[Editor's Note: This is a guest post from Rachel Hernandez, the spouse of a physician and a real estate investor who has written a book on investing in manufactured housing entitled Adventures in Mobile Homes: How I Got Started in Mobile Home Investing and How You Can Too! We have no financial relationship, but like every link to a book on this website, if you buy anything from Amazon after clicking on the link this website receives a small commission. She titled this piece: Manufactured Housing: An Opportunity in Disguise. The more generic title is mine.]
When most people hear the word “mobile home” (i.e. trailer, manufactured home, etc.), vivid pictures of run-down, older trailers and rougher looking people come to mind. As depicted in the movies, manufactured housing has a long-term stigma associated with it. Like many people, I too believed in the stigma. It was not until I actually studied the industry and learned the business from the inside out that I discovered it was different than I had imagined. In reality, manufactured housing turned out to be an opportunity in disguise.
Early Beginnings
During medical school, my husband became interested in personal finance when he picked up the book Rich Dad, Poor Dad by Robert Kiyosaki. Inspired by the material, he shared it with me — it completely changed the way he perceived money. It soon dawned on him that real estate investing would be our path to creating a life of financial freedom. As the entrepreneur between us, I never pictured myself owning and operating a real estate business. I mean houses, seriously, how exciting is that?
Past Childhood Memories
To be honest, I had awful memories of real estate growing up. As a child, I remember riding in the car with my parents looking at different neighborhoods and houses with real estate agents. Time stood still. Searching for that perfect place to call home seemed to never end. House after house, neighborhood after neighborhood. Being that I came from a family of professionals, we moved every five to seven years. Each time, it would be to a nicer neighborhood and a bigger house. In essence, my parents were playing the game of keeping up with the Joneses.
Fast forward into residency.
After medical school, I was tasked with the job of building up our real estate business while my husband labored away in residency. As a result, I left the corporate world as a business-to-business sales executive to start working on our business. Initially, our plan was to build enough cash to eventually buy and hold properties for cash flow. At first, I started finding deals for other investors. During one of my earliest deals, I was paid a whole year’s salary. It was amazing! Though, there were many times when I questioned exactly what we were doing. Life was hard. We both put in many hours. Things were hectic. What they don’t tell you in medical school you learn along the way. I spent many days and nights away from my husband during residency. Life was not easy.
Building Our Investment Portfolio
Over the years, we started building up a small portfolio of rental properties. At one point, my husband had looked into alternative real estate investments. Here he discovered the little niche of mobile home investing. When he first brought this up to me, I was appalled. Mobile homes? Are you kidding? No way. What kind of people will we be working with? What types of neighborhoods exist? Reluctantly, I decided to give it a try. Though, I let one bad experience stop me. So, we continued to focus on single-family homes.
5 Years Later
At this point, I was managing our portfolio of real estate properties. Life was still hectic. I simply did not enjoy the real estate business and had questioned the life we chose. Is this really what I want to be doing for the rest of my life? Managing rental properties with the headaches of paperwork, delayed closings, and evictions? At one point, we even hired property managers to take care of our properties. But even then, I had to manage the managers. To say the least, I found myself buried in the administrative side of the real estate business. Life was miserable.
Overseas and away for 4 years.
After residency, my husband was assigned overseas (as he received a HPSP scholarship) with the military. The first year was especially hard on us due to an unaccompanied tour to South Korea. The next three years were accompanied in Germany. Instead of living there with him, I continued to build up our real estate business while flying out every couple of months to visit. Though it was hard to be apart, we both wanted more out of life. We knew we had to work hard now to ensure a better future. Upon his departure, we liquidated our entire real estate portfolio and started over. This time around we revisited the niche of mobile home investing.
Is Investing in Mobile Homes a Good Idea?
The second time around I had more experience for comparison. Due to our struggles with single-family homes, my perspective had changed. Sometimes we only see what we want to see, hear what we want to hear. Kind of like what you see in the movie 8 Mile. Consequently, we shut everything else out. This time I was listening. Mobile homes were not the asset class I thought them to be. Just like single-family homes, mobile homes are no different. There are different types of neighborhoods and classes of people who make up manufactured housing — not all communities are created equal.
