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Today, around 70% of rental properties are owned by individual investors. According to recent Census data, there are approximately 48.2 million rental units in the U.S. today, which are composed of single-family homes, townhomes, apartments, and other unit styles, such as manufactured housing units. Another common name for manufactured housing units is mobile homes since these units can be moved to a new location by flatbed truck.
Despite an increasing number of institutional players that are buying up rental units, this shows that individual people can still succeed at the rental real estate game.
Typically, most novice real estate investors get their start by buying single-family homes and then eventually moving into acquiring multifamily assets (such as apartments). However, there’s another route you can go too and it is buying manufactured homes communities. Manufactured home communities are similar to apartment communities in that they house groups of people.
However, the main difference is that apartment owner rent out apartment units, with the owners of manufactured housing communities (MHCs) rent out “pads” of land on which people can place a mobile home. Often, owners of MHC communities will own a few of the mobile homes within the community and rent them out, but for the most part, the MHC business model is centered around land leases. This can make it simple and straight-forward since there are less moving parts to maintain.
Need some convincing? Here are the five reasons you might want to consider investing in manufactured home communities (MHCs).
1. There’s Less Competition
People from all walks of life invest in apartment properties, as this is the tried-and-tested way to invest in real estate. Considering that you’re only one person, it’s tough to compete with larger parties, such as institutional investors, large private equity groups, and real estate investment trusts (REITs).
In contrast, fewer institutional buyers invest in manufactured home communities. Particularly when it comes to smaller parks that have less than 50 “pads”, the scale just isn’t right for the “big money” to acquire them.
This means that investing in MHC communities can help you to avoid some of the common challenges associated with traditional real estate.
2. You Own the Land, Not the Homes
As mentioned above, when it comes to MHC investing, you own the land (or “pads”) rented to the tenants, rather than the manufactured housing units themselves.
So if you were worried about managing homes, then get peace of mind knowing that you will have limited responsibilities in this area, because the manufactured home owners (your tenants) will be responsible for their property maintenance, not you.
Instead, your focus will be on the general upkeep needed for the entire community. For example, you will be responsible for the manufactured housing community’s roads, septic systems, water and electrical connections, trash collection, lighting, and signage.
3. You Can Get a Great Return on Investment (ROI)
Because most MHCs were permitted and built in the ’80s and ’90s, many owners are now aging out and retiring. This means that you can sometimes acquire mismanaged parks with tremendous upside potential.
By making a few changes and improvements, you can drive up the value of the MHC by increasing the revenue it produces. Opportunities for improving a MHC’s net operating income (NOI) can include:
- raising rents
- improving collections
- separating utilities by pad and/or billing utilities to tenants
- cutting management costs
- adding new revenue streams, such as paid parking, storage units, laundry services, or trash collection, for example
This can produce strong a strong ROI in short time period.
4. There’s a Better Chance of Getting Seller Financing
Again, many long-term MHC owners are now aging out of their prime ownership years. Because many of these owners have held their MHC assets for long periods of time and have a low cost basis, they are likely to have a large tax bill when they sell.
This means that you will have a higher chance of securing seller financing. The reason is that this approach allows sellers to spread their tax liability out over time, as well as turn their profits into monthly payments that they can use to cover their living expenses.
From your perspective as the buyer, the main advantages of seller financing are that there are lower expenses for closing costs, more flexible terms, and in some cases, no private mortgage insurance (PMI) premiums.
5. Tenants Stay for Longer
In general, tenants stay at a given MHC for a long periods of time. In real estate, we call this having “sticky” tenants. The reason for this is that it can easily cost $3,000 to $5,000 (or more) to move a manufactured home from one location to another. It’s not cheap to hire a flatbed trucking company to come to your home, load it onto their truck, and tow it to a new location.
There’s also a huge need for affordable housing. This has caused services like Cairn’s manufactured homes for rent to experience rising demand, as more and more people need housing options that are a reasonable amount of their total income.
Ideally, no more than 30% of your monthly income before taxes should be spent on your housing.
Given these realities, most MHC tenants will prefer to stay put in a single location, rather than move around each year.
Investing in Manufactured Home Communities
If you want to invest in real estate, then investing into manufactured home communities (MHCs) presents an intriguing option—particularly if you start by investing into smaller manufactured housing communities (MHCs) that may only have 20-5o pads.
While there will always be a learning curve involved, this can be a relatively safe way to started, given that traditional real estate investing can be more challenging and competitive. Then, as your skills and experience expand, you can move into buying larger MHCs that may have 100 to 300 pads (or more).
If you’d like to learn more about how to compete in the game of real estate investing, then browse the real estate section of this blog.