How To Understand The Power Of Leverage When Investing In Mobile Home Parks

How to appreciate and harness the power of good leverage in investing…

Leverage remains the most misunderstood and most underutilized ally for investors today. But it also remains the most powerful tool available to savvy investors who get how to use it efficiently and wisely.

There are several types of leverage available to investors and a number of them come into play for mobile home parks investors whether they realize it or not. This includes; leveraging other people, and the market. Then there is financial leverage. Some fear it like the plague, some abuse it and go broke. Others continue to use it as dynamic force for hacking wealth and income, in a sound and sustainable way.

So how much does leverage really matter? What types of financial leverage are available to mobile home park investors today? How are sophisticated investors using leverage differently? What is the right balance of leverage for you right now?

Leverage vs. No Leverage

We are all very aware that too much leverage, used in an unsustainable way can be risky. It’s no secret that there is a sizable percentage of the population which hasn’t been taught to use financing well. They are constantly sold on financing deals which end up being more costly and counterproductive. However, there is undeniably a distinct difference between good and bad leverage. Even the most adamant anti-debt gurus like Dave Ramsey continue to promote real estate financing as the one exception to the rule, and a sound financial move.

The bottom line is that financing is just like money. In itself it is not good or bad. It is how you use it.

So let’s just look at the cold hard numbers and math of using leverage versus no leverage to invest in real estate…

Scenario A: All Cash Purchase

Property purchase price: $100,000

Annual gross income: $10,000

Annual gross cash on cash return: 10%

10 year gross return: 100% / $100k

Scenario B: 90% Financing – 10% Cash Investment

Property purchase price: $100,000

Annual gross income: $10,000

Annual gross cash on cash return: 100%

10 year gross return: 1,000% / $100k

Scenario C: Multiplying the Initial Investment

Taking the initial $100k, and purchasing a larger property with 90% leverage, or 10 smaller properties with 90% leverage, really unleashes the power of this financial tool.

Property purchase price: $1,000,000

Annual gross income: $100,000

Annual gross cash on cash return: 100%

10 year gross return: 1,000% / $1M

If you had $100k to invest, would you rather earn a 10% or 100% annual returns? Would you rather generate $10,000 a year, or $100,000 a year in income with that capital?

Yes, there will be debt service, taxes, and other expenses. Yet, there are also tax deductions, and appreciation to be factored in. Would you rather enjoy 5% appreciation on a $100k property, or a $1M property? Even at a fraction of the improvement, the ROI and power of leverage for investing in mobile home parks cannot be ignored.

Ways to Leverage Your Mobile Home Park Investments

There are multiple ways to leverage mobile home park investments including:

  • Bank loans
  • Commercial mortgage lenders
  • Seller financing
  • Investor partnerships
  • Friends and family
  • Real estate crowdfunding
  • Hybrid combinations of the above

Among these leverage options there are many creative ways to structure deals:

  • Lease options
  • Wrap around mortgages
  • Cross-collateralization and blanket mortgages
  • Bridge loans
  • Lines of credit
  • Balloon mortgages

Whatever your personal credit and financial situation, and belief about debt versus equity there are ways to structure mobile home park deals and gain leverage in a sound and flexible way. If you don’t like debt, even non-recourse loans, then use equity funding. If you don’t like having partners or splitting the pie, then use debt financing. Or mix it up with the two of them.

The Pros and Cons of Full Leverage vs. No Leverage

‘Full’ leverage might conjure up mental images of 125%, subprime mortgage loans, but that’s not what we are talking about here. Investors are absolutely wise to build up equity over time, and preserve their flexibility to sell and restructure financing in the future, while increasing net cash flow.

Full leverage can be defined as having full access to any capital invested, and enjoying liquidity. We see this when startups make it to IPO. Look at Mark Zuckerberg. He pulled together $1,000 to start Facebook, and made it to IPO, which gave him Facebook stock worth around $45B in 2015. He has more than fully leveraged his initial investment, and can now sell and donate that stock to philanthropic efforts. Similar results can be achieved by refinancing as value accumulates in a mobile home park, or by bringing in partners, or leveraging equity to acquire additional parks.

Note that high loan to value (LTV) financing isn’t always a bad thing either. However, there is a big difference between maxing yourself out with no protection from the down side, and no flexibility, versus those that have very manageable debt and enough financial reserves to ride out any soft periods. Staying leveraged can even reduce risk. It reduces exposure to risks of damage, natural disasters, and malicious lawsuits. The diversification that full leverage offers reduces performance risks, and increases consistency and overall long term returns.

Put simply; a plan to achieve full leverage can ultimately provide the best combination of high returns and low risk.

Pro Tip: Understand your season in life, and the level of leverage which will give you the most peace of mind. If you are hungry for growing income and wealth then a more aggressive structure may be necessary. If all you seek is wealth preservation and slightly enhanced passive retirement income later in life then you may enjoy a more conservative approach.

