Manufactured Home for cash flow in SoCal?

Question

Hi BP, I am a newbie so bear with me.

I recently bought a SF and house hacking it with family members, it is negative cash flow of course, but not too bad.
I am qualified for an FHA loan for another SFR or MFR.
But it is just too rare to find one that can cash flow. And betting on appreciation is risky because CA market is all time high.

So I am checking out investment in Manufactured Home (MH) in SoCal areas like Cerritos, Anaheim, Irvine.
The rent from my research shows that normal SFR in those areas for 3bds/2brs is approximate $2500k.

The land lease for a MH with the same criteria is around $1200k - $1500k, and the house is usually 40k - 100k.

If conservatively saying, if renting out a MH for $2000k (often it is cheaper than normal house) then

Rent - (Mortgage + Maintenance) - Land lease ≈ $300k

So would $300k cash flow is a right calculation, am I missing something, is there anything I need to watch out for when using MH as rentals?

MH is usually depreciated, so should I stick with normal SFR and MFR until I find something that can cash flow?

Every input are appreciated. And if you are familiar with the areas and have done something similar I love to get in touch and learn more about this.

Lan Nguyen · Answer

@Rachel H. yeah, I have ask some of the local agents too, unless you live in the house, otherwise it will not be a good investment, they said in fact it is too risky and no one want to do it. Good to know, thanks.

Aaron K. · Answer

You make a good point about poor credit but 1. a mortgage on a 40k-100k mobile home would be less than $500 a month over 30 years. 2. Most people do not want poor credit tenants, especially in California where it may take longer to get them out. Even adding in the fee for the space most people who you would want in a $2000/ month rental will be able to buy.

Robert Clifford · Answer

Lan,there may be people that don't have the credit to get into a home at $2000/mo so renting may be a good option but the number of people looking to get into a manufactured home is definitely a smaller group of people, making it harder for you to rent out that type of property. This is where a property manager can help you and advise you of what to get into. I would suggest that if you're willing to look at Anaheim while you're in SF, then why not look at a place outside of California for investment opportunities where the market is still not so high? Also, assuming that your calculations are correct, there are a number of other expenses that you have not accounted for. So in reality, I think that you're overestimating your ROI.

Rachel H. · Answer

@Lan Nguyen The lot rents are what will kill the deal if they are beyond your control. Seems like the lot rents are pretty high. If you have vacancies, you'll need to account for them. I've known others who have gone this route in Southern CA only to sell due to high lot rents. Hope this helps!

Josh July · Answer

You can't make any money on a mobile home because you don't own the land! Owning the land is key, the way McDonald's made their billions is by owning the land that their stores operated on. If I owned a property in SF and the market was at near/at their peak, I would sell it and either invest the profits now somewhere in California that cash flows most likely a multi family or maybe wait for the market fall back to equilibrium.

Lan Nguyen · Answer

@Aaron Klatt you make an extremely good point, with $2000, one can easily afford for the house itself. Yeah I know I must be missing something, since no one is doing this, there must be a drawback. Thanks, and yeah I might need to look a little farther to find something that can cashflow. @Robert Clifford, sry for the confusion, I bought a Single Family house, not a property in the bay area. My bad, but you are right, seem like out of state is the best option to find something that can cash flow. Tho I have no connection, and still new to REI, so was thinking of staying local where I know the market.

Aaron K. · Answer

Hi Lan, I have not run the specific numbers, but I don't believe that mobile Homes even in those cities will rent for that much, if you would like I can pull rental comps for you to be sure. Also you will likely have a harder time finding tenants who will want to rent a mobile home for such a high price point, because if they can afford $2,000 rent in a MH they would likely just buy one. I might recommend looking to the Inland Empire for better returns on rentals both multifamily and SFR, you can also find some manufactured on land in the IE that aren't as far off with the rent. Let me know if you would like to discuss further.