Get Rich with Mobile Homes
By Steve Gillman - 2008
Does the myth that mobile homes depreciate in value keep you
from investing in them? Well, they do lose value in a park, on
a rented lot. Mobile homes with real estate, however, are an
entirely different investment.
My mobile home doubled in value in the twelve years I lived
in it. The home deteriorated a little (don't all houses?), but
the value of the land continued to rise. Also, by renting rooms,
I took in far more money from my home than it originally cost,
and I was living in it!
Forget your prejudices and look at the numbers. In this town,
for example, a two bedroom house rents for $800/month, and costs
about $120,000. A mobile home gets $500/month, but you can buy
one on real estate for $50,000 or less. The cash-on-cash return
on investment is obviously higher with mobile homes.
What about the long term return from appreciation? House rentals
here typically have negative cash flow, while mobile home rentals
at least break even. Investors prefer houses anyhow, believing
they'll build equity faster, but is that true?
Faster Equity with Mobile Homes
Buy a house for $120,00. Put $20,000 down, and you'll have
a $100,000 mortgage loan. Amortized over 30 years at 6% interest,
you'll have a payment of $599.60. Of the first payment, $500
will go towards interest, $99.60 towards principal. In other
words, you only built equity of $99.60. I'm ignoring appreciation,
but only for the moment.
Second scenario: Find a nice mobile home for sale, and borrow
only $30,000, at 8% interest, amortized over 10 years. Note the
higher interest - this is always the case with "factory
built home mortgages." The shorter term is normal too, so
you'll be done with payments in 10 years instead of 30.
Now, despite higher interest and a shorter term, the payment
will be only $363.99. The first month, $200 will go towards interest.
That means the other $163.99 goes towards principal. You bought
more house (built more equity) in this scenario.
A mobile home on land might appreciate more slowly than the
"regular" house, but faster loan pay-down covers this
factor. Pay less per month and build more equity! Don't expect
your real estate agent to tell you this. Don't expect him to
even agree with me after you explain it. I sold real estate years
ago, and math skills were not part of the licensing requirements.
Cash Flow with Mobile Homes
In the example given, you'd initially lose about $150/month
on the house, after your payment, taxes, insurance repairs and
other expenses. You'd break even or better with the mobile home,
and after the loan is paid (ten years), you'd have a lot of cash
flow, of course.
Mobile homes are cheap to maintain. The furnace died in rental
I owned, the most expensive repair you'll have in a mobile. I
replaced it for $1,200, much less than a furnace for a larger
home. For $200 you can have a mobile home roof tarred, instead
of $5,000 to re-shingle a traditional roof. Windows, plumbing,
doors - they're all cheaper.
Property taxes cost less, because they're based on value,
and mobile homes have a lower value than stick-built houses.
Insurance will cost less too, because you are insuring less value.
The only precaution to remember here is to be sure you can get
insurance. Very old mobiles may be uninsurable in some areas.
The Bottom Line
Mobiles have their own problems. Renters who have to rent
for less sometimes pay late, for example. These issues are minor
compared to the advantages. Your twenty thousand could buy you
two mobile home rentals, with ten thousand down on each, instead
of one negative-cash-flow house, for example.
Take an honest look at the numbers. The two investors in my
town that own most of the mobile home rentals always have cash
flow, and have millions in equity now. Other investors, following
their prejudices, struggle to make money with their "nice"
rental homes. So don't automatically pass on those mobile homes
for sale when you're looking for a good investment.
And if you happen to own your own mobile home park, see our
page on how to Buy
and Sell Mobile Homes in Your Park for big and safe profits.
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