Manufactured home parks (MHPs), commonly known as mobile home parks, are often overlooked by many real estate investors, but they provide a great opportunity to earn passive income like multi-family housing.
As an investor, you buy land that has been zoned to be rented as separate lots for different mobile home owners. You then lease the lots for a monthly or yearly fee. The residents own their mobile homes while you own the housing community.
Since it can be challenging to get zone approval to build a new park, there’s a high demand for the limited number of existing MHPs. While housing prices continue to increase, the need for affordable housing is getting stronger. More Americans are looking to move into MHPs as their chance of still being a homeowner.
As an investor, MHPs are great investment for a number of reasons:
- Accelerated depreciation. Investors can depreciate a multi-family housing investment over 27.5 years, which is the IRS’ depreciation schedule for residential real estate. For MHPs, the depreciable expenses are usually infrastructure needs such as roads and utilities and are often allocated 50-75% of the total purchase price for tax purposes. These improvements are for land can be depreciated over a 15-year schedule versus the 27.5 years for an apartment building. When the manufactured housing community is fully depreciated, the basis can be transferred to another asset through the 1031 exchange.
- Less tenant turnover. The turnover rate is much lower in an MHP than in a traditional multi-family housing property. It’s much easier to move a couch and other belongings out of an apartment than an entire mobile home. Tenants in MHPs own their home and expect to stay in their home for years, often with no intention of selling.
- Less risk for loss. Having more mobile homes on your lot decreases your risk. By owning a larger collection of units, the costs of losing income from a tenant leaving is far less than if that were to occur in a multi-family project. The risk is spread out more.
- Lower cost per unit. The cost per unit for MHPs are lower than single-family and multi-family housing because you’re purchasing land to rent to a tenant compared to an existing physical structure. MHPs allow an owner to acquire more units for less money versus a set number of units in a building. For example, in a $1 million building with 10 units, the cost is $100,000 per unit. In an MHP, you can lease out 100 lots making the cost per unit $10,000.
- Lower cost for repairs and maintenance. As the owner of the MHP, you’re responsible for the upkeep of the housing community, such as cutting grass, shoveling snow and garbage removal. Tenants are responsible for maintenance and repairs to their home. So if they have a plumbing issue, they must call a plumber and pay to have the problem fixed. The upkeep for the park is significantly less than the upkeep of multif-family properties yielding a higher cash return
As with any investment, it’s important to weigh your options. Pantheon Investment has the ability to review and research opportunities not readily available to every investor. We know where the hidden gems are located in the manufactured housing community and will provide guidance on with any investment. Sign up to discover more investment opportunities.
