4 Things to Avoid When Investing in Mobile Home Parks

Investing in mobile home parks can offer savvy investors potentially high returns with less cash outlay than other opportunities.

However, would-be investors should be aware of the potential risks and rewards of investing in mobile home parks.

Park ownership can be fruitful, but success begins with knowing what to avoid when considering this unique real estate type.

1. Assuming Mobile Home Parks Are Like Single-Family Real Estate

To a new investor, a mobile home park might seem like the real estate cousin to an apartment or condominium complex. However, the structural differences of a mobile home are vastly different than a permanent unit. Mobile homes require special financing and insurance, and they aren’t viewed the same as an asset.

The majority of an investor’s opportunity with a mobile home park lies within the land and potential tenant agreements. By providing a tenant with a lot, utility hookup, and basic amenities like a roadway, you can build a reliable income stream. To determine if the mobile home park you’re considering would be a good investment, assess the tenant agreements and types. Some parks rent the lot to tenants–and the tenants own their home. Other parks rent the mobile home directly to the tenant, which covers the residence, lot, and sometimes utilities.

Just like any investment, the details of who owns what will greatly determine your income potential. You may be a buy-and-hold investor who’s in it for the long run or you may be looking for a short-term deal. At any rate, take a page from Lifestyle Investor Justin Donald who encourages investors to think about their exit strategy.

Justin Donald says, “Focus on profitability. Your business needs to be profitable and have a good track record of profitability to attract buyers.” In a business like mobile home park ownership, understanding the rental income and owner obligations will dictate your exit point. Get to know the going rates of land in your chosen area and the potential tenant population.

2. Going Into a Deal Without Fully Understanding Property Owner Responsibilities

Depending on your experience with mobile home parks, you may have some innate assumptions about how they run. But when an investment is in the cards, there’s no time for broad assumptions. Just like we covered with understanding the differences between single-family and multi-unit housing, learn what responsibilities belong to the owner.

Local ordinances may require certain responsibilities or common customs may have set the trend for parks in the area. Find out the specifics regarding roadways, right-of-ways, and utility service, which can determine what you’re responsible for. If your park is completely private, you might need to manage and maintain the roads. That means that if the snow needs to be cleared, you’re on the hook. This might mean thousands of dollars in annual maintenance, and that’s before you consider future replacement costs. You’ll want to know all the numbers so that you go into the deal knowing its profitability.

Utility service is another beast completely, especially if you’re responsible for the laterals that run from the right of way. If a sewer line is undermined by tree roots, the repair bill may wipe out your profits completely. Confirm where your responsibilities as the park owner begin and end to determine if the deal is fair. If the park you’re considering does make you responsible for a great deal of maintenance, review the records thoroughly.

3. Skipping Inspections

Your lender may have certain inspection requirements, but if you’re paying with cash, it may be tempting to cut corners. Inspecting several private residences might feel intrusive, but if you’re putting out the cash, you still need to do the due-diligence. If the park would own the mobile homes, identify a sample of them to inspect. Contract with a reliable inspector with experience in mobile homes for the best outcome.

Make sure to inspect the unit itself as well as the mechanical and utility-related components. This is especially important if you are also the owner of utility lines outside the home. Some parks may have tenant requirements or requests for how to handle things like wastewater– others don’t. If not, a park owner would be responsible for replacement in the event, age related or environmental, or even tenant damage. If you’re the responsible party, a sewer line backup could impact the whole park and run you into the red.

Network with current mobile home park owners to learn more about the good, bad, and ugly of ownership. Learn what to look for and what mistakes they’ve made over the years. Aside from getting ahead of potential red flags, their insight could help keep you from missing a critical detail. Take any advice you get with a grain of salt, and conduct an assessment that meets your investment criteria.

4. Not Knowing the Financial Obligations of the Deal

You’re ready to make a deal and you’ve negotiated hard. But if the current owner is all too quick to take your offer, take a moment to consider and check the angles. A fire sale might be a signal of trouble that requires investigation. Read the fine print of any agreements that have been drawn up thus far and log questions that arise. Request copies of current tenant agreements, especially any in rent-to-own situations.

Clarify where rental payments flow and where income and expenses have been disbursed. If the current owners’ records are lacking, get curious as to why. Sometimes, it’s poor management, other times, they might be covering something that could be a deal breaker for you. At any rate, it’s your job to get all the details so you can make an informed, smart investment. Use this information to project the park’s potential profitability and how you could shoulder larger repairs and maintenance.

Get property records from the assessor’s office; don’t rely on the property owner to furnish them. They could be out of date or exclude details you need. Pull the property tax records and research any pending or potential legislation that could impact your obligations in the future. Understand how the current owner is listing the asset, as their approach may differ from yours. Confirm that the tax obligations are up to date and that there are no liens on the property that you’d inherit.

Check with the local zoning authorities to confirm zoning on your specific park. Review the park survey to fully understand the boundaries and where any rights of way, utilities, or other considerations are. Pay special attention to areas like flood zones, which could impact insurability for your units. Being in a flood zone might make your park less attractive or reduce the potential rates you can charge.

Mitigate Risk With Proper Due Diligence

Just like with any investment opportunity, thorough research is critical for making an informed decision.

Unique opportunities like mobile home parks often present complexities that are less prevalent in single-family or multi-unit properties.

Real estate investors can mitigate investment risk by getting to know the details, nuances, and regulations behind the deal.

By keeping these four potential deal breakers in mind, you can grow your portfolio and broaden your income streams with confidence.