Those who have discovered the little-known niche of mobile home park investments are well aware of their recession-resistant behavior and their unique ability to deliver stable cash flow.
The challenge for those who love mobile home parks is finding the easiest way to invest in them. The two options for investors are to buy a park themselves or partner with an experienced mobile home park syndicator.
Before we weigh the benefits and tradeoffs of these options, let’s establish some universal truths about mobile home park investments:
- Larger parks (typically those with 50 mobile home spaces or more) are the best parks to invest in because they offer economies of scale, they can afford more experienced on-site staff, and they are more appealing to lenders. These benefits result in better cash flow, easier management, and more debt options, all of which makes them more attractive when you eventually sell the park.
- Underperforming parks that need to be turned around offer the greatest upside potential.
- Third-party management companies are not designed to turn parks around. You can count on them to handle the general day-to-day management services, but not to do the heavy lifting and pay close attention to details, which are both required to turn a park around efficiently.
- Buying large, underperforming mobile home parks to turn around yourself requires a combination of knowledge, time, connections, and access to deals and capital, which most people don’t have.
Keeping these underlying principles in mind, let’s take a closer look at both investment options.
Option 1: Buy a Mobile Home Park Yourself
To make a smart investment, you will need to find good deals that make sense. Sourcing deals that are not on the market, understanding the right kind of parks to pursue, and identifying the right markets for investment are all critical investment skills to have.
Assuming you have those abilities, it will require additional skills, knowledge, and experience to successfully acquire the mobile home park and complete other essential steps, including the following:
- Performing a proper market demand study
- Underwriting the park accurately
- Navigating due diligence correctly
- Qualifying for financing, if needed
- Resourcing capital, if needed
- Taking over park operations
- Choosing the right strategy for the park
- Hiring qualified on-site staff and contractors who align with your core values
- Selecting capital improvements with the greatest impact
- Finding contractors who are skilled at working with mobile homes
- Proficiency in mobile home sales, licensing, bookkeeping, accounting, taxes, and other business requirements unique to mobile home parks
After several years of making intentional decisions about park improvements, financial performance, and the resident experience, you should have a stabilized park that is performing efficiently, producing consistent cash flow, and providing you with all the benefits of ownership.
Option 2: Investing with a Mobile Home Park Syndicator
Given that most people do not have access to the deals, experience, time, or capital to buy large parks and turn them around, partnering with a seasoned mobile home park syndicator can be a much simpler option.
What is a mobile home park syndicator?
A mobile home park syndicator (also referred to as a “sponsor”) is a company that offers passive investment in mobile home parks. The company is responsible for finding deals, performing all the tasks required before and after closing, overseeing day-to-day management and property improvements, and the overall performance of the investment. The investor’s only responsibility is contributing capital.
By working with a company that has an existing track record and expertise in all of the areas above, investors can enjoy a passive investment experience with all the benefits of mobile home park ownership, but without all the hassles or the potential for costly mistakes.
Benefits of Passive Mobile Home Park Investments
Investing with an experienced syndicator grants investors many benefits they may not receive if they had acquired a park on their own, including:
- Access to better deals: Syndicators are experts at finding great deals that never become available to the general public.
- Lower required investment: Similar to the way you can purchase shares of public equities, investing with a syndicator enables you to purchase shares of much larger parks than you could on your own.
- Free up time: Passive investment allows investors to focus on the important things in their life while the syndicator does all the day-to-day work.
- Lower risk: Investors can leverage the syndicator’s experience to avoid costly mistakes. Additionally, the diversification that comes with a mobile home park fund spreads out the potential for risk that could be present in a single park.
- Higher returns: Larger parks create economies of scale that result in better cash flow. It is not uncommon for investors to make more money investing passively than they could have if they acquired a park on their own.
How to Evaluate if a Passive Investment is Right for You
A passive mobile home park investment is typically best for investors who are seeking:
- A true passive investment: Investors who love the mobile home park strategy but simply don’t have the time, experience, or desire to do it themselves often experience the greatest benefit from partnering with a syndicator.
- A lower-risk investment: The performance of mobile home park investments is not correlated with the stock market, the economy in general, or the broader real estate market, resulting in more stability than other investments.
- Predictable mailbox money: Mobile home parks have intrinsic qualities that allow for predictable distributions to investors at regular intervals along the way.
- Profit sharing: As the syndicator improves the cash flow at each park, the parks’ market value increases. At the end of the investment period, the parks are sold, and these profits are shared with investors.
Some additional unique benefits include:
- Direct communication: Unlike public equities, these kinds of investments offer direct access so you can communicate with the people responsible for your investment’s performance.
- Tax benefits: Generally, investors receive the same tax advantages that come with ownership of real estate investments, such as depreciation.
- Retirement-account friendly: Mobile home park investments tend to be a perfect fit for retirement accounts due to their recession-resistant behavior and the stability of cash flow. These qualities help meet required minimum distribution requirements (if applicable) and create the opportunity for compounding returns through reinvesting cash flow distributions, which is a powerful way to grow a retirement account.
- Fund structure: Similar to the way a mutual fund behaves, a mobile home park fund diversifies the investment across a group of parks instead of investing in a single park. This results in reduced risk and grants investors the benefit of blended performance across all the parks in the fund.
Where to Find a Mobile Home Park Syndicator
First of all, you’ll want to find a syndicator who specializes in mobile home parks as their primary business and who has a track record of successfully turning parks around. Most syndicators are private companies, and regulation can prohibit public solicitation. You likely won’t hear about them from traditional stock brokers or financial advisors.
The best way to find an investment sponsor is through referrals.
Anyone who already participates in this type of investment on a regular basis will know the best companies, so don’t be afraid to ask the successful investors in your life. Other good resources include self-directed IRA administrators, independent registered investment advisors (RIAs) who advise clients on alternative assets, accountants, attorneys, and real estate brokers who specialize in mobile home parks. The key here is to network with trustworthy people so you can get a reliable referral from them.
All syndicators are not created equal, so it’s extremely important to perform your due diligence and make sure the company you choose to invest with can provide the three things every investor wants.
Passive mobile home park investments are available for both sophisticated and accredited investors as long as they meet certain requirements. Minimum investment amounts typically range from $50,000 to $250,000.
Most investors find that a passive investment with a syndicator is the easiest way to invest in mobile home parks. It allows them to enjoy all the perks without any of the work, and in some cases, they stand to make a better return than if they chose to do it themselves.
A trustworthy syndicator who offers passive mobile home park investments may be more difficult to find due to their private nature, but it’s worth the time and effort to find the right company to partner with for this one-of-a-kind investment.
This content is the perspective of the author and is not intended to be relied upon as a forecast, recommendation or investment advice, and is not an offer or solicitation to buy any securities or to adopt any investment strategy. The information and opinions contained in this content are derived from experience, historic data, and other sources deemed to be reliable, are as of the date of this content, and may change as subsequent conditions vary.