Investing is a bit like gambling. You stake your claim with the hope you’ll get more than you put in. While you can make an educated guess as to how an investment will perform, there’s usually at least one hidden wildcard. In real estate, that wildcard could be unexpected repairs, extended vacancies, or lower-than-forecast cash flow.
As real estate investments go, mobile home parks tend to have fewer potential unknowns. These properties have steady demand, even when the overall economy dips. Maintenance expenses are also typically lower. Combined, consistent demand and lower operating costs produce a resilient cash flow you can count on.
With steady cash flow, mobile home parks can help you build passive income. Since there’s not a ton of hands-on involvement required, the money you earn from your investment can literally buy you more free time. Here are the reasons mobile home parks are built for these dynamics.
The Demand for Affordable Housing Doesn’t Ebb and Flow
Housing is one of those fundamental human necessities that doesn’t go away. Of course, this doesn’t mean everyone has the same desires when it comes to what they envision as the ideal home. There are also differences in what the term “affordable” means across demographics.
Reasonable, moderate housing options are always in demand for those actively interested in buying at any given time. As potential home buyers begin looking, this necessity is not always available. The largest chunk of the population is a substantial driver of demand. When your housing costs, including utilities, represent no more than 30% of your gross income, they’re financially feasible by definition. With the average U.S. salary hovering around $65k per year, 30% of this is a purchase price of $19,500 or $1,625 per month.
If you’re following typical mortgages and rent prices around the nation, you’ll instantly recognize that monthly averages exceed $1,625 in many areas. This applies if you’re taking out a mortgage on or renting conventional properties. The game changes if you’re willing to let go of those ideals and consider alternatives like mobile homes.
Households tend to feel a greater squeeze on their budgets when the economy’s growth declines and inflation increases. Wages may stagnate, but prices of everyday essentials don’t. As a result, these same households look for ways to budget or save wherever they can. Demand for less expensive housing solutions remains steady, even in economic downturns. Due to their lower costs, mobile homes remain an attractive option whether times are good or bad.
Fewer Operating Expenses Lead to Predictable Cash Flow
Say you invest in a high-rise condo building. Then you keep expanding your portfolio with similar properties, maybe throwing in a few single-family vacation rentals here and there. On paper, your net worth is impressive when you factor in current market values versus what you may owe. Yet, your yearly cash flows aren’t as magnificent. In fact, they’re below what you projected.
A closer look at the books shows your overhead is high. The monthly maintenance costs are taking their toll, not to mention the persistent vacancies at a couple of the properties. It’s getting harder to attract and keep reliable tenants willing to pay the rates you need to be profitable.
Contrast this scenario with that of an investor with a portfolio that includes one or more mobile home parks. In most cases, they only own the land, not the individual homes on the property. This means they’re responsible for the upkeep costs of the land, including any common-area facilities such as laundry rooms and play areas. Less maintenance translates into higher cash flow, especially when you factor in steadier occupancy rates due to housing affordability.
Lifestyle Investing expert Justin Donald mentions how cash flow plays a bigger role than net worth. Donald’s advice about cash flow investing emphasizes that “Passive income matters more than net worth. Cash flow is more important than paper wealth when it comes to achieving freedom.” You can’t always liquidate your net worth immediately. However, a predictable monthly cash flow is tangible wealth.
A Hands-Off Approach is More Feasible
Not everyone wants to be the landlord you can call at midnight. While investing in real estate might be attractive for its return potential, the thought of active management isn’t. You want something more passive instead. You’re willing to put in a little work up front, but prefer to step back once operations are in turn-key mode.
Since mobile home parks don’t come with much maintenance baggage, it’s easier to design a passive income structure. You could partner with a property management company to oversee the property’s day-to-day needs. It will likely cost less than your typical apartment building with higher tenant needs. There’s also the option of hiring an individual to serve as an on-site manager, with lower or waived lot rent included in their benefits package.
This person could already be a member of the community with first-hand knowledge of their neighbors’ perspectives. While this structure is one possibility, others, like syndication opportunities, exist. Under a syndication, you can invest in a property as a limited partner. You’re a behind-the-scenes contributor to the initial costs of securing the property. But you don’t participate in the day-to-day operations.
For your financial contribution, you receive a percentage of the profits based on the percentage of the acquisition costs you covered. Say you put up 30% of the purchase price of a mobile home park. You receive 30% of the property’s ongoing net income. It’s a passive cash stream that contributes to your investment income. If the property is eventually sold, you would receive 30% of the net sale proceeds or returns.
Building Resilient Revenue Streams
When you’re seeking financial freedom, building passive income streams is one tool available to you. Investing in stocks and bonds with high dividend yields could be part of your strategy, but these products are vulnerable to volatility. Stocks and bonds aren’t as resilient to market shifts and changes in collective investor sentiment.
You take more risks when your strategy is heavily invested in these products. Real estate is a way to diversify, but it can be just as erratic and fickle, depending on the property type and location. Mobile home parks aren’t as susceptible to unstable conditions because of steady tenant demand and lower overhead. Investing in these properties can help you establish passive income wealth with as close to 100% certainty as you can get.
Image Credit: Andras Stefuca; Pexels