Neighborhoods
Contrary to popular belief, neighborhoods are not limited to the small, run-down trailers we see in the movies. Sure, they still exist. Though, it only represents one segment of the population not the entire industry. There are other types and classes of people and neighborhoods — nicer ones where retirees and professionals lived. Traditionally, we think of them as an asset class reserved for the disadvantaged. Though, as I discovered, it is not always the case. There are many well-to-do people who choose to live in manufactured homes across the country and around the world. Just like single-family homes, there are lower-end, middle-of-the-road and higher-end neighborhoods. Each community will attract and cater to a certain demographic. While a significant portion on the higher-end specifically caters to the senior market and young professionals, there are others who cater to the middle-of-the-road and lower-end segment of the population — there is something for everyone.
Flexibility
Even more is the flexibility I saw with mobile homes. Mobile homes can be sold by themselves for just the home or as a package (just like traditional real estate) attached to a piece of land. Even more so, you always have the option of attaching or un-attaching mobile homes and vice versa. No longer are you limited to a location. Mobile homes can be moved. Sure, they can exist in a community. Though, you always have the option of moving a mobile home to a piece of land, another neighborhood or your own lot. Try doing that with a single-family home! Not a chance.
Affordability
Aside from flexibility, mobile homes are very affordable especially for professionals. Compared to single-family homes, mobile homes are drastically reduced in price. Sure, they may not be built with exactly the same materials as single-family homes. Since manufactured homes are built in a factory, there are specific standards builders must adhere to in compliance with the Department of Housing and Urban Development (HUD) laws and requirements. With such high regulations, quality control is monitored very strictly. Essentially, manufactured housing allows professionals to get into a home whether it be as a personal residence or as an investment for a fraction of the price of single-family homes. As a result, expenses such as taxes and insurance are reduced. With the types of homes we buy, we purchase them with cash essentially wiping out the mortgage and make the cash flow on the spread. Imagine having a home paid off — free and clear. As a high income professional, it’s definitely a possibility.
Renting and Homeownership
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Mobile homes can be an alternative option for either renting or buying. Whether it be for the short-term or the long-term, manufactured housing comes with advantages. Having a five-figure salary is dramatically different from a six-figure a year salary. If pained with having to sell a mobile home, it is less of a financial burden than having a single-family home with an extremely large mortgage looming over your head. In my experience, I've seen military families and parents of college students buy them hoping for a long-term situation. What turns out is sometimes they move away and end up selling or renting them out. Younger couples also tend to buy mobile homes eventually moving on. Older couples buy them as a way to scale down and reduce expenses. Then there are those who have lived in mobile homes all their lives constantly upgrading. Despite the situation, there is a large array of manufactured home consumers. Some have even become accidental landlords renting them out or keeping them for vacation rentals. As in all real estate, the neighborhood is key. Being in a particular neighborhood will attract a certain type of demographic.
Investing in Mobile Homes
For professionals with high incomes, mobile homes can be an asset class where one can acquire a lot of properties for a fraction of the price. Though just like real estate, there is management involved. After over a decade of experience in real estate investing, I've learned it’s all about the neighborhood. Finding the right neighborhood that works with your personality is one of the keys to success. Had we continued to follow some of the advice of other investors in the early years to buy less expensive homes in not so nice neighborhoods (which did happen), we may not be where we are today.
Apart from acquiring property, there is also an opportunity to invest in and purchase mobile home notes [i.e. you can be an equity or a debt investor-ed.] In this case, you will work with another investor with experience. Either they sell you their notes or you can lend them a small amount of money for their deals. Either way, it does involve due diligence but when you find the right person to work with who has the experience and you can trust them it can be extremely profitable.
