When you think of investments, do mobile home parks cross your mind? If you consider adding to your real estate portfolio, this great asset may not have become apparent. Instead, condos, vacation homes, and office buildings are likely at the top of your list. Even crowdsource real estate investment platforms rarely feature mobile homes, if ever. It’s usually single-family homes in hot and up-and-coming markets.
Yet, overlooking mobile homes means missing out on an asset class with high ROI potential. Regarding financial performance, park investments are steady and easily predictable earners. Volatility isn’t something you’ll usually find when you add a park or two to your growing real estate empire. Mobile home parks have shifted from a dismissed asset class to one investors are willing to compete for. Here are four ways perceptions have changed.
1. Low Default Rates
One of the risks for banks and real estate investors is the chance someone will default. For banks, it’s the person applying for a loan. And for real estate investors, it’s the individuals paying the rent. Everyone knows the inability to pay what a person owes isn’t good. However, default risk is a variable most investors have to gamble with.
As of October 2023, the average percentage of U.S. renters with unpaid rent was 11.5%. From an investor’s perspective, unpaid rent means they can’t pay their bills on time either. It also means a dip in profit, whether temporary due to delays or more serious. The reasons behind default rates are typically correlated with affordability.
Someone may be late because their budgets are overstretched or they’ve lost a crucial income source, such as a full-time job. Housing affordability is a top concern for most U.S. residents. Seventy-four percent of participants in a Bipartisan Policy Center poll said a lack of affordable homes is a significant problem. Over half also said local home prices have become less affordable, and they expect the issue to persist.
Affordability is an advantage mobile homes have over other types of real estate. On average, these homes cost significantly less. And greater affordability means a lower default rate on loan and rent payments. Lifestyle Investing expert Justin Donald shares unique information about mobile home parks in his podcast interviews.
Justin Donald says mobile home parks are the “least consolidated asset class out there, the least defaulted asset class. A lot of people don’t know that. A lot of banks don’t even know that. I educate banks all the time to let them know, ‘Hey, by the way, you probably want to lend on this because this asset class has the lowest default rate of all real estate.’ That’s just not commonly known.”
2. Low Vacancy
A vacant unit is often thought of as wasted space. The investor still has to pay to maintain it while spending additional money convincing someone to move in. Vacancies eat into an investor’s bottom line. The more prolonged vacancies persist, the more potential returns you lose.
The lower a property’s vacancy rate, the higher it performs for the investor. While vacancy rates vary by community, the average national rate was 6.9% near the end of 2024. In a 100-unit building, this means nearly seven units are sitting empty. It may not seem like a lot, but what if you charge $1,500 monthly? Multiply this by seven, and you’re out $10,500 every month.
Say your costs for keeping the units in good shape run nearly 40% of the rent you can charge. You’re spending $4,200 out of your pocket, which brings down your ROI on the entire building. But what if your average vacancy rate goes down to 0% and tends to stay this low over time? You can gauge that your return is maximized.
It’s a standard reality that mobile home park investors experience far fewer vacancies because tenant turnover is lower. Once someone buys a mobile home, they usually stay put. Even with incremental increases, it will cost them more to move than what they pay for lot rent. The same principle applies if tenants rent the home. With the average monthly rent at $679, the tab remains significantly less than an apartment’s $1,555 price (or more).
3. Less Maintenance
Besides high vacancy rates, a laundry list of overhead expenses can lower a property’s ROI. With most real estate, you have costs related to repairs and upgrades. A home’s furnace won’t last forever. Neither will the water heater, the dishwasher, or the carpet and the kitchen cabinets with a dated look.
Undoubtedly, you’ve seen the shows where investors buy distressed properties, fix them up, and flip them for profit. They often roll the dice on their potential return as unforeseen problems come up as they demo a property. Once the project starts, the costs can continue to rack up. However, local market prices are what they are. Asking buyers to absorb those added expenses isn’t always possible.
With mobile home park investments, you usually have less overhead. Most of the time, you’re buying the land and its infrastructure. You’re responsible for keeping the common areas nice, including the roads within the park. Utility hookups will also fall under the landlord’s umbrella.
Mobile homeowners pay you for “parking” their homes on the land in exchange for the lot rent. Meanwhile, they’re responsible for replacing the dishwasher when it goes out. Owners must also make the cosmetic changes they want as their homes age. The exception is if you invest in a mobile home park where you also own the individual properties. Nonetheless, your maintenance costs are less in a typical setup, reducing overhead and increasing ROI.
4. Steady Demand
When the economy struggles, these woes appear in the real estate market. The demand for new mortgages and home purchases dwindles, and people look for cost-effective alternatives to high prices, including rental rates.
If the economy is on the upswing, the opposite tends to happen. Home purchases and new loan applications rise. Yet, it doesn’t mean everyone scrambles to put offers down on their dream properties. Despite the economy’s performance, the demand for affordable housing remains steady.
Retirees, those looking to downsize, and lower-income owners represent some demographics seeking economic properties, such as mobile homes. It’s why the demand for mobile homes tends to stay steady despite the economy’s performance. As a result, an investor’s ROI is more likely to experience less volatility.
Adding mobile home parks to your portfolio can balance out the ups and downs of other asset classes. Like a balanced stock and bond portfolio, adding assets with less volatility mitigates the risks of more susceptible investments. You’re more likely to keep earning your target ROI, with room to increase your benchmark.
Mobile Home Parks’ ROI
Most investments don’t come with a guarantee. An element of the unknown exists whether you just bought, decided to hold, or recently sold an asset. While real estate tends to appreciate with time, you could still fall short of your desired return. Market price swings, expenses, and demand can fluctuate, increasing the risk of loss.
Although mobile home park investments are not immune to challenges, they do have unique advantages. Lower default rates, a steady, high demand for affordable housing, and fewer maintenance expenses can translate into higher long-term returns. Those who don’t add mobile home parks to their portfolios could miss an opportunity to increase their portfolio’s ROI.
