Buy and Sell Mobile Homes in Your Park
By Steve Gillman - 2005 to 2013
If you own a mobile home park, buying and selling the homes
in that park is an safe and very profitable way to generate extra
profit, as long as you do it right. To understand how to maximize
the profit and minimize the risk, we start with a simple question:
How much is a mobile home worth?
You might think that the value of a mobile home is not up
to you. This is partly true, since you don't get to sell for
more just because you want to. On the other hand, a factor like
how nice the home itself is, may not be as important as you think.
Location might matter even more than the condition, and there
is one other factor that can trump both the condition and location.
It is the ease of buying it, and that is something you have a
We'll have more to say about that in a moment, but first let's
look at some of the reasons people buy mobiles in parks, and
why they choose some parks over others.
The primary reason people purchase a mobile or modular home
on a rental lot is that they are cheaper than regular houses.
A family might not qualify for an average-priced house in the
suburbs, but still be able to finance a used mobile home in a
park. And while it is true that the value of a mobile typically
goes down in value when it is in a park, as long as there is
still some residual value and the cost of purchasing it and renting
the lot is less than renting a house would have been, the owner
is better off in the long run.
Interestingly, location can be so important that some old
mobiles go up in value, even when they are not on their own property.
In Durango, Colorado, for example, an old mobile on a rented
lot can sell for more than $40,000 - more than many new mobile
homes. Why? Because it's a town many people want to live in,
with high rent rates and houses starting at $180,000 (at least
when this page was first researched in 2005). Also, due to zoning,
they aren't building any more mobile home parks, which creates
a demand/supply imbalance that pushes prices higher.
The biggest part of that price is paid for being allowed to
live in that particular mobile home park in that town. Drag the
mobile away and it might lose 80% of its value. Location, then,
helps determines value. And obviously the condition of the home
affects value as well. Now, you can buy a mobile and fix it up,
but you can't move your park, so let's look at what else you
Create Value by Making Buying Easy
We ask again; what is a mobile worth? Let's look at an example.
Suppose a nice young couple wants a nice mobile home in a
park. New ones cost about $50,000 or more. If the required down
payment is 10%, and the available financing is at 14% annual
interest on a 10-year amortization, the payment would be $700
per month, plus lot rent of perhaps $350 per month. That $1,050
per month total might still be better than renting a house, and
they would rather own something.
But they have a problem. They don't have the $5,000 needed
for the down payment, nor do they have the money needed to pay
the various other expenses, like the deposit for the park. They
only have about $1,500 in the bank. This is probably not an uncommon
scenario. So our young couple starts looking in the mobile home
parks for used mobiles. They find many nice used homes that are
selling for $16,000 or less, but nobody wants to finance older
mobiles, so they have no way to buy one.
You have a solution for them. You have a mobile home for sale
in the park you own. The previous owner had a job transfer, and
after trying to sell the home for $15,000 for a couple months,
he was desperate. He was still paying lot rent, after all, and
perhaps owed something on the home still. You bought his home,
which might have eventually sold for $13,000, for $9,000, and
he thanked you for resolving his problem.
You paid $500 for someone to clean up the home and make a
few repairs. Then you put a price of $17,000 on it. Why so high
for a mobile that might be worth $13,000? Because the price isn't
just about the mobile, as we will see.
The young couple like the place. You tell them that you won't
budge on the price, but you will take just $1,000 as a down payment,
along with the first month's lot rent. They can afford that.
They will pay the balance at $230 per month, with interest at
12%. It will take a little under 10 years to pay it off, and
there cost for the payment and lot rent will total $580 per month
-- much less than renting a house. They buy it.
First, let's look at this from the perspective of the buyers.
They own a place that will have some value once paid off. It
doesn't really matter how much residual value it has, since their
housing cost is hundreds less per month than if they rented an
apartment or bought a new mobile. Over the course of ten years
they may have spent $30,000 less for housing than if they took
one of the other alternatives. How could they be worse off? Also,
this may be their only option if they want a home, since they
have so little cash saved.
But how did you do on the deal? You made a profit of $7,500
on the mobile (you have $9,500 into it with cleanup costs and
sold it for $17,000), plus you get 12% interest not just on your
$9,000 investment, but on the whole balance owed ($16,000 to
start). That's a great return on your investment. Why not do
a dozen more of these?
These opportunities will arise regularly. The owners of the
homes need to sell quickly to avoid paying lot rent for months
while also paying the expenses in their new home. Selling a home
can be a lot of work too. If they hire a sale's agent they'll
pay a commission. You can tell them honestly that you buy mobiles
to make a profit and can't pay much, but you'll pay cash right
now. Many will be happy that you resolved their problem.
On the other end, you can help buyers without cash. As the
owner of a mobile home park, you get to say who stays and who
goes. That gives you a good degree of control. That control makes
it relatively safe for you to sell a mobile home with a small
down payment. Remember that in the above example you only have
$8,500 invested after your $500 clean-up and receiving the $1,000
down payment. Even if the new buyers trashed the place and walked
away a year later, you will still be able to clean it up again
and resell at a profit.
I read a true story about one owner of a park who bought and
resold the same mobile home in his park a half dozen times. With
interest and capital gains, he figures he eventually made $35,000
off an investment of $4,000. Does that motivate you to try buying
and selling mobile homes in your park?
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