What To Avoid When Investing In A Mobile Home Park

What should you be watching out for when investing in mobile home parks?

That doesn’t make every park a great deal. So what are some of the factors real estate investors need to be wary of in this asset class?

8 Red Flags when Shopping for Mobile Home Park Investments

Here are 8 red flags to watch for when you’re doing your due diligence on a mobile home park investment. On their own each of these signals may not have an impact, but as the number of red flags increase, be increasingly cautious.

Declining Population

Robust population growth is a common factor that real estate investors seek in a destination. It signals increased demand and rising property values and rents. So it is only common sense that a declining population is a bad sign for a location. Even though the economy may be improving and the overall housing market may be gaining value by the trillion, it is important to watch out for regional pockets that are bleeding population. This can have many negative side effects, all of which culminate in high vacancy rates, low demand, and poor income property performance. There are many different ways to get this data, but one of the easiest is Wikipedia. Look up the city and you’ll the ‘Historical Population’ figures from the US Census on the right hand side if you scroll down. For example; Los Angeles shows that its net population has consistently grown from 1850 through 2014.

High Unemployment

While mobile home parks may be better insulated against the wider economy than most types of real estate and housing, you can’t ignore basic fundamentals. Mobile home rentals do extremely well in good and tough times. After all, it really doesn’t get any more affordable than living in a mobile home. Still, if there are no jobs then people are going to have a hard time paying their rent, no matter how cheap it is. High unemployment also frequently triggers negative trends in other fundamentals like declining population, higher crime, and softening property values.

Low Demand

Lack of demand for housing and real estate in general in an area can be bad for any landlord. Weak demand means high vacancy rates, lower rental rates, and more short term transient tenants, as well as lower quality tenants. This can often be evidenced by high levels of inventory, slow sales times, and long marketing periods for rentals. It doesn’t matter how cheap a property is to buy if no one else will rent or buy it from you.

Small Markets

Small cities and markets can be less predictable, and therefore have more exposure to risk. Much of the above can apply to small cities… meaning less demand, fewer job opportunities, and smaller populations. Small cities can also be more susceptible to economic problems. During the downturn of the early 2000s, some municipalities simply weren’t able to maintain public services such as lighting and policing.

Rural Areas

New investors often ask about more rural real estate opportunities because they often notice the price difference. It’s true that you can sometimes find a large single family home and estate-sized lot in the country for less than the cost of a parking space in the city. But you often get what you pay for. Even small rural communities and cities can be an issue. They suffer from a lot of the above including; lack of jobs, demand, financial stability, population, etc. They can also be tougher to gain financing in. If lenders haven’t heard of it, the place might as well not exist. That can impact resale value and the ability to refinance.

Multiple Mobile Home Parks in Close Proximity

In business it can sometimes be beneficial to be close to competitors. That can be true for restaurants and retail shops, and even startups. However, too much competition in close proximity can also be counterproductive. It gives tenants too many options and can make it more likely vacancy rates will rise faster in a crisis, as well as giving the tenants the power to choose and negotiate, versus the landlords.

Water

Water is becoming an increasingly troubling issue on all types of scales. You can’t have a viable real estate investment without reliable access to water. Clean and affordable water can’t be ignored either. So how does the future of water availability look like for the mobile home parks on the table? Is the park on public utility services? Or does it rely on a well and a waste water treatment plant? In addition to the training and permitting needed for WWTPs, and limited time permits, there can be seriously expensive challenges if systems need fixing. This can run into the very high 6 figure range depending on the number of sites involved.

Low Down Seller Financing

Most would see the offer of low down payment seller financing as a great opportunity. So what could possibly be wrong with it? While it can be appealing, for both sides it suggests a lack of demand, and potentially means overleverage, which may not be smart. Approach seller financing with care, and think through all of the ramifications first.

Summary

Every savvy investor does their due diligence before investing. In this report, you read about eight “red flags” to watch for when performing your own due diligence. None of these are necessarily deal breakers but you do should watch every deal to see if these pop up, and use them as signals to potential challenges you’ll want to monitor and mitigate if you choose to invest anyway.