Mobile Home Private Land... HELP!!!!

[Val Dufour]

Ok,
So I'm in a situation where I'm short on time but might have a great opportunity. I just don't know and don't have the time to learn everything I can before going for it. Here is my situation....
I have a guaranteed dependable renter of a mobile home with 1 acre of land in a small town in MS. I don't know what the land is worth, but can only assume it's less than $5K. The mobile home is permanent with landscaping, utilities, water, etc and is approx $29K. It's pretty large 4 bd/2ba 2000 sq ft and looks newer. I haven't gotten the date yet.
I can get $500 a month for it from the renter. So on paper the returns look great. A 15% cap rate assuming $1000 maintenance costs and including insurance and taxes. I have the cash, but would much rather finance.
So here are my questions....
1) what do I need to consider buying a mobile home that I wouldn't need to consider buying a regular home? Maintenance issues, depreciation, etc.
2) since it's on land can I get a conventional mortgage? will it be the same process as regular real estate?
3) how badly do mobile homes depreciate? can you expect them to get decent returns on a "flip" type scenario? Obviously this is a buy and hold, but if I rent it for a few years, then fix it up, can I recoup my original investment?
4) what financing options are available for a property like this?
5) anything else you deem helpful.
Thanks everyone for looking.

[Sam Parkins]

Val, seems like a decent opportunity and I'm sure you'll get a LOT of help here! Congrats on the opportunity and being in position to make some money and help some folks right away!

I'll make a couple caveats to start here as well as a couple assumptions to try to help.
1. Each state/locality is different in terms of how "they" handle and influence mobile home investing. I'm in Virginia and can only respond based on what is pertinent in my market. Markets vary. I have also taken the liberty to generalize in responses, with shorter/limited examples and such.
2. Each area can vary widely in the values on homes/land.
3. Exit strategies can vary widely based on location (state) and by a myriad of influencers such as federal legislation, financing availability, so on and so forth.
4. I'll assume you are in CO and the property is away in MS. I'll assume you are able to manage your investment from afar or are closer to the opportunity to be able to properly manage.
5. I'll try to help by itemizing your questions and not get too far off base. Obviously starting from scratch analyzing an investment could offer a few chapters worth of response.

1. Land price. I can't see getting a piece of land most anywhere for less than $5000 as a bad deal. Said less confusing, I think land for less than $5K is a decent deal most anywhere...with some exclusions.

2. Home price: If it's a newer model home then you're in the right range. Yes it's big and I'll assume it's vinyl/shingle thus carrying more value. I would think (within reason) you're fairly safe if it's at least in the 2000's or newer. Up to the early 2000 models we typically won't spend over $15-$20K for them. A new doublewide with base features and a little smaller (if you are a dealer or find a good dealer willing to cut in with you) could be about $30-$35K cost.

3. Rent: $500 is slightly low in my market unless the land/home is extremely rural. I'll assume it's about the going rate in MS. If the lot rents down there are around $150-$250 then I think you're in the right range. If lot rents are higher, I think you can come up. Reasoning is that someone getting a loan or "financing" on a home in a park will be at about $250 home and $250 lot for a total payment of about $500 - to be in a park. Thus there should be a slight premium to be on their own land. Now this is comparing ownership, so the rents may be slightly off from there, but should be close. However, I will ALWAYS negotiate a little better price for the "renter in hand" that I qualify and WANT rather than waiting to find the one later at a higher price.

4. Maintenance and rent terms:
A. Assumption is a renter will not take as good care of your place (especially if you're a distance away) as if they had skin in the game for ownership.
B. Manufactured homes are made cheaper and with cheaper material than stick built, so expect more maintenance issues. Newer models usually have better plumbing, but busted pipes is a common problem in manufactured housing. You may be safe here as I don't know the weather in Missouri (MS), but if it gets cold you'll want to make sure there is heat tape on the lines to protect from freezing. Busted pipes could run you $150-$1000 (full replacement) if you're not careful. Drywall (if not panels) is thinner and gets holes and cracks easier. Water gets into the home easier without proper care. There are plenty of things that go wrong - however I don't usually work with rentals so can't advise as to a proper budget for maintenance. I would guess you would be slightly low at a $1000/yr, especially when you need to flip the house between tenants or preparing for sale as you'll probably need to replace carpets/flooring, paint, etc. among other things. If you don't have a crew and need contractors a full flip on a bigger home like this could get you between $4000 and $8000.
C. If you're farther away it may be worth enlisting a property manager or trying to negotiate terms with your tenant to make trades for the care of the home so that they try to take better care. And this is a generalization, but even if you are close with the tenant things can still go awry (been there before with friends).
D. Assuming it is well/septic, those things can be expensive if they don't hold up. They should be fine if newer, but your due diligence should include dating these items. If your septic is older, it could be older material (the clay pipes) and can EASILY damage. I know some investors that with even new septics will not buy anything on land unless there is enough land included that they could dig a new septic beside the original should catastrophic failure occur. I have seen condemned homes as foreclosures sold for less than $15K with land because the septic failed and would need to be 100% replaced to make it work again...with no available land to dig a new one.

5. Return: I typically value my deals when looking at parks with a cap rate but do not with home deals only or land/home deals. I would typically look at APY (annual return) and ROI (total return on investment). Obviously if you're only renting for a shorter period (2 to 3 years) you'll get your debt down, but not out. You'll want to be as confident as possible that your future exit is solid. Do not rely on appreciation (appreciation is used in this scenario - within reason and assuming the home is considered real estate, i.e. it has a permanent foundation) because NO one knows what the market will do, no matter what they say. There are educated guesses and indicators, but nothing is for sure. Now, financing (assuming MS is like VA) is ONLY attainable conventionally on a manufactured home IF and ONLY IF (at least from any source I've found) the home has a permanent foundation and is considered real estate instead of personal property. Once the foundation is on there, the title SHOULD have been turned into DMV and the property is considered real estate.

6. Return is closely related to the financing. In my market, MOST purchasers of manufactured homes are investors; a primary resident purchaser with $30K or more in their pocket will usually apply that as a down payment for something a little more expensive. There are MANY exceptions to this, but I want to imply that I do NOT rely on selling "retail" any of my deals on the market where a primary resident buyer would obtain financing to buy from me or would have that kind of cash.

7. If I'm not mistaken AND this home is not yet real estate (still personal property without a permanent foundation) the depreciation would be 5% per year until a max of 50%...or something like that. I could be WAY off, but hopefully that's close. And if it DOES have a permanent foundation and is real estate, I would expect the least amount and slowest appreciation with a manufactured home lagging behind the market. This is a broad assumption and I have no basis. Others on this blog may have much better insight here, as I have not been around long enough to see appreciation (started investing in 2010).

8. Banks in my area will finance a land/home ONLY with a double wide and ONLY if that doublewide is NEWER than 15 years old. That's conventional in my area. 21st Mortgage does national financing, Vanderbilt finances Clayton Homes, Greentree (I don't know if they're still originating), are some I can think of off the top of my head. And I only know of about 2 or 3 banks with those conventional terms, most won't touch them.

My long winded answer can be summarized by the following; I hope my detailed insight gives you better knowledge into the industry that could help on this and future deals.

I would take this deal if you have the ability and desire to keep it long term. I would not put my eggs in the short term "basket". This is my personal preference, and there are MANY ways to do this. There may be hundreds of manufactured home investors that get to cash out, but I don't find it viable in my market.

Hope this helps and best of luck to you!