You may never have thought about investing in mobile home parks. But it merits serious consideration. Your Self-Directed IRA is the perfect tool for diversifying your portfolio into alternative assets. And mobile home parks offer an opportunity for continuous profits along with a way to defend your holdings against future recessions.
Stricter zoning laws mean fewer mobile home parks are being built each year (only about 10), so there is little competition from new ones. Compare that to the 350,000 new apartment units that went up last year, which are creating all sorts of competition for existing units.
Here are just a few of the reasons why mobile home parks could make a profitable addition to your retirement assets:
Your costs to purchase them are low
You get more for your money with a mobile home park. That’s because you can buy more units for less money compared to other real estate asset classes. Typically, the park owner holds the land but not the units themselves. This arrangement lowers your cost per unit considerably. While you might be investing $100,000 or more for a single house or apartment unit, your price per lot in a mobile home park could be as little as $10,000.
Demand for mobile homes is high
Mobile home parks provide affordable housing for many low-wage earners in the U.S. Roughly 40 percent of the country’s workers earn less than $20,000 annually, and around 20 million Americans currently live in mobile homes, which indicates that there is plenty of demand for them.
Profits are strong
Mobile home parks are not only in demand, but they are also providing good returns for their owners. The parks have the highest cap rate of any real estate niche at roughly 7% to 12%. About 20 percent of mobile home parks are owned professionally, and that leaves a significant share of the market for smaller investors who want to diversify their portfolios by adding alternative assets.
Your tenants are more likely to be loyal
There is a minimal incentive for tenants to move to another mobile home park. With tenants usually owning their own homes and renting the land from the park, the approximate cost of $6,000 to move the home will discourage most from leaving. The average turnover in apartments is typically over 50 percent, while in mobile home parks it’s less than 5 percent.
Turnover in multi-family properties is a significant expense:
- Cleaning and repairing the unit.
- Finding a new tenant.
- The interruption of income and cash flow.
Since mobile home parks have a lower turnover rate, there is less risk to the owner and their income is more reliable.
Maintenance and repair costs are low
Owning a mobile home park requires less involvement from an owner. Since the owners of the mobile homes (your tenants) are responsible for maintenance and repairs to their homes, you will not have to deal with nearly as many contractors as you would with an apartment complex. The upkeep of the park, which is the owner’s responsibility, is much less costly without the operating expenses associated with a building.
Overall lower risk
As mentioned earlier, mobile home parks have a lower cost-per-unit, which means you can afford more units. And the chances of loss are minimized when those risks are spread across many units. Even when you do incur a considerable expense or are forced to evict a tenant, those expenses do not create a significant hit to your overall portfolio.