How To Hire An Onsite Manager For Your Mobile Home Park

Where can mobile home park investors find good property managers?

Great property management is key to unlocking the full potential of any real estate investment, and preserving the asset. So where and how can mobile home park investors secure good, affordable managers?

What to Look for in a Good Mobile Home Park Manager

Knowing what you want in a property manager can help narrow down where you look, and how.

Some of the factors that may be important or beneficial may include:

  • Already know the area
  • Experience
  • Known for quality and attention to detail
  • Likable by tenants
  • Easy to work with
  • Affordable, offer good value

Your criteria for hiring a property management is unique to you, and perhaps even the specific mobile home park you need management for at the time. For example; if you live down the street, and have a full park with long term tenants who all pay online; then you may just need a handyman to be on call for the odd emergency. In contrast; if you are purchasing a park on the other side of the country and know there will be a lot of early turnover, intense management, door knocking for rents, and potential security needs; you may want an on-site manager with a lot of proven experience.

When to Hire Property Manager for Your Mobile Home Park

One of the most important factors here is to hire your local team before closing on your mobile home park acquisitions. Interviewing and talking with local professionals, including potential property managers can provide great insight during the due diligence process. Having a team in the dugout ready to hit the field immediately on closing (and even before), can ensure a smooth transition, better experience for tenants, and helps avoid any hiccups with income and maintenance.

Head Hunting Potential Property Managers

Great ways to start looking for help include:

  • Looking for the best kept lots in this mobile home park
  • Looking for the best maintained lots and parks in the area
  • Strategic letters to residents asking for referrals
  • Local newspaper and Craigslist ads
  • Signs
  • Recruitment agencies

One of the great perks of hiring local onsite property managers can be the potential to bargain with free rent in exchange for management services provided. But there are other options too.

Hire a Professional Property Management Company

Some inexperienced investors may cringe at the idea of employing a professional third party property management firm to take care of their assets, just as some of these firms may first cringe at the idea of managing a ‘mobile home park’. Still; do the math for yourself before deciding. There may be more value there than you realize. The bottom line is all about the performance and net results, and ROI on what you invest in management. Ask for referrals from other local investors and real estate professionals and check Google for business listings.

Outsource It

While this may not yet be a common solution in the mobile home park space, remote property management has been working since at least 2005. It may not be right for every property, and investor, but it can certainly work. Between new smart home and real estate features, the internet, and outsourced professionals it is quite possible to handle 99% of property management needs from the cloud. It’s worth checking out those that offer it, and if it may be an affordable and efficient match for some of your mobile home park holdings.

How to Find Investor-Friendly States to Invest

Where you invest is just as important as the properties you invest in…

Before inking that mobile home park deal, make sure you are investing in the right area for optimal success, and best net benefits.

Some US states, counties, and even cities can yield far better net returns, and can be far more pleasant and stress-free to invest in than others. Knowing this in advance can help mobile home park investors to dramatically cut down their research, and hone in on the best opportunities, in the best locations, and get more out of their time and capital.

So what factors should mobile home park investors be looking at when shortlisting destinations to invest?

Landlord Friendly States

US states vary greatly between whether their real estate laws favor landlords versus tenants. Clearly those investing in buy and hold properties for income may find dramatically better results by sticking with those jurisdictions that typically rule in favor of investors.

Various factors can come into play here including:

  • A landlord’s right to access their own property
  • Time required to evict
  • Cost to evict
  • The compensation available to tenants and their extended contacts for frivolous items
  • Trends in which party judges typically side with

Renter’s Insurance Ranks These as the Top 8 States for Landlords:

  1. Texas
  2. Indiana
  3. Colorado
  4. Arizona
  5. Florida
  6. Kentucky
  7. Georgia
  8. Mississippi

Others have posed Arkansas as a friendly state for landlords. This is in contrast to states like New York, California, Illinois, and Massachusetts. In Chicago investors have complained that tenants have a significant incentive not to pay rent for 5 months before they’ll be evicted. In Massachusetts landlords are held to high standards even when tenants are not paying and should no longer be in the property. Tenants in MA, and their extended family can even easily sue landlords for emotional distress.

Rental Controls

Rent controls are considered a major nuisance by many real estate investors. Many believe they are actually counterproductive for everyone. The bottom line is that they limit how much landlords can raise rental rates. This is something you need to know before making a mobile home park purchase.

Rent control is more common in some states than others; such as New York and California. However, rent limiting regulations can also be on a county and city basis. It can even be property specific. Some notable investors have succeeded in forcing out protected tenants, but that isn’t a venture the average investor probably wants to bet their capital and reputation on.

