148 Are Mobile Homes A Good Investment? | Hard Money Lenders
Available affordable housing is one of the hot topics of the real estate market today. At this point do you think that mobile homes are a good investment?
In today’s episode of Passive Wealth Show, Bill Fairman, Wendy Sweet, and Jonathan Davis of Carolina Capital Management will answer the “Ugly Question” of the day:
“Are Mobile Homes a Good Investment?”
0:01 – In today’s market are mobile homes a good investment?
0:38 – Introduction
1:13 – https://www.carolinahardmoney.com
1:43 – Long-Term loan program
3:44 – Breaking News
4:04 – Unemployment Numbers Are Going Down
5:12 – Crazy Gas Situation
6:23 – April Housing Starts
8:07 – Lumber Prices Are Going Down Again
8:17 – Quest Trust – Trillion Dollar Investment Mixers May 25th at 6:30pm CT – https://us02web.zoom.us/u/kb7SciOHFV
10:15 – Ugly Question: “Are Mobile Homes a Good Investment?”
10:38 – Difference between mobile homes on land and in parks.
12:11 – Stromberg Capital
13:32 – Newly bought mobile homes by Wendy & Bill
15:03 – Modular Homes
17:36 – Is there a loan product with no seasoning requirement for a mobile home on a permanent foundation on some land?
18:31 – Mobile home parks and government assistance
20:36 – Mobile homeowners not renters.
21:55 – When you are in control of the mobile home parks.
22:38 – Short-term vacation rental
23:26 – The Conclusion.
Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground-up Construction Loans” for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).
As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
Bill Fairman (03:38):
The unemployment numbers continue to go down, which is a good thing. We still have eight and a half million jobs that haven’t been filled that are available. We still have 17 million people still on some sort of government assistance and I don’t mean social security stuff. I’m talking about some sort of unemployment assistance.
Jonathan Davis (06:47):
The cost of bills, supply chain issues, and the delays. If the price of lumber doesn’t kill you or kill your deal, it’s the delays in getting all the materials. Then it becomes the interest payments that are going to have delays now.
Bill Fairman (07:06):
If you are building a spec home or you’re doing a fix-and-flip, the market is in your favor. If it’s taking you a little bit longer, that’s okay because values continue to go up while you’re waiting. I have a friend of mine that is in the contracting business but they only build on someone’s land for them specifically. They don’t do any spec homes and it’s killing them right now. They’ve had to change all their contracts to have contingencies for the price of materials.
Wendy Sweet (07:40):
A lot of them are just giving out labor prices and then doing a materials re-cost like every two to four weeks.
Bill Fairman (07:50):
But it’s hard to do that if the homeowner is the one getting the construction loan.
Wendy Sweet (09:18):
That quest trust resource, what they do on the second and fourth week, you don’t have to have your money at quest and you don’t even have to do business with them.
Bill Fairman (09:37):
They do a great job of educating the public. One of the things we’re going to touch on is very important. People have these smaller dollar IRAs if you’re starting a rough and you can only put in so much, an HSA or one of these smaller dollar accounts. We’re going to touch on that with these second and third mortgages. You can put these smaller dollar IRAs to it.
Bill Fairman (10:27):
Are mobile homes a good investment? Let’s first talk about the difference between a mobile home on land and mobile home parks. Both in my opinion are great investments, right? It depends on if you run it right.
Wendy Sweet (10:58):
It’s all about the numbers and what you’re putting into it. People would not want to touch whether it’s a park, a house on land, or a mobile home. They didn’t want to touch it because a vehicle goes down in value. Even if you retire the title, strap it down, and put it on a solid brick skirt. It’s still used to go down in value but that’s not necessarily the case anymore.
There are more mortgage companies doing loans on these, especially if it’s after the year 2001. If it’s 2001 and newer, more mortgage companies will do loans on those properties. Like this company that’s doing the long-term rental program, they’re not going to touch mobile homes and that kind of bites but they’re not going to do it. There’s a very limited way to get it financed which means there’s more out there for you to get a deal on, especially if you have cash.
Bill Fairman (12:10):
Our friend Glen Stromberg, has a great business model and he does turnkey rentals. Basically, he finds them, he fixes them up, he puts tenants in them, and he sells them to investors and then continues to manage them as well and it’s been a great investment.
Wendy Sweet (12:32):
He calls it the “Wheel of Estate.”
Bill Fairman (12:35):
He’s been consistently getting 10-12% return consistently. That’s what management is in place. Mobile homes have a bad connotation to them, however, it’s some of the best affordable housing. You can get a lot of square footage in a double-wide and they’re typically going to be half an acre, two acre, or more of land. People that don’t want to have restrictions they want to have their toys with them. They got an ATV or a boat they want to park in the backyard and you can do that. You’re not going to worry about them being in a bad neighborhood because there is no “hood.” They’re all outside of the city limits.
Wendy Sweet (13:32):
Bill and I just bought two mobile homes that have not been lived in there. They’re on a lot right now waiting to be delivered to their final destination. Both of them are from the year 2020, they are nice and it has a center island. One is 1,650 square feet, the other one is 2,400 square feet. They’re a good size!
