Frank regulations.  Check your state laws to see if you need a dealer’s license to do these transactions and to ensure the interest rate you are charging is not considered usury in nature.

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