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The "mobile home/land deal"
is a hybrid investment property. Using any one of the techniques found
in creative real estate investing, we buy land with a mobile home on
it, or we buy a mobile home and place it on land we have purchased.
The mobile home itself is initially treated as personal property, much
like a car. The land is treated as real estate.
By combining the two, we
create a land/home deal. This new package is typically worth much more
than the two components individually. In other words, by combining the
mobile home with the land, we create value.
1. Less competition
We do not have to compete with all of those investors who advertise: "I
Buy Ugly Houses." We do not have to compete with new investors who just
purchased a "No Money Down" type course from some late night
infomercial. Just as we were skeptical in the beginning, many others
are, too. Mobile home investors are comparably fewer and farther
between.
2. Less money at risk
What first attracted us to mobile home investing was the small
amount of money we needed to invest. We found that in most cases, we
invested no more money when buying both the mobile home and the land
than we did when we bought a mobile home on someone else's land.
With mortgage payments
between $200 and $400 per deal, we were able to overcome the fear of
someone not paying. We knew that if all else failed, we could find some
sort of work to make that kind of payment. We initially would not have
felt confident if the payment was the $700 to $900 per month we found in
traditional real estate investments.
We figured we could buy a
double-wide mobile home and land for $40,000 and receive a minimum
positive income of $200 per month (after all debt and expenses are
paid). Why would we pay twice that much or more for an older, smaller,
stick-built, single-family home that gave us the same $200 per month
positive cash flow?
3. Appreciation
We have found that double-wide, land/home properties appreciate in a
manner similar to comparable stick-built homes. We view appreciation as
a bonus and focus primarily on creating a positive cash flow and
capturing equity through wholesale purchases.
4. Demand
By focusing our marketing and property acquisitions to address the needs
of the lower/middle income housing market, we find that the demand for
our properties remains high in both good and bad economies.
Typically, when times are
good, more entry-level jobs are available, which means more people who
need affordable housing. In poor economies, downsizing occurs. People
are no longer able to afford to live above their means, forcing them to
find affordable housing.
5. Less expensive
maintenance
Not only are the land/home deals less expensive than traditional real
estate investments, we find that the repairs are easier and less
expensive. We try to provide the safest, cleanest property we can at
each price level.
Our properties all fall
within the low to lower/middle-income family range. These tenants cannot
reasonably have the same quality expectations as families who pay more
to live in stick-built homes of comparable size.
Often, an investor who is
reasonably patient and minimally skilled can make the repairs--saving
him the cost of hiring someone else to do it. If the investor does not
wish to make the repairs himself, the job can be hired out to a
handyman.
6. Long-term investment
benefits
We prefer to rent our land/home properties. Each new property provides
us with a larger positive monthly cash flow. Each new property we gain
is like receiving a raise at work.
Additionally, tax laws allow
us to depreciate the properties and write off expenses. These paper
losses offset our income, which means we legally get to keep more of our
money and pay less in taxes.
7. Competitive product
If a mobile home becomes outdated or the floor plan no longer appeals to
the market, we can simply remove the mobile home and replace it with a
newer home that meets consumer demands.
By purchasing used or
repossessed mobile homes, we can make these upgrades very quickly and
inexpensively. Try doing that with a stick-built, single-family home or
apartment!
8. Greater control
When we do not own the land, we are subject to the whims of the park
manager or property owner who can always ask us to move the home. They
are also able to choose the tenants who move into the park.
This can cost us time and
money--some park managers are slow decision makers. They have little
incentive to act quickly if they believe the investor will pay the lot
rent each month.
By owning both the mobile
home and the land, we become the landlords with the final say about our
properties. When we own the land, we control the decision of to whom we
rent and how long they stay. We also had the well-defined
landlord/tenant laws to use should a tenant stop paying or breach the
lease.
Typically an eviction is
easier and faster than repossession--everyone in the process understands
an eviction. Because mobile home repossessions are not done frequently,
we found that a new sheriff's deputy, magistrate, or judge would often
confuse the issues and create unnecessary delays and expenses for us.
9. Leverage
Leverage is the greatest advantage that land/home deals have over buying
a mobile home in a park. Rather than invest money to buy an older mobile
home in a park, that same money could be leveraged through loans to buy
a land/home package.
This property becomes a
long-term rental property providing the investor with a similar cash
flow, but with added advantages of equity build up and tax savings
through depreciation. In essence, we are controlling a much more
valuable property with the same amount of money.
We have found that lenders
are more comfortable with real estate investments then they are with
mobile home note investments. Lenders can quickly confirm real estate
values through appraisals, comparable sales and tax assessments. We
suspect lenders naturally discount the value of mobile home notes when
looking at the investor's net worth.
10. The ultimate
retirement plan.
The single most unique aspect of investing in mobile homes on land
is the ability to sell the mobile home and rent the land. It is hard to
imagine a more passive real estate investment than owning and renting
only land. As
Lonnie Scruggs says, "it is hard to hurt the dirt."
About the authors...
Tony Colella began investing part-time in mobile homes while
working full-time as a police lieutenant. He holds a Bachelor of Science
Degree in Business Administration. Creative Real Estate Online awarded
him a contributor award for his many years of helpful posts on the
Mobile Home Forum.
Scott St. Aubin is a
former Marine who started out doing Lonnie deals and built up a nice
portfolio of notes. He decided with the help of partner, Tony Colella,
to improve his long-term wealth. He now owns and rents over forty units,
including land/home packages and two small mobile home parks.
After several years of buying, selling, and financing used mobile
homes, Tony and Scott put their minds together and began to buy and
develop land/home properties and small parks. They are co-authors of
Investing in Mobile Homes with Land...an
easy-to-read, real world guide to creating and developing mobile
home/land deals for cash flow and long term wealth. |
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