Mobile Home Rentals

Why invest in mobile home rentals? If you can get past the prejudice and look at the numbers, you'll see why. When we lived in Traverse City, Michigan, for example, a two bedroom house cost $130,000 and rented for $800/month. A $50,000 mobile home on real estate gets $500/month. Cash-on-cash return on investment is obviously higher with mobile homes.

Maybe the half-truth that mobiles depreciate in value keep you from investing in them. They lose value in a park, on a rented lot, but not on real estate. My first home was a mobile, bought for $19,000 and sold for $45,000 fourteen years later.

House rentals in Traverse City usually have negative cash flow, while mobile home rentals have some cash flow. Still, investors prefer houses, believing they'll build equity faster, but is that true? Only during times of fast appreciation.

Building Equity With Mobile Home Rentals

Suppose you buy a house for $120,00 with $20,000 down, and take out a $100,000, 6%, 30-year mortgage. You'll have a payment of $599.60. Of the first payment, $500 will go to interest, and $99.60 to principal. You only built equity of $99.60. This ignores appreciation, but only for the moment.

Another scenario: Find a mobile home for sale on land, and borrow $30,000, at 8%, amortized over 10 years. Higher interest and a shorter term is normal with mobiles, but being done with payments in 10 years instead of 30 isn't all bad. The payment will be $363.99. The first month, $200 will go to interest, and $163.99 to principal. You built more equity in this scenario.

Mobile home rentals on land might appreciate more slowly than the "regular" house, but faster loan pay-down usually covers this factor. Pay less per month, have positive instead of negative cash flow, and build more equity! Don't expect your real estate agent to tell you this.

Cash Flow With Mobile Homes

In the example, you'd lose about $150/month on the house, after the payment, taxes, insurance, repairs and other expenses. You'd have a little cash flow with the mobile home, and after ten years (when the loan is paid off), you'd have a lot of cash flow.

Mobiles are cheap to maintain. The furnace died in rental I owned, and I replaced it for $1,200, much less than a furnace for a larger home. For $200 you can have the roof tarred, instead of $5,000 to re-shingle a traditional roof. Windows, plumbing, doors - they're all cheaper. Property taxes and insurance are less too (be sure you can get insurance, since some old mobiles may be uninsurable).

Bottom Line

An investment of $20,000 can buy two mobiles, ($10,000 down on each), or even four ($5,000 down on each), instead of one negative-cash-flow house. The two investors in our town that own most of the mobile homes always have cash flow, and have built millions in equity. Others, following their prejudices, struggle to make money with their "nice" rental homes. When you're looking for a good investment, don't forget those mobile home rentals.