Mobile Homes Virtual Investing?

Question

Hi, Im new to BP, MH caught my attention, looks like many investors seem to shy away from this due to several reasons, so I would guess that means less competition ( am I wrong?). It also looks you can start with a limited budget which is my case.

Im wondering if this is something that could be done remotely, without ever setting foot and a MH? Is anybody doing it this way? I know you can wholesale SFR like this so I would think yes, however MH is something totally new for me.

Any input would be appreciatted.

Thanks

Eric F. · Answer

@Troy Bevans  The $300 is before any expense aside from lot rent.

It looks like I might be at $300 - 25 (insurance) - 30 (repair allowance) - ~65 (10% vacancy account) so that leaves 120 per month after all those allowances.

I am in for under $5,000 so that is not a bad ROI, but one bad expense could put me behind.

My plan now is to either sell it for $12k owner financed or rent it for $650.  Whichever happens first is fine by me.

thanks for the reply

Carlos Marroquin · Answer

Thanks guys, I guess MH are mostly suited to have them cash flow as rentals or sell with seller financing, not much as to buy & flip them. I thought you could maybe buy for say $2,000 and re-sell for $3,500-$4,000 as is. Not a lot of money but you would still be almost doubling your money, if done several times a month it would be nice. Will do some more digging and see what I can find. Are there buyers out there for as is MH or would most require some financing from the seller?

Thanks

Troy Bevans · Answer

@Eric F. , I would determine that based on the total amount you spent prior to getting the mobile home rented.  The less the MH cost you to purchase and fix up, the better that $300 will feel each month (your capitalization rate, which is the ratio between the net operating income produced by an asset and its capital cost, and actually does not count the purchase price of the asset).  In the example below, I counted the cost of the purchase price of the MH asset.

For example, if you purchased the MH for $2000 cash and put in another $3000 cash in repairs, and all of this is completed before your first lot rent bill, your total outlay is $5000, without any financing.  If you can clear an actual $300, after all expenses, for a solid 11 months (factoring in vacancy), that makes your cap rate 66% during that time [(300 x 11) / 5000 = .66].  That is DARN good!

Insurance for my 1982 MH is $25 per month and I have also added another $25 - $30 per month as a maintenance factor....the "just in case" clause.  One more item is vacancy, as it is difficult to keep them rented during a tenant transition.  With all of this, do you still have a true $300 each month?

So, now to answer your actual question "should I be able to cash flow in the long run or is this too thin?", I personally feel you can.  The MH is a cash-flow machine, like a washing machine at a laundromat, and it depreciates like one as well.  Therefore, keeping them rented is very important in your cash-flow game, as they will not go up in value like a stick home.  If I could ever figure out the SAFE Act correctly, selling them on contract is a way to capture some "eye-of-beholder" appreciation...but for now I will just rent them out!

Best of luck and please let me know how it goes with this MH.

Eric F. · Answer

@Troy Bevans I am buying a mobile home this week and have a question about renting it.  I was planning on selling it but I did think about renting as well.  I think it can rent for 650, the lot rent is 350, so that only leaves 300 cash each month.  The lot rent includes sewer and trash (not water).  I know taxes are much lower, and I imagine insurance is, but should I be able to cash flow in the long run or is this too thin?

Troy Bevans · Answer

Welcome to BP @Carlos Marroquin!  My recommendation for this would be, if you cannot visit the MH within a 20 minute drive, do not invest in it.  Others may have a different view on this point, but being able to "hug" my RE investment is very important.

As far as the SAFE Act, I am currently renting my MH property and clearing around $300 per month off of it, which keeps me clear of the act.  I too am new with the MH side and have been reviewing as much as possible concerning the laws, especially the SAFE Act.  With that in mind, I decided to continue with the core competency of what my business currently does, which is rental properties.  And all of my rental properties are within a 20 minute drive.

Best of luck to you on your new venture!!!!

Ellis San Jose · Answer

@Carlos Marroquin

This is a very compelling question & I would love to hear any progress you make or conclusions you arrive at.

Mobile home investing can be a very lucrative endeavor using the strategies made popular by the late Lonnie Scruggs. (Buy low for cash & sell on terms).

The playing field had become increasingly complex with the application of the SAFE ACT, which there are many discussions concerning that here on BP.

Here are some of the other challenges I see for this business model.

The appeal of the low requirement of capital but with high yield, is also one of it's largest drawbacks.  When it comes to long distance or a "virtual model".  Although you may not set foot in the mobile home yourself, the expense & time it would take to administer each deal that has a low dollar profit, makes it cost prohibitive (sending an inspector, using escrow, etc).  Unless you can figure out how to achieve economies of scale or raise the net dollar profit per deal, you might find yourself fighting a losing battle of the numbers.

Mobile Homes Virtual Investing?

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