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We’ve already established that buying regular real estate in Canada is a sucker’s bet, at least in any place that isn’t called New Brunswick. And we’ve also established there’s succulent returns in being a trailer park landlord. So let’s combine the two and talk about how to invest in mobile homes.
If you’re going to invest in mobile homes, it’ll likely be one sitting in somebody’s else’s trailer park. That means you’ll be responsible for renting the land underneath the trailer.
This comes with a couple of interesting wrinkles. The park is first going to have to approve you as an owner, which might be more difficult than you think. Many don’t want to sell to landlords. Others will have so many rules for landlords you’ll nope out of there as soon as you see the list of demands.
If a trailer park does allow landlords, most will insist on approving any tenants. Don’t fight this; if anything, the park owner will be an ally. After all, they’re landlords too.
Now, onto the actual trailers. There are a number of things you want to look for.
The first is the age of the trailer. The older the unit, the less you should pay for it.
This seems kind of obvious. It’s true with cars, ladies (gets unfollowed by 50% of Twitter followers), and all sorts of other assets. Even older houses that have been maintained well are worth less than newer houses.
The reason why it’s so important with trailers is because of construction standards. You know those old guys who watch construction sites with a tear in their eye and proclaim “they don’t build them like they used to”? Well, they don’t say that about trailers.
Older mobile homes just weren’t build very well. They used 2x4s for the frame instead of 2x6s. Insulation was sorely lacking, probably because it cost nothing to heat places back in the day. Water pipes underneath were prone to freezing too.
Mobile homes made in the last ten to 15 years don’t really suffer from those issues. They’re made using the same construction standards as houses. You can actually argue they’re built better, since so much of the process is done indoors, out of the elements.
The only real difference between a newer mobile home and a house is looking underneath the thing. Yeah, you gotta do that. Yeah, there will probably be spiders. Sorry.
The first thing to look for is heat tape on the water pipes, especially if you live in my part of Canada. While you’re down there, take a look at whether there’s any insulation down there and if there’s any holes in the skirting (the siding underneath the trailer). Also take a look at the blocks the trailer is sitting on and note any damage or if they’re sinking into the ground.
Most of this stuff is easily fixable if it isn’t up to standards, and you can always hire a home inspector to do the looking for you.
Uh, Nelson? Wouldn’t renting a trailer be just like renting a house?
Yes, italics man, it is. Except for a couple of big differences.
One thing to realize before you invest in mobile homes is many people don’t really want to live in them.
This is a silly opinion, at least according to me, the knower of all things. Mobile homes today are every bit as nice as houses. They feature all the amenities as houses at a fraction of the price. Hell, I guarantee there are good modular homes out there on their own lot that you don’t even know were built on an assembly line.
Part of it is the stigma of living in a trailer. Part of it is having these guys as your neighbors.
When you’re looking to invest in mobile homes, the math works something like this. The shittier the park, the better your potential return will be. But you’ll also have to deal with higher potential vacancy.
There’s also the issue surrounding financing. It’s hard to get financing for a trailer, especially one on a rented lot. There are certain lenders who are more comfortable with them (TD Bank did them when I was a mortgage broker) but be prepared to be laughed out of a few banks if you really decide to go down this path.
A real life example
Let’s look at a real trailer in a real trailer park where I live. I’ve blocked out any personal information because the last thing I want to do is talk to any one of you.
Geez. There’s more information redacted in that feature sheet than a government report about flying saucers at Roswell. You don’t think that happened? WAKE UP, SHEEPLE.
Anyhoo, here’s what you need to know:
- It’s for sale for $59,900
- Built in 2006
- Dimensions are 20X76, 1520 square feet. 3 bedrooms, 2 baths
- Lot rent is $450 per month
- Taxes are $72 per month
- House insurance would be cheap, since replacement costs would be low. Say $40 per month.
- The property is currently in foreclosure
The big question is what this property would rent for. I talked to the owner of a competing trailer park in town, and he figures $1,000 per month, based on what he’s renting his trailers for. I think you can get a little more, since this trailer is much nicer than anything he owns. Let’s say $1,100 per month.
Numbers time, bitches!
Let’s run the numbers at $1,000 per month, and then again at $1,100.
Monthly rent: $1,000
Pad rent: $450
Cash flow: $388 per month or $4,656 per year
Cash flow (at $1,100 per month): $488 per month or $5,856 per year
Let’s take an average of the two and call it $5,200 per year in cash flow. What kind of return can you expect before taxes?
It doesn’t look like a bad investment at any price point, but I think you’ve got to be greedy when investing in mobile homes. That’s because you can’t really count on a trailer appreciating in value as much as a house. If anything, trailers have gone down in value over time.
If I was buying this property, I wouldn’t even consider it under $50k, and probably hold out for a price in the mid-forties. You’d think at that point somebody would pick it up just to live in it, but mobile homes aren’t very popular in my part of the country. Anything is possible.
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