We got them for well below a hundred a piece. We know we can put it up quickly, get it sold, and even sell or finance it if we wanted to set it up that way but we don’t have to because they’re new enough that we can invest in them. You can’t find a house for $60,000 or $70,000 anywhere..
Bill Fairman (14:33):
If you have a housing shortage, you can purchase a place that’s between 1,600 and 2,000 square feet and still get it for $200,000 range and you’re on an acre of land.
Wendy Sweet (15:02):
One of our borrowers moved out of Asheville. He and a partner of his, they’re putting in modular units. Modular is a little different than mobile homes because they’re built a little differently. They’re really kind of delivered in boxes. When they’re fabricated, they’re under cover. They’re never rained on so everything there is good. He’s able to get them within three months of his order which is pretty quick. I’m hearing that people were getting a longer time to do that but he’s putting modulars and he’s going to turn around and sell that for over $500,000.
Bill Fairman (15:53):
Part of the reason that it was taking so long is that you had four hurricanes that hit Louisiana right in a row. They were busy replacing the ones that they lost during these natural disasters. At the same time, all of a sudden we need affordable housing. During the pandemic, there were a lot of people that weren’t coming to work or couldn’t come to work.
Bill Fairman (17:01):
Glen’s rent is pretty unbelievable too. For that kind of square footage, you can still as a tenant pay between 800 and 1100, depending on where it is. The size that’s comparable to the rents that you’re going to get on a single family and you’re able to buy these things.
Jonathan Davis (17:25):
That’s why you get the high yield. You’re purchasing your cost into the deal as much lower.
Jonathan Davis (17:30):
There’s a question. Is there a loan product with no seasoning requirements for a mobile home on a permanent foundation or some land retired?
Bill Fairman (17:55):
Here’s the thing. If it’s an owner-occupied property, if it’s the person that’s living in and getting the financing, there’s a lot more financing available. There’s next to nothing available for investment unless you go to the private route. That’s the one downside. I would love to put together a fund that just built in the mobile home stuff. The returns would be great. You have to put together a private fund because Wall Street and the banking community don’t want to get involved.
Jonathan Davis (18:31):
If we move over to mobile home parks, people are wanting to get into those right now and have been for awhile. They’re trading at ridiculous low cap rates. They want in because in 2008, 9, 10, 11, 12, they performed very well when other assets didn’t. So why did they perform so well? Most of them are paid on pad rent. It’s like depending on where you are in the nation, probably between $150 and $500 for your pad rent. A lot of people who live in these mobile home parks are on some form of government assistance and even in economic turmoil. That government assistance doesn’t go away, it continues so they’re going to pay for their pad rent because their income stream is more constant and they perform better.
Bill Fairman (19:34):
The other thing too, you have a captive audience. If your mobile home park is set up to where the people that live there own the home and they’re renting the land. Once they get the place set up and you go up on the rent a little bit, they’re not going to turn around and leave because they find somebody a few dollars cheaper down the road. It costs you so much to move the thing If it gets to a certain age.
Jonathan Davis (20:01):
That’s one of the things you’re seeing when people are buying these mobile home parks that are renting out the actual homes. They’re switching them over to pad rants because if you can get the person, you can do some kind of seller financing or some other kind of financing tool for them where they own the property or own the mobile home. They’re just renting the pad from you. It creates a higher pride of ownership because they own it. If they’re paying for their house, they’re sure as heck going to pay for their pad.
Bill Fairman (20:35):
If you’re a mobile home park owner, you want all the homes to be owned by the people living there because you are going to take care of it more if it’s your place. If it’s all rentals, you’re going to have more work, collecting your rent if it’s all rent.
Jonathan Davis (20:57):
You’re going to have more maintenance issues and then you have to worry about getting an old mobile unit out. Transporting those things. Moving them is not cheap.
Bill Fairman (21:09):
You’re not going to see any new mobile home parks coming up because municipalities hate them and it’s not necessarily because they have a negative connotation. Think about this, you have a school district that sends a bus out to a mobile home park and they pick up 40 kids every day and take them to school and combined Texas for those kids is about $60 because they don’t own the land. They’re only taxing them on the personal property, which is the mobile home so they don’t get the same kind of tax revenue. Municipalities don’t like it, they want you to pay a much larger price.
Wendy Sweet (21:55):
There are cases if you own the mobile homes and the park that the pads that they’re sitting on, you can really make good money there as well because now you are in control of what that park looks like especially if you’re doing a 55 and older type community.
I think what Glenn is getting ready to do is just phenomenal with his idea of making a neighborhood or a park that is well taken care of. If you go down to Florida, that’s the nicest mobile park I’ve ever seen in my life.
Bill Fairman (22:35):
Wendy and I just purchased a short-term vacation rental that is on the water and 20 minutes from the Gulf of Mexico. There’s a lot of different ways you can do that because of the short-term vacation rental, sometimes it’s all about the experience.
Jonathan Davis (23:32):
It’s a great way to diversify your portfolio. If you have other assets, it’s a different type of asset that has proven to perform well under strenuous economic conditions.
Bill Fairman (23:49):
It outperforms, as far as income goes, stick-built homes. However, you have fewer exit strategies available to you because financing isn’t as numerous.