Mobile homes may be the last thing you think of when it comes to investing, but there are advantages that you cannot find anywhere else. That is why many investors are turning to them. Some investors exclusively invest in mobile homes or mobile home parks to create passive income. To better understand why, we first need to know the difference between a mobile home, manufactured home, and modular home.
Before 1953, the term trailer was used to describe these types of homes. To distinguish travel trailers and factory-built homes, the term mobile home was introduced in 1970. When the US Department of housing and urban development was designated by Congress to change this, HUD laid out the standard to ensure the quality of manufactured homes. New federal standards regulated the design and construction, the strength and durability, trench transport ability, fire resistance, energy efficiency, and the overall quality. HUD mandated that on official documents these types of homes should be called manufactured homes not mobile homes. Mobile homes reference homes built before these regulations and manufactured homes reference types of homes built under the new standard and code. Manufactured homes have been inspected based on HUD code. Keep in mind that manufactured homes are different from modular homes in that modular homes are not regulated by HUD they are instead regulated in the same way as site-built homes.
When most people think about investing, they think about purchasing a home or renting out a home. They do not think about a mobile home. The cost of purchasing a mobile home and the renovation is much lower. They are always in demand, especially in mobile home states, and are in more of an abundance in warmer states. You do not often see mobile home parks in colder states due to the fact that they are not so efficient when it comes to energy needs. Not only do they tend to become extremely hot during the summer, but they also lose heat during the winter.
Mobile homes also have some of the lowest costs, which allow you to acquire more units for less money. It is the lowest cost investment per unit of any real estate. Most park owners prefer to own the land and not the units themselves. This means the cost of investment is typically a lot less in comparison to the number of units. For example, you might be spending $100,000 + per home or apartment unit, but as little as $10,000 per lot in a mobile home park. Along with lost costs, repairs are usually affordable, and the upkeep of the park is significantly less than the upkeep of an apartment building. Investing in mobile homes is also a lower risk decision. When you own a diverse collection of units, the high cost of occurrences, such as eviction or random expenses, are spread out across a large portfolio and are less of a hit.
Bloomberg published an article in November 2021, titled Mobile-Home Communities in U.S. Draw Record Investment.
Investors are pouring record levels of money into manufactured housing, seeking stability and yield as the need for affordable living options increases across the U.S. Jones Lang LaSalle Inc. projects investment volume of $4.5 billion in mobile-home communities in the third quarter -- an all-time high on a trailing four-quarter basis. Valuations for the communities reached a record in the second quarter of $46,970 per pad, the real estate services firm said in a report. Occupancies also climbed to a new high, at 95.4%. And rents rose throughout the pandemic, to a record $800 a month on average. Manufactured housing is becoming an increasingly popular option as costs for more-traditional properties soar. Strong demand is expected to continue over the long term as the share of Americans over age 65 grows. While private capital represented 72% of mobile-home investment this year, institutional investors are getting more involved. They accounted for 22% of total volume, the highest percentage on record, according to JLL.
As we mentioned earlier, demand for mobile homes is high. But new mobile home parks are not being developed often, due to government zoning changes. This means the demand for mobile homes in well-managed parks is increasing as the need for affordable housing continues to grow. Baby boomers on fixed incomes are retiring with little savings, and mobile homes can be a great solution for the affordable housing deficit.
Many mobile homeowners are not huge investors with a ton of capital. Instead, most are simple operations with owners that are not professional landlords or property owners. This allows you to purchase at reasonable rates, then create improvements and new value, that will attract long-term tenants. This type of investing is also great for anyone who does not want to compete with the huge volume of investors looking for traditional real estate investments. A few key factors why people are investing in mobile homes are little money needed, limited risk, high returns, and passive income.
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