Note: A word on investing. We do not merely invest in mobile homes. Like this blog, we too believe in the mantra of “Don’t put all your eggs in one basket.” As a precaution we have built up a portfolio with retirement accounts (i.e. Roth IRA, TSP, 401k, etc). With any business there is volatility. So, we want to prepare ourselves for the unexpected.
Should I Invest in a Mobile Home?
The purpose of this article is not to convince you to buy or invest in mobile homes. Mobile homes are not for everyone — it is simply another option. It is written here to make you aware alternatives exist. Traditionally, mobile homes have been associated with a certain class of people. Though, what I’ve learned is that there are generations upon generations of families who have all grown up and lived in mobile homes. Not just lower-end neighborhoods but nicer communities. Communities they are proud to live in. Neighborhoods made up of seniors and young professionals. Today, mobile homes are not restricted to only one income class.
Conclusion
In the end, I am glad we revisited the niche of mobile homes. To tell you the truth, it is an asset class overlooked by many. Due to the negative stigma associated, many professionals look down on it. It was only through experience did I begin to see what others did not: I saw an opportunity in disguise. After over a decade of investing in real estate, I can honestly say mobile homes is the path that helped us get to where we are now. We have the time to do the things we want to do, not have to do. My husband does not have to work full-time. Nowadays, he works three days a week from home as a consultant. The rest of the time is dedicated to mobile home investing and spending time with family. Clearly, this was not the path we imagined. Though, it was the dream of living a better lifestyle. And, that’s what counts the most.
Readers- What do you think? Have you lived in a mobile home? Have you invested in mobile homes? How did it treat you? Would you consider this investment? Comment below!
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Not much “meat” in this article. Any comment on the fact that mobile/manufactured homes tend to depreciate quickly and why one would want to invest in such an asset class? What are the expected returns in these “nice” mobile home neighborhoods?
Depreciation is only one factor. Bear in mind it is possible to have a depreciating asset and still make money, depending on the yield/cash flow from the asset. For example, buy something for $100K, have it pay you 20% a year, and sell it after 20 years for $50K. Did you have a good overall return? Sure. So you have to look at all the numbers. The truth is that all houses depreciate- it’s the land they’re on that appreciates. That’s why the IRS allows you to take depreciation and why all houses are bulldozed after 50 or 100 years.
It’s more of a cash flow play than anything else. If appreciation is your goal, it may not be the most suitable vehicle. Typically, I receive all of my money back in 2-3 years investing in nice communities. On my first deal, I received my entire investment back in the first year. The details of that deal are outlined here (under “My First Mobile Home Deal”): http://revnyou.com/investing-in-mobile-homes/ Lastly, here is a piece that may shed some light on why someone may want to invest in this asset class: http://communityinvestor.com/index.php/article/81-2015-articles/march-2015-articles/363-why-mobile-home-investing-makes-sense Hope that helps!
I would be interested in seeing some of the numbers.. what is the avg investment amount, roi etc. Do you also own/invest in mobile home parks, or just individual homes – is one more advantages then the other? Do the same headaches of traditional home ownership exist with Mobile homes?
Typically, I receive all of my money back in 2-3 years investing in nice communities. On my first mobile home deal, I received all of my money back in the first year. The details of that deal can be found here (under “My First Mobile Home Deal”): http://revnyou.com/investing-in-mobile-homes/ For now, it’s just the homes. With parks, it tends to be more management intensive and political. Regarding your last question, it’s the same despite the vehicle. Personally, I think it all boils down to the neighborhood and the types of people you choose to work with. Neighborhoods attract a certain clientele so it’s always good to know that going in. Hope that helps!
This entry reminds me that money can be made anywhere if done right. Grew up in a town of about 100,000 people and on of the wealthiest people in the town was the “garbage man”. Most people would have never known it but we were friends with the family and I was friends with his sons. The “garbage man” was a guy that worked and invested in the local garbage company…ended up buying it, profitting for many years and then eventually got bought out for 50 million. I am sure that money can be made in mobile homes and many other areas. I applaud the writer for dedicating herself to the business while her husband trained and traveled with the military. She likely has a wealth of knowledge from her sucesses and failures. Sounds like they have started to find financial freedom which should be the goal for us all.
