When looking at whether mobile homes are good rental investments, one always needs to take a look at exactly what they are looking to accomplish so that their expectations are clear when making the decision to become a mobile home investor.
Are you looking at buying a second home to enjoy during the winter months in the greater Sarasota Florida area and are looking for a way to offset the carrying costs of owning two homes?
Are you looking at buying a mobile home to create a passive income portfolio that you can use to help you in your financial goals?
This is where the basic question needs to be answered before one starts entertaining the idea of buying a mobile home for an investment purchase.
Sarasota mobile homes
Mobile homes can, in fact, be outstanding investments, but the would-be investor first needs to understand exactly what their goals are before ever putting money down on a mobile home investment.
There are several different ways to buy a mobile home in the United States but one of the most common ways to purchase a mobile home is within a mobile home park where you buy the home and lease the land every month through a payment called lot rent.
This type of purchase is a personal property purchase and not real estate as the home has a title associated with the ownership of the home and not a deed making the transaction process much faster than that of a real estate purchase.
When one looks at obtaining a mobile home within a mobile home park where they have to pay their monthly lot rent then the key is being able to charge a multiplier of the lot rent so that the rental income earned from the investment will not only pay for the monthly carrying costs but also provide an acceptable profit for the work of owning a rental property.
Most investors will look at having a 2-3X lot rent to ratio rental income.
For Example:
Lot Rent Is $500 Per Month
Rent Of Mobile Home Is $1,500 Per Month
Gross Profit: $1,000 Per Month
Before you get too excited at the above numbers it is important to note that as lot rents increase one can see that attempting to obtain the 3X ratio of lot rent to rental payment may be difficult as there are several mobile home parks in the greater Sarasota Florida area that have lot rents at or above $1,000 per month.
Prior to looking at what the investor can charge it is of utmost importance to see what other like rentals in the area are renting for and if their mobile home is as good as or better than the other properties in the area that are for rent.
This can be done by looking to see what other mobile homes, single-family homes, and apartments are renting for.
If these rentals are costing less than your mobile home rental make sure you take a look to see what they include for the base price and what you are able to provide in order to make your mobile home rental the best option for all the folks who are looking for a rental in your area.
The reason we put the profit as gross and not net profit is that it is always important to account for additional repairs and expenses that may come up on a monthly or yearly basis that need to be budgeted for so that the mobile home investor does not get into a situation where they do not have enough cash on hand to cover these expenses.
A perfect example is that of lot rent.
If the mobile home investor does not have additional monies set aside from their profits each month for this and, all of a sudden, the renter moves out without notice they, as the owner, will still need to pay lot rent even when they do not have a paying renter within the home.
Not having additional money set aside for these unexpected expenses can certainly put the investor in a tough position fast!
It is a rental property industry standard that for every dollar of gross profit an investor receives each month, they should take 30% out of that amount for unexpected expenses and have it set aside in a “rainy day fund”.
Even with this understood that still puts a net cash flow of $700 per month in the investor’s pocket in the example above.
But, let’s dive even deeper into the numbers to see what type of return on investment the would-be investor would be making on this transaction.
Most mobile homes on leased land are purchased with cash, meaning they have no mortgage debt on the property.
Mobile Home for Sale in Florida
Again, using the example above, let’s say the investor buys the mobile home for $20,000 and has to sink another $10,000 into updates and repairs to the home prior to having it ready to rent.
All in, the investor has $30,000 put into the mobile home.
In the above rental example, if they have a net cash flow of $700 per month and have a renter in the property for 12 months they are receiving a net cash profit of $8,400 per year which is a 28% annual return on their initial $30,000 investment!
Seeing as that the stock market usually turns a 6% annual return on investments you can quickly see how, even having 1 mobile home turns out to be an out-of-this-world investment when to how profitable it can be!
Before you rush off and buy a ton of mobile homes, we first need to caution you on a few different points below.
When looking at whether a mobile home is a good investment one also needs to look at the type of park it is and what rules the park has regarding rentals.
The majority of parks in the greater Sarasota Florida area are age-restricted, meaning that at least one person on the land lease needs to be a certain age in order to qualify for residency within the park.
Sarasota Florida is known for not having nearly enough all-age mobile home parks for folks with children looking for an affordable living situation so if you want to rent to folks of all ages you may want to look at other areas in the state of Florida.
As one can see this could be a problem for many would-be investors if they are not old enough to buy a mobile home in the park to begin with then how can they buy one to rent it out?
Another important detail is to find out if the mobile home park that you are considering investing in even allows mobile home rentals or if all the mobile homes within the park need to be owner-occupied.
This may sound crazy if you are new to the mobile home industry but, many times, parks will not allow rentals of any kind and if they do they will not allow rentals for less than 3-4 months.
This means that if you are looking at buying an investment property for an Air B&B type rental then a mobile home within a mobile home park will not be your best option.
An easy way to curb both of these concerns is before you get set on buying a particular mobile home to first call the park office and speak to the manager on staff to see what the age restrictions are if you can purchase the home in the park as an investor if you are not the required age and what the rental restrictions are if you were looking at purchasing a mobile home as an investment property within the park.
Mobile homes can certainly create a significant return on one’s investment money but any would-be investor needs to proceed with caution so that they understand exactly what they are getting involved with before they get to the closing table!
This is Mark Kaiser with The Mobile Home Dealer and we help mobile home Buyers and Sellers get to a better place in life.
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