States where investors should expect to encounter rent controls include:

  • New York
  • New Jersey
  • Maryland
  • District of Columbia
  • California

Price to Rent Ratio

Price to rent ratios reveal how much you pay for an asset versus how much cash flow it will produce. SmartAsset shows that you’d have to buy a $540,240 home in San Francisco to rent it out for $1,000 per month (a 45.02 price to rent ratio). Contrast that with Detroit which has a ratio of just 5.6, where you can rent out a $67,200 home for $1,000 per month. Seeking Alpha breaks down major US markets even further with heat maps of major US metros based on price to rent ratio.

Financial Stability

The financial strength and fiscal liquidity of local government shouldn’t be overlooked either. A bankrupt city or state can have big consequences felt in many ways. Detroit is one of the most significant examples of this. In tough times local law enforcement can also be incentivized to drive up revenues through new levels of toughness which can have an impact on landlords through their tenants. Raising taxes is also a common way for authorities to make up for shortfalls. We’ve seen this consistently in New York, and Chicago recently unleashed a massive collaboration of tax hikes and simultaneous efforts to reduce pay for key workers. So make sure they’re healthy!

Taxes

High taxes can impact investors in a variety of ways. They can potentially impact how much locals can pay in rent, property taxes on mobile home parks, how high property values can rise, resale appeal, and net profits for real estate owners.

Property Tax Adjusters Names the 4 States with Lowest Property Taxes as:

  1. Hawaii
  2. Alabama
  3. Louisiana
  4. Delaware

It’s important for investors to look at overall taxes which may impact them directly, and the prosperity of the destination in the future. High taxes tend toward scaring away business, jobs, and residents, and that bad for the rental business.

Forbes Names 5 of the Most Business Friendly States as:

 

  1. Wyoming
  2. South Dakota
  3. Nevada
  4. Alaska
  5. Florida

Money-Zine offers a complete breakdown of the best and least tax friendly states by rate here.

Where you may retire and live in the future may also influence your decision of where to invest in mobile home parks. Will you want to live near your assets? How will your choice of retirement destination impact your net income and the legacy you can pass on?

Equity Trust Names the following at the Top 6 States to Retire as of 2015:

  1. Wyoming
  2. Alaska
  3. Florida
  4. Mississippi
  5. New Hampshire
  6. Nevada

Investor Friendly Real Estate Services

Where you can find investor friendly services and vendors may also play a role in where to invest. Can you find local real estate attorneys, Realtors, title companies, and financiers which are investor friendly?

Mobile Home Park Investing: Local vs. Out of Area Investing

What’s the difference in investing in mobile home parks locally versus out of area, and even out of state?

Access to more data, technology, and contacts than ever before now enables real estate investors to effectively invest in and hold properties virtually anywhere in the world. So with such great freedom, and no barriers what are the pros and cons of sticking close to home versus further afield? What’s better, and why?

The Challenges of Investing Close to Home

Some investors will find they have great mobile home park investment options close to them. These definitely should not be ignored. Aside from the close proximity and potential knowledge of the area, there can be other benefits of investing in your home town too. This may include positively influencing the property values of any other real estate you own (if you do an amazing job at property management). Then there can be other than monetary benefits such as improving the local community and economy and helping others.

However, there can be pitfalls of staying local too. This includes:

Limited Options

You may be in the best mobile home park market in the universe. If so don’t overlook those deals close to you. But since the whole world is your oyster, don’t suffer inferior returns, or forego the need for diversification. Demand the best investments, with the best returns, in a strong portfolio.

The DIY Management Trap

Perhaps the worst part of staying local is the potential to fall into DIY style self-management. This notoriously traps many, even among those who didn’t plan to get involved. There is just too much temptation to stop by, answer the phone, and try to fix it yourself. That can create all types of bad habits, confusion, and issues.

Privacy & Security

Some investors like the ego boost of being known as the big land owner in town. For others the spotlight is a nightmare. Most investors fail to put enough cushion between them and others. That means they can easily be looked up and hunted down by irate tenants, and the attorneys of malicious fraudsters and opportunists.

Unsustainable Investment Model

Those that fall into the DIY property management trap face even bigger issues later on. Eventually most investors will move. They may move for better weather in retirement, to be near family, or to downsize and be close to good healthcare. Then who is going to manage the investment. If you haven’t built in enough margin to cover hiring a professional third party management firm that could mean a negative cash flow situation which begins to eat into previous gains.

The Benefits of Investing without Borders

Investing with a full map doesn’t mean ruling out mobile home parks that may be right down the street. It simply means keeping every option open so that you can invest in the very best deals, anywhere.

Some of the perks of this approach include…

Finding the Right Match in Price Points

For some the biggest need is to find mobile home parks in the right price range. For some this is smaller, more affordable parks to get started, or to diversify when using a 1031 exchange from a sale. For others it may actually be finding more expensive parks to move up to.

