In it for the long haul? It’s a strategy often associated with less liquid assets, such as real estate. While there are exceptions (hello, property flippers), real estate investors tend to stay for a while. During the time they hold a property, they usually have their eyes on the prize. That “prize” could be steady cash flow, a great return when they eventually sell, or both.
Mobile home parks can align with those goals due to the unique aspects involved in these investments. Profitability tends to be higher due to lower expense ratios. Tenants typically stay put since the costs of moving a mobile home are expensive. Additionally, ongoing maintenance costs for investors are lower than those of the average apartment building.
If you’re seeking high yields with low turnover, mobile home parks are a great option. Although sometimes overlooked, these investments can help investors reach long-term goals more efficiently and on target. Stick around to discover why.
High Cap Rates
If you’ve been investing for some time, you’re probably familiar with capitalization or cap rates. An investment’s cap rate helps reveal its potential profitability. The rate is calculated by dividing an asset’s net operating income by the purchase price or what it could sell for today (market value). The higher the cap rate, the higher the potential return.
Admittedly, an asset’s expected return rate is only one factor in an investment decision. There are other considerations, such as how hands-on you’ll need to be. However, with a long-term investment strategy, it makes sense to aim for the highest return possible. With real estate, especially, you need to know you won’t be purchasing a money trap.
Simply put, you don’t want to put more money in than you’ll be getting out. Negative returns are possible with properties in markets with average depreciating values. Falling short of your profitability goals is also possible with properties that have high expense ratios related to maintenance and upgrades.
But as Lifestyle Investing expert Justin Donald says about mobile home parks, “The secret sauce behind this asset class’s profitability boils down to favorable expense ratios. It is possible to make significantly more money than with an apartment complex of comparable size. As of 2024, mobile home park cap rates typically ranged from 7% to 10%, with some sources suggesting even higher rates.”
Minimal Tenant Turnover
One of the ongoing issues with real estate investments is vacancy. You rent an available unit, with the tenant staying for six months to a year. Then the tenant leaves, prompting you to seek a new one. Like clockwork, it’s rinse and repeat.
The problem is that an ever-revolving door of tenants means your expenses go up. You’ve got to market vacant properties, offer move-in incentives, and fix up those units for the next person. In addition, you’re losing income while the properties are empty.
While apartment turnover rates are decreasing in some markets to 30%, the norm is 50%. Even with the drop in more urban markets, a 30% turnover rate is still significant. The rate is much higher than what you would typically see with mobile home parks. Turnover rate is usually lower in parks because tenants tend to own their homes.
Tenants are renting the land instead. The cost of moving a mobile home to a different park can be over $5,000, making it more challenging than switching apartments. In addition, there may not be many options in terms of land. Due to zoning restrictions, an area may only have a handful of mobile home parks. Zoning restrictions may also limit where mobile homes can be placed if someone wants to put their home outside of a park.
Minimal tenant turnover means cash flow from rental income remains steady. It’s more predictable when your turnover rate is around 1% to 5% instead of 30% to 50%. You’re not spending as much on marketing costs. When tenants stay, you can depend on long-term income forecasts.
Low Maintenance Demands
Another favorable aspect of investing in mobile home parks is the lower maintenance demands. With other types of properties, owners are usually responsible for most, if not all, of the maintenance. Whether something needs fixing on the inside or the outside, you’re on the hook. You also have to cover the cost of preventative maintenance, such as HVAC tune-ups. Don’t forget periodic updates, including replacing aged windows and refreshing exterior paint.
Under the typical mobile home park business model, you’re only responsible for the land. Your responsibility will usually extend to the park’s common areas and facilities, such as the roads and utility hookups. But tenants are responsible for maintaining their homes, including the exteriors.
You may still want to hire a property management company, but the need for an on-site manager may not exist. Periodic inspections and improvements of the common areas might suffice. However, the more shared facilities you have, the more potential maintenance you’ll need. Say the park has a pool, a community clubhouse, and a shared laundry room. Compared to a park without these amenities, the maintenance needs will be greater.
Nonetheless, those demands are still lower than with an apartment building or single-family property. You’re not fixing leaking pipes in each rentable unit. Nor are you switching out broken locks, replacing worn-out dishwashers, and troubleshooting furnaces in the winter. A larger portion of your rent revenue is going toward maintenance expenses, increasing your long-term return.
Mobile Home Parks’ Allure for Long-Term Investors
Investing in real estate can be tricky. It’s not an asset you can typically buy and then sell for a sizable profit within a few months. Real estate not only usually requires a long-term commitment, but it’s also an asset you continue putting money into. This money goes toward necessary maintenance and improvement expenses, which impact profitability.
On the one hand, keeping a