I go canyoneering with a “janitor” who has 100+ employees.
Thanks! It’s definitely true. You never know who you’re talking with despite their appearance. I’ve met very wealthy people in the past who dress like your typical citizen. Great story!
Not much in the article.
This article brings back memories. I invested in a mobile home once in my mid 20’s and made a pretty nice return. I had come across a small paper back book by a guy who got his start with one or two homes and eventually expanded into owning multiple park communities.
The Deal:
– I searched the for-sale section of my local newspaper for a lower cost mobile home.
– Found one in a modest but maintained park for around $2,500 and paid cash for it
– Re-sold it as owner financed for around $200-$250/month
– Got tons of calls from interested people
– In the end my profit was around $2,500
My take on it:
The point of the book I had read was that there are plenty of people looking for low cost housing who can afford a few hundred dollars per month in payments don’t have the cash to buy the mobile home outright. They also don’t qualify for a bank loan, or the banks simply don’t want to lend for a used mobile home. So my opportunity was to fill the gap and become the bank.
Buying the mobile home is fairly straight forward. The process is more like buying a car than a house and simply involves a title transfer.
Screening applicants can become pricey if you choose to do a credit check. I probably got 20+ calls and at $10-$15 per credit check that would have been pretty expensive. In actually only screened 2-3 people.
I got lucky with my buyers as they pretty much always paid on-time. And since they were technically the owners I didn’t have to deal with any park violations or complaints.
The two main downsides:
Number one is pretty obvious. You’re lending money to people and expect them to pay. My contract contained provisions for late payments and the eviction process. Luckily I didn’t have to deal with either but if you do enough of these deals I’m sure it’s inevitable.
The biggest and unanticipated hassle is the park management itself. I was met with skepticism when I talked to the park manager and explain what I wanted to do. They own the plot where the home exists and also need to approve new tenants. That’s where the credit check issue came up. I was sending them applicants and the park usually pays for the credit check. After they complained about the cost I offered to pay for subsequent applicants.
In the end my N=1 experience turned out pretty well. Once you do a few deals I’m sure you’d get the system down. I think there are plenty of people out there who can afford the the monthly payment but need someone to fill the loan gap.
Thanks for sharing your experience! Yes, park management can be an obstacle. It’s crucial to have good relationships with them. Taking homes back is no fun either. And, it can definitely happen sometimes!
Interesting topic. There are stocks and REITs for this type of investing too.
Also see the link below if interested:
http://www.ccim.com/cire-magazine/articles/homing-manufactured-housing
My hunting camp is a 18*80 got it from the repo man. Really nice. I highly recommend riding out a storm in one makes for free amusement park experience.
If anyone is really interested in this topic, the best book to read is Deals on Wheels, by Lonnie Scruggs. There is a lot of good actionable advice in there if it is something that you want to pursue
Rachel thanks for writing and WCI thanks for featuring these guest posts with different options for investing aside from traditional paper assets and insurance products.
We’re considering our first real estate investment deal and researching various options for real estate investing and it amazes me how many different ways there are to get into it. This is very interesting to me and a way we hadn’t considered. We are very debt averse and even while I understand the advantages of using leverage, it is very scary after working so hard to get to a position of being debt-free.
I have lived in and considered buying mobile homes recently. Not so much for investment purposes, but for a “more reasonable” cost beach/vacation type house. Its still not very cheap in great locations, and some of these “mobile homes” are very nicely appointed. In Malibu you can get some very nice ones with world class views…but you may pay 1 million, always makes me laugh when I see those. Million dollar mobile homes.
Interesting piece.
Since my mother is retiring from her job soon, she wanted to invest in a mobile home park and enjoy a peaceful leaving, but I’m not sure if this is worth the investment. It’s great to know that aside from flexibility mobile homes are affordable too. If it’s worth the penny and my mother’s happiness, then I’ll gladly look for a mobile with a nice and peaceful environment.