Finding the Best Matching Properties

Following on from the above; it isn’t necessarily about finding ‘better’ properties, or the ‘perfect’ property. It is about finding the best match for you. With more options mobile home park investors can find the right matches for their individual goals and timeline. For example; perhaps you are looking for undervalued opportunities that you can add value to. Others might be searching for parks needing little work, and which already have strong cash flow.

Investor Friendly Locations

There can be a dramatic difference in risk, liability, and net returns, between locations. Some states, counties, and cities are far friendlier to landlords, business owners, and investors than others. Find those places to invest.

Diversification

Diversification is a must for every individual who is serious about their finances and financial future. Period. You can’t truly diversify effectively in only one city of region. Keep your options open and invest broadly.

Best Destinations Right Now

It’s no secret that all real estate is local. Every micro market is turning on its own cycle. With more options mobile home park investors are able to seize on the ripest markets at the best moments, for maximum results.

Mobile Home Parks Versus Other Assets

How do mobile home parks stack up against other sectors for investors?

While mobile homes are often looked down on by some newer real estate investors, this asset class continues to make up a sizable portion of the portfolios of the world’s wealthiest billionaire investors. What draws these sophisticated investors to this sector? What metrics are they looking at that may be overlooked by others?

Cost Per Door

One of the most substantial differences between mobile home parks and other property types is cost per door.

Consider this…

The median cost per door:

  • Single family home $268,900
  • Apartments $30,000
  • Mobile homes $10,000

What it means for Investors

Starting out with $268,900 that means investors can choose between:

  • 1 single family home
  • 9 apartments
  • 26 mobile home units/ lots, with $8,900 left over

Take into account the average rent per type of unit:

Average gross annual income for your $268,900 by property type:

  • Single family home $14,181.48
  • Apartments $103,680
  • Mobile home parks $156,000

Which would you rather have?

The Net can be Substantially Different too

What is more difficult and costly to manage; a portfolio of spread out single family homes, or multiple mobile home lots on one parcel? That can make a substantial difference in net profit at the end of each year, and over time.

It’s also worth pointing out that if your 1 single family home tenant stops paying, and it takes 3 months to kick them out, and 3 months to replace them; you’ve lost half of your income for the year. If you lose one mobile home park tenant under the same scenario you only lose 1/50th of your annual gross income.

The Perks of Mobile Home Parks

There are many other perks of mobile home parks too, including:

  • Growth potential
  • High demand for affordable housing
  • Low intensity maintenance
  • Availability of seller financing
  • Additional tax benefits

Summary

There are many advantages of investing in mobile home parks. Among the most notable is cost per door, and the resulting benefits of consistency in cash flow, and overall annual and lifetime returns. These are the facts that the most intelligent and wealth investors in the world understand, and why they are so bullish about mobile home parks as an asset class.

Retirement: Beating the New Era of Zero Investment Returns

Can Americans beat the new economy, to retire with confidence and in comfort?

There is little uncertainty about what’s ahead in the minds of many leading financial experts. They are pretty adamant that at best we are facing a stalled economy, if not a recession even greater than 2008. What threats does this really bring to Americans who are trying to save, and get ahead financially?

The New Era

Even if things don’t crash; fund giant Bill Gross warns we are entering an era of minimal to zero returns, and that can be far worse for retirement savings than most understand.

Sub 5% returns in the stock market and bonds mean that savers and investors will effectively be in a zero net gain environment, and a negative rate situation when inflation is factored in. That means cash and saving may not grow, and could be depleted year after year, before retirement instead.

That’s if markets don’t plummet from the stampede effect. 2016 began with what CNBC calls the “worst performance ever.” The coverage also warns that dominant financial institutions and governments rarely warn the public of impending crashes.

Key Points

That would be counterproductive to their goals. CNBC reminds us that the peak to trough of the last 6 recessions has been 37 percent. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety,” And forecaststhis one will be worse.”

Financial advisor and author Harry S. Dent who has successfully called previous crashes predicts this next one will be far uglier than what we’ve seen in the past, including the Dow Jones getting crushed to just 6k.

Sam Zell is adamant that the US is heading into a recession in 2016, that’s if it isn’t already in one. He’s walking the walk too, and has recently shed billions in investments which he believes have topped out for this cycle.

Negative interest rates are already being effectively felt by many savers across the world, and Bloomberg warns that this could simultaneously tighten lending and working capital for businesses and home buyers at the same time.

Factors That Could Alter the Course of the Economy

What factors could alter the current course of economic and investment performance for better or worse?

  • 2016 presidential election
  • Fed rate changes
  • Positive or negative reports on job, growth
  • Stock market volatility
  • New regulations

Most Important Considerations for Retirement Planning

  • How to grow savings and investments in a zero rate environment
  • How to save enough when other sources of income may be hampered
  • How to ensure sufficient passive income for time out of work, and in retirement

Key Takeaways from the Economic Forecast

Less than 10% of Americans have enough saved for retirement. Saving and growing that nest egg through traditional stock and bond portfolios seems unlikely to be a viable strategy ahead. These assets may still have a place in a well-balanced portfolios, but all of them, including cash in the bank could be net losers for a number of years.

