Chief Executive Officer at Keel Team Mobile Home Park Investments, overseeing the company’s acquisitions and investor relations.
“There is absolutely NO WAY that I’m investing into a trailer park with you, Andrew.” Those were the exact words I received from the first person I approached to invest in a mobile home park syndication with me. I think this is still many people’s initial reaction when they consider investing in a mobile home park for the first time.
The “trailer trash” stigma is still alive and well in the manufactured housing space, and I’ve found this creates a moat for investors who are already in the game. There are many opportunities for investors to find success. Even famous investor Warren Buffett happens to know a thing or two about manufactured housing and is involved in the industry himself.
In this article, I’m going to share with you the top 10 things I recommend you do before investing in a mobile home park syndication:
1. Review the operator’s track record.
There is no replacement for time. As an active mobile home park operator myself, the best lessons I’ve learned have come from actively owning and operating mobile home communities. Within the mobile home park asset class, there are several different business models an operator can specialize in, from stabilized communities to ground-up developments. There may be less risk if you invest with an operator that is “staying in their lane” and not trying a new model for the first time.
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2. Educate yourself on mobile home park investing.
As mobile home park investing continues to become more mainstream, it’s important to self-educate so you can better avoid potential pitfalls along the way. You can learn more about mobile home park syndication investing through podcasts, conferences and professional events and books. I have found the Frank and Dave Mobile Home University Boot Camp and the book Trailer Cash by Jamie Smith to be helpful.
3. Determine a return of capital timeline.
How long is your investment capital going to be tied up? Mobile home parks, like all real estate, are naturally illiquid. Ensuring that your operating partner has a clear vision for a future capital event like a refinance or sale is paramount for the return of your initial investment.
4. Establish an ROI expectation.
It’s exciting to talk about the returns that mobile home park investments can generate. Double-digit annual returns are possible, but you should make sure the operational risk matches what your portfolio can handle. Also, general partner fees can eat away at potential profit, so I recommend making sure these fees are aligned with typical market fees charged by other operators.
5. Review area demographics.
Assess the demographics of the area. For example, when I’m reviewing a new market to invest in, these are the top metrics that I look for:
• Metro population above 50,000 and growing
• Median home prices above $100,000
• More than three major employers in the area
6. Consider property management.
Mobile home parks are operationally intensive businesses, and an operator without a solid property management team will likely suffer. Good third-party property management companies can be rare, and I’ve found they usually only manage larger communities. When investing into a mobile home park syndication, I recommend that you ask the operator how they plan to manage the asset to ensure they have a professional team to assist.
7. Identify whether the investment is POH or TOH.
There is a very important difference between these two abbreviations, which is: Who owns the mobile homes on the property? POH stands for “park-owned home” and TOH stands for “tenant-owned home.” You will likely see these abbreviations used throughout mobile home park investment offering memorandums. As a rule of thumb, most operators prefer TOH communities due to the lower maintenance expenses associated with these communities.
8. Examine the utility infrastructure.
The utility infrastructure is likely the most expensive land improvement in a mobile home park. Mobile home parks will either have public (meaning the local municipality provides the service) or private (meaning the land owner is responsible for providing the service) water and sewer service. Public water and sewer are typically most desired because the service liability lies mainly with the provider. Private water and sewer mobile home parks can be less desirable and bring additional liability that can be expensive to maintain.
9. Evaluate the average age of the mobile homes.
As a rule of thumb, if the majority of the mobile homes in a community have pitched roofs, this is good. Those homes are often newer compared to round and flat roof homes that may need repairs. The age of the mobile homes in a community is important because as they reach their useful life expectancy, they start to wear out and additional expenses will ensue.
10. Consider your financing options.
There are several financing options available for mobile home parks. Review the financing terms and the potential effects on your return as an investor.
This list of 10 things to do before investing into a mobile home park syndication can help you make more informed decisions as you consider investing. Don’t let the stigma hold you back from exploring this alternative investment. I think it’s a great time to explore why mobile home parks could be a great investment to diversify your portfolio.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.