Mobile home parks bring unique challenges that catch even seasoned real estate investors off guard. Investors often assume their experience in apartments, retail, or office space will give them an edge, but many fall short, overpaying for parks and managing them poorly. So, what makes mobile home parks so different?
Less Attractive Parks Can Yield Higher Returns
In many real estate sectors, newer, more aesthetically pleasing properties tend to command higher rents and generate better returns. However, in mobile home parks, this rule doesn't apply. Mobile home park owners generally own the land, not the homes, and higher-quality housing doesn't always translate to higher rents. Often, residents in fancier homes face financial strain, limiting their ability to pay lot rent. Additionally, amenities increase operating costs without significantly boosting profits. In contrast, simpler parks with lower upkeep tend to generate better margins. Investors often overlook this counterintuitive aspect of the business.
You Don't Have To Spend Lavishly to Get Customers
Many investors from other areas of real estate are used to constant capital expenditures to modernize units and provide customers with a reason to pay rent. Mobile home parks, on the other hand, are simply parking lots for mobile homes. Smart owners realize that solid roads and access to utilities are the limit of their responsibility. Customers flock to mobile home parks because they need affordable housing. In other sectors – such as office, retail and hotel – you have to fiercely fight for tenants. As a result, those investors from other real estate sectors often overspend in an unnecessary push for customers.
You Don't Need Expensive Managers to Succeed
In many competitive real estate sectors, the manager can make or break you. But in mobile home parks, it's the combination of location and demand that sets the stage for success or failure. While an important member of the team, nobody lives in a mobile home park because of the manager. As a result, you can do fine with a reasonably-priced employee. Many of those who enter the "trailer park" business from the other niches horribly overpay for management talent.
There's No Need to Try to Re-Invent the Wheel
The mobile home park is a well-established industry with a simple playbook that has been well-engineered over the past half-century. The path to success is simple: buy a mobile home park with solid infrastructure and density in a good location and stick with being a nice, boring parking lot for "trailers". Don't try to re-invent the wheel with the notion that you have to put your own individualized mark on the product. It works fine in just the original format. And that's always the safest course of action.
Never Build from Scratch
Mobile home parks have one unique attribute: they are universally hated by cities and counties everywhere. Unlike every other form of commercial real estate, there have been virtually no new mobile home parks built over the past half-century because you can't obtain permits. To get a permit to build you would have to go so far out of town that there will be no utilities present (requiring you to build expensive private water and sewer systems) and when you get the park built you have zero tenants and are too far out of town for anyone to want to live there. Those from other sectors often think that new development is a good idea and lower their standards to make the project possible. It always ends in disaster.
Don't Believe the Stigma and Avoid the Industry Altogether
One of the biggest mistakes that some real estate professionals make is to simply avoid the "trailer park" industry because of the false stigma that Hollywood has built around the business model. In the movies and television, mobile home park residents are portrayed as hookers, drug addicts and unemployed losers. The truth is that real mobile home parks resemble high-density subdivisions and the residents look and act just like any other single-family home neighborhood.
Conclusion
Owning and operating a mobile home park requires a shift in mindset from other real estate sectors. To succeed, investors must discard old habits and adapt to the specific demands of this industry. It's a learning curve, but with the right approach, anyone can become a proficient mobile home park owner.