In order to beat these dynamics Americans must act fast to beat the crowd to the few asset classes which still offer value, attractive yields, and most importantly; reliable cash flow.

Mobile Home Park Investing

Investing in mobile home park investing may be the answer for many. It is the one asset class which Sam Zell has continued to increase his footprint in, even while selling off apartments, office buildings, and other business investments.

The advantages of this sector for retirement planning include:

  • Traditionally grows in line with inflation
  • Can produce consistent income uncorrelated to asset value
  • True passive income and monthly cash flow
  • Potential to perform well in both bull and bear markets
  • Full suite of tax advantages

Perhaps even more notably in the current and forecast environment; seller financing and alternative financing is quite common in this space. That could prove to be an invaluable advantage during periods when conventional lending is tight. It means the ability to leverage and achieve asset and income growth, while others struggle to stay afloat.

Summary

The economic and investment performance forecast for Americans isn’t very sunny according to the majority of experts. Even stalemate returns can be a serious threat to retirement planning. However, there is at least one asset class which could prove a powerful ally. Don’t overlook the advantages of mobile home park investing.

 

Top 4 Reasons Why Investors Love Mobile Home Parks

Why are investors so interested in mobile home parks today?

Those that understand the math and advantages of mobile home parks as an asset class can’t help but be drawn to investing in them. Investors that are looking for more from their portfolios may be surprised that they haven’t been tuned into these investments before.

What you need to know…

Returns

Superior ROI

Between attractive rental spreads, value add opportunities, enhanced tax benefits, and evolving fundamentals, mobile home parks some of the best, and most predictable returns out there. For the 12 months ending in March 2015 the gross returns of three major mobile home park operators hit 44% according to the Wall Street Journal.

Potential Add Value

Forbes’ recent report on investing in real estate for income and retirement highlights the advantage of control over asset value that real estate offers. Try as hard as you like and you aren’t going to increase the value of CDs or stocks you own.

Imagine buying Disney stock and trying to add value to that. Even if you buy an annual pass to every park, get an ESPN subscription, and buy all the merchandise as gifts for your family for the next year, and even spend you weekends volunteering to don a character costume; you aren’t going to nudge your stock’s value up one cent.

In contrast; real estate owners have numerous ways to force up the value of their own properties. This works in all phases of the property cycle. This can include raising the rent, making over the property, adding additional services, and even simply holding and seasoning property performance until it is considered ‘stabilized’.

Lower Maintenance Costs & Ease of Ownership

One of the most common excuses investors lean on to justify not having direct real estate investments in their portfolios is maintenance and property management. We’ve all heard the tales of the high maintenance tenants that want help unclogging the toilet, changing a lightbulb, or unlocking the door when they forget their key; at 2am. Mobile home park investing eliminates that dynamic.

In a mobile home park residents generally own their units. You collect lot rent. So if they lock themselves out, break something, or want new appliances; that’s all up to them, and out of their pocket. You are as the park owner have to keep up the landscaping, and any community features you choose to include. But that’s a night and day difference from managing single family homes or low income apartment buildings.

Lower Cost per Unit & Creating Economies of Scale

One of the main attractions to multifamily investment properties by sophisticated investors and funds in the past has been the ‘low cost per door’. This simply doesn’t get any lower when you are buying mobile home lots in bulk.

The second advantage here is the economy of scale. This includes property management, but this also specifically relates to ROI on improvements. Improvements made can elevate the total property value, and income potential across all units in a park. Compare this with spread out single family homes and the ROI is clear. You could hire a professional manager, install new laundry services, and a swimming pool to serve a whole mobile home park for not much more than for one single family home. Yet, you are simultaneously increase the rental potential on what may be a dozen or a hundred or more units.

Demand

Affordable Housing Needs

20% of US households earn less than $20,000 a year. Yet, even many of those that earn much more are struggling to afford anything more than a mobile home. While many are unhappy about the proposition of a $15 an hour minimum wage, the truth is that a $30 an hour minimum wage isn’t nearly enough to afford a reasonable starter home in many parts of America.

Need Growing on a Daily Basis

The need for affordable housing is growing on a daily basis. Even millennials and generation X aside; Pew Research reveals that 10,000 Baby Boomers are retiring daily. Vanguard reports the median 401k savings at age 65 as of 2015 is just over $70,000. Even for those that have owned homes for 30 years and paid them off (which remains rare) that isn’t enough money to go very far when you factor in property insurance, taxes, and maintenance. Never mind food and healthcare. As we enter an era of higher inflation this savings – expenses gap will only grow.

