How To Make Huge Returns On Mobile Home Parks
By Frank Rolfe
When you write about mobile home park returns
you always run the risk of being branded a liar, as nobody believes
that you can make 20% plus returns on anything anymore. With a stock
market that makes 2% a year, and CDs that make 1%, and single family
homes that lose money, investors are just conditioned to expect a
low single-digit return - and if you suggest more, they just discard
that thinking as a bunch of hype that they've heard before in the
days of the dot com and housing bubbles.
But the truth is
that you can make high double-digit yields in mobile home parks, if
you know what you are doing. Here's how.
You can
still buy mobile home parks at a 10% cap rate or better.
Mobile home parks still have one of the highest yields of any
type of real estate. A quick glance of the listings on
www.mobilehomeparkstore.com or www.loopnet.com will support this.
Why are mobile home parks so much higher yielding than the other
forms of real estate? One of the key reasons is simple supply and
demand - most buyers are scared of mobile home parks and avoid them,
event though their fears are unfounded. While many investors think
of Jeff Foxworthy-type "trailer trash" as the customer base of
mobile home parks, the truth is that 1 in 10 Americans live in
mobile homes, and there are parks in which everyone drives a car
like a Honda Accord and went to college.
You can
still obtain seller financing at low interest rates to push your
yield even higher.
While a 10% cap rate is
impressive, if you pay all cash that's all you get. But the
availability of seller financing makes the yields even higher. For
example, if you buy a mobile home park at a 10% cap rate, and the
seller carries back 80% of that amount in a note at 6% interest,
then your cash-on-cash return is around 26%. That's an incredible
rate of return. But how come mobile home park owners can seller
finance? It's because most mobile home park owners are "moms and
pops" who own their parks free and clear, and who are more
interested in the monthly income that a seller-financed note can
provide.
You can still find a bunch of ways to
increase the yield on mobile home parks.
It costs
$3,000 to move a mobile home park from one park to another. As a
result, tenants cannot leave when you raise their rents. Besides the
ability to raise rents - even in a recession - you also have the
ability to cut costs in a mobile home park, such as sub-metering
water and sewer usage. There are probably 10 major ways to boost the
income on every park, and every dollar saved or revenue created
results in an even higher yield. I've had parks that have had - I
know this sounds impossible - in excess of 100% cash-on-cash returns
per year, after years of grooming the operations and maximizing rent
levels.
Conclusion
If you want to hit
high yields on your investments, then you need to be investing in
mobile home parks. If you want to earn low single-digits - and have
no capital accumulation to pay for your retirement or your kid's
college education - then stick with traditional investments such as
stocks and bonds.
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