Priced Out of Other Housing

Since 2009, over 50% of new mobile home park residents have been former single family home residents. With house prices rising fast, and interest rates set to go on a hike spree for the years to come more and more individuals and families are going to find they are priced out of other housing options as each quarter goes by.

Limited Supply

Real estate is often heralded as a great investment due to limited land and housing stock. Well, there are even fewer mobile home parks. You can actually build more land with man-made islands, and in most areas you can construct or redevelop luxury condos and single family homes. What you can’t do is build new mobile home parks. Local government and developers don’t want to approve them. In fact, many owners of standalone mobile homes find they can’t replace them once their useful life runs out. Building codes prohibit it. That leaves existing mobile home parks. As these parks have been changing hands from those that have held them for decades to new long term buy and hold owners supply is decreasing. There is more demand than there is availability. That means rising value.

Diversification

Returns Not Tied to Wall St.

Wall Street and mobile home park returns are not tied together. This provides better diversification to counterbalance any downfall in stock market performance. In fact; downturns on Wall Street often spur greater demand for mobile home housing and investments. This is crucial for those desiring predicable income streams, and cash they can count on to support their lifestyle before and after retirement.

Can Buy without Banks

Seller financing is common in mobile home park investing. This has multiple benefits. One; it means investors do not need to tie up their personal credit reports with loans. It also means being able to purchase and increase acquisition activity even when banks are contracting and tightening underwriting. That works on the exit side as well.

True Tangible Diversification

Stock, bond, fund, and even REIT investors can find true, non-paper diversification in mobile home park real estate. A well rounded portfolio is great; but non-paper assets are critical. Mobile home parks even offer a secondary layer of diversification by having multiple units and tenants. This ensures consistency in cash flow and yield month after month.

Direct Ownership

The land mobile home parks control isn’t going to be lost. It is a much lower risk than office buildings, multifamily apartments, and even single family homes which owe most of their value and performance to the structures above ground. Additionally, this provides greater control. This is even better than a condo or co-op where you really have no control over the value of the complex, or a single family community. It’s better than a fund, stock, or REIT in which you don’t actually have any tangible collateral. A company can shed its real estate, a fund manager can change up the stock mix, or something else which leaves the investor nothing. The opposite is true with mobile home parks.

Now is the Time to Invest in Mobile Home Parks

Invest Like Buffett

Everyone wants to know how to invest like billionaire Warren Buffett. You can invest in Berkshire Hathaway stock, but it is very convoluted, does not offer diversification from other stocks and funds in your portfolio, and Buffett himself has warned its size threatens low yields ahead. What Buffett does continue to call his best lifetime investments (aside from getting married) is his direct real estate investments. Buffett’s organization is now owner of Clayton Homes, the largest mobile home manufacturer and financier of mobile homes; worth an estimated $2B. Direct mobile home park investing cuts out all the middlemen to enable investors to enjoy more security, higher yields, and net returns.

Unique Window of Opportunity for Acquiring Mobile Home Parks

We’re currently experiencing a unique window of opportunity for mobile home park acquisitions. Due to their strong cash flow and easy management owners rarely want to let their mobile home park investments go. However, after being held for decades, some aging original owners are looking to unload underperforming mobile home parks and retire. They often offer seller financing on these properties to retain passive income streams to retire on, though are willing to pass on the opportunity to improve and manage them to a fresh buyer. Once these opportunities are absorbed we may not see many available again for another few decades.

Other Real Estate is Overpriced

Other real estate asset classes are currently rapidly becoming overpriced. Some are buying into the panic of buying homes as house flippers and developers force up prices fast. Savvier investors are taking a bigger picture, more business like view. They see homes being flipped for $50,000 in profit in days without much being done to add value. They know it is only a matter of time before someone gets stuck holding the hot potato that no one else wants, and the debt that comes with it. Zillow is already predicting a softening and single digit declines in many US cities in 2016. History suggests that when the market goes down, it will invariably fall harder and longer than anticipated. This will only add more demand for mobile homes, and mobile home parks as investors sit out and wait for the bottom of the single family home and commercial property market. Remember single family prices dove by as much as 70% or more in the last downturn. Yet, even though bank lending can become scarce, stock portfolios can be impacted, jobs can be hurt; this also only supports the demand for mobile homes.

Technology is Creating More Efficiency

Technology is changing the dynamics of mobile home park investing too. It not only now allows investors to find, buy and manage MHPs from anywhere in the world, it also means increased net profitability through superior management. This checks the vital boxes investors seek in lifestyle and investment convenience.

Current acquisition opportunities won’t be this appetizing or available forever. But those that are acting now can find it a major financial game changer.

 

Stock Investing Versus Mobile Home Park Investing

How does investing in stocks stack up to mobile home investing?

If you’ve ever found yourself defending your stock market investments because you “don’t like to deal with tenants,” or “don’t want to spend my weekends getting my hands dirty fixing up old houses,” – you need to read this…

 “I like to invest in stocks because I don’t want to deal with tenants”

 There are plenty of excuses to invest in stocks. Perhaps your grandparents did okay in the stock market. Maybe that is what most of your colleagues and ex-school buddies are doing. Maybe there are even some wealthy people that you aspire to be like who have invested some money in stocks. Maybe you have even picked some individual stocks that have performed pretty well for the last couple of months. But with more leading Silicon Valley and Wall St. minds and wallets exiting old school stocks, and checking into mobile home park investing, it’s certainly a wakeup call to look into new investment options.

Whether it is fear of a rumored stock market bubble swelling, or merely the wisdom of looking to diversify an investment portfolio, real estate undeniably stands out as the most attractive option to explore. However, there can be many misconceptions among first time property investors. These sadly often become excuses not to participate.

This includes worries about having to fix up properties like a DIY show on TV, having to deal with nightmare tenants, and not being made to look foolish by investing in something they really don’t get. The next few sections of this report tackle these concerns, and bring clarity to the synergies and contrasts between investing in stocks and real estate like mobile home parks.

Invest within Your Circle of Competence

The principle of investing within our “circle of competence” is often repeated by Warren Buffett. Buffett of course may be known for his stock plays, but is actually one of the biggest ambassadors in investing in real estate, and specifically in mobile homes. In fact, those that know Warren’s moves well know that he continuously names his real estate investments as his best. With no mention of stocks in his top 1-3 list.

Some of those reading this may know stocks extremely well. Yet, how well do they really intimately know every business, industry, and the factors impacting them? Contrast this with real estate. Each and every person reading this, and everyone they know has dealt with real estate and housing. They’ve dealt with it their entire lives. Those that have struggled without housing are just as familiar with its importance. Ever since birth we’ve needed shelter, seen most of our parents spend the bulk of their lives worried about paying for it. Real estate is something we deal with every day. Is there anything we know better?

Security of Capital

Before any promises of returns on an investment comes the security of capital, and return of investment. The stock market is notorious for its volatility, and this can even carry over to publicly traded real estate stocks and REITs. Every industry, asset class, and type of investment has its cycles. However, direct real estate investment offers far less volatility. And it is always there. There can be zero downside protection in the stock market. You can be completely wiped out.

Truly Passive Income

With mobile home parks investing can be completely hands-free. With a professional system and management in place there is no need for rolling up your sleeves and picking up a hammer, answering tenant phone calls, or collecting rents in person. This means truly passive investing, and truly passive income. If you invest in stocks via an advisor and then into managed funds you may be enjoying passive income, but often with double the costs taken out. If you are day trading there isn’t much time for restful sleep.

The Power of Having Others Invested in Your Success

Most investment opportunities really count on you investing in, and fueling the success of others. Mobile home park investing is almost unique in that it provides you with a team of others invested in your success. As a mobile home park investor most often you really mostly own the land. Residents often own their mobile home units, and are leasing the land from you. This does two things. First, it makes the investment even more secure. The land isn’t going to be flattened by a hurricane or tornado or fire, and it’s pretty hard for someone to run away with. Second, it places numerous others in charge of preserving and nurturing your investment. For mobile home park residents this is their slice if the American Dream. They are homeowners, ‘stakeholders’, and they are families putting down affordable roots. To others, these properties may seem more than a little shy of the Ritz, a Manhattan condo, custom Bay area home, or mansion on Miami Beach. Yet, to residents they are equally as valuable.

Timing

Timing is everything when it comes to making an investment. It’s pretty obvious where the stock market is, and what lays ahead for stocks in general. Then look at the future for mobile home parks. In one way or another American housing is only going to get more expensive. Mobile homes are effectively one of the last bastions of affordable housing, and affordable homeownership. If demand is any barometer of the future performance of an asset class, then it is pretty obvious where mobile home parks are headed.

Summary

So how do stocks compare to mobile home investing? When investors really dig in, they will discover that real estate, and in particular mobile home parks really don’t have to be that complicated or difficult to own and profit from. In fact, mobile homes stick out as superior investments. You know housing. You know that affordable housing is a big issue today. And that isn’t going to change. Done well mobile home park investing offers a lot of security, passive income, can leverage a highly motivated workforce of others invested in your success. And the timing couldn’t be better.

How To Perform Due Diligence On A Mobile Home Park

What key factors should mobile home park investors consider when evaluating new acquisition opportunities?

Due Diligence for Mobile Home Park Investors

During the process of evaluating potential mobile home park acquisitions, and vetting properties under contract investors ought to be familiar with the following items.

  • Property inspections
  • Environmental inspections
  • Title and lien searches
  • Comparable sales
  • Holding costs
  • Operating costs
  • Actual rents
  • Leases and tenant status

However, even before getting to these property specific items thorough inspections mobile home park investors should also have performed wider market research, and evaluated the opportunity based upon the following factors.

Evaluating Mobile Home Park Acquisition Opportunities

Per Door Cost

One of the main attractions to mobile home parks is lower per door cost. That is the per unit cost in a park. For example; a $1M park with 10 lots would have a per door cost of $100,000. A $1M park with 100 units would have a $10,000 per door cost.

Price to Rent Ratio

Price to rent ratio calculates the rental income against the purchase price. Find this by dividing the purchase price by annual rents. So a $200,000 property divided by annual rents of $20,000 would give a price to rent ratio of 10. This same example would qualify for the 1% rule. This demands the monthly rents are at least 1% of the purchase price (or mortgage taken out). Those using financing will also want to ensure they are watching the debt-service-ratio. Most lenders will not want to exceed a DSCR of 1.2.

Local Competition

How much local competition is there between mobile home parks? Are there many parks or only one or two to pick from? How are they different? If there is a waterfront park or luxury park community and a low income park in a dry inferior area, or an over 55 aged community, they are probably not competing for the same tenants.

Supply and Demand

How are local occupancy rates? How strong is the demand for this type of rental? What are the forecasts and potential threats or bumps to demand and supply?

Rent Controls

Are there rent controls in place? Are there rent controls impacting the ability to raise rents on this property? Are there rent control regulations keeping the rents down on other local properties? Are there limitations in existing leases which could prevent rents from being raised up to market levels?

Compare Mobile Home Park Units to the Competition

How do the units in this mobile home park compare to similar local rental units? For example; local 2 bedroom, 2 bath apartments? How do the rents compare? Facilities and amenities? Qualifications to lease? Demand and occupancy rates?

Local Home Prices

How much are local homes being sold for? How do this compare to your per unit cost of acquiring a mobile home park? How does the cost of putting and maintaining a mobile home on your lot compare to buying a similar sized home in the area?

Location

How great is this mobile home park located? How well is it located in relation to the services, stores, and amenities your demographic of tenants needs and wants? Lower end mobile home parks may benefit from being within walking distance to grocery stores and fast food. Vacation and seasonal parks may benefit from being closer to attractions such as the beach and parks. Over 55+ communities may benefit from proximity to healthcare services. How does this location compare to other local parks, and competing housing?

 

The Difference Between Pro-Landlord States And Pro-Tenant States

There is a substantial difference between US states when it comes to investing in real estate. Do you know what they are, and how they can impact you as a mobile home park investor?

How Much Can Location Matter?

Most real estate investors are already well aware of the fact that location can play a notable role in the price of property assets, rents, vacancies, and appreciation. Yet, experienced property investors know that location can play a far more significant role in their finances and lives.

Different states, and even more minor jurisdictions can make a huge difference in the level of risk and liability involved in investing. And this can go well beyond the financial. Some states offer ease of doing business which increases efficiency and net profitability. Where you invest can substantially impact both short and long term net profitability, including the strength or lack of a resale market. All of these things should be taken into account when choosing where to invest.

So how do states differ?

Landlord – Tenant Laws

Landlord-tenant laws vary widely from state to state. Laws differ on the amount of upfront money and deposits that can be taken from tenants, the penalties for landlords failing to meet regulations, how easily tenants can sue their landlords, and the protections for landlords. In some states landlords are bound to all types of rules even when tenants aren’t paying and units are being illegally occupied. This can all clearly have a big impact on profitability.

In the Courtroom

The above can certainly carry over to the courtroom. Investors report that some jurisdictions consistently either side in favor of tenants or landlords. This is critical to know. You don’t want to burn your time and money going into court if you have little chance of winning.

Evictions

The same applies to evictions. IN some states and cities it can take just days and almost no expense to get non-performing tenants and occupants that don’t have a lease out of your property. In other places it can regularly take months and hundreds of dollars, if not more. We’re talking about months of income that can be burned, or deposited in your bank account. Which would you rather deal with?

Business Friendly States

Beyond landlord-tenant law and relationships some states are clearly far friendlier toward businesses and business owners than others. That includes real estate investors and mobile home park owners. Business friendly states can have low energy costs, good talent pools, business friendly laws, and low business costs. A few even offer far superior privacy for business owners.

Taxes

Taxes differ widely from state to state. This includes property taxes, corporate taxes, inheritance taxes, and personal income taxes. Note that at Amazon employees have territory maps including areas they are forbidden to even enter in order to avoid triggering taxes.

Financing

All of the above rolls over in the real estate financing. Clearly mortgage and business lenders are affected by the above items too. They certainly take them into account when choosing where to lend, and the costs they levy to offset the increased or decreased risk. This not only matters to those investing now, but for their ability to resell their assets later, and for how much.

Summary

This is not that complicated once investors choose their top preferred states and separate them from the rest. Just pay attention as these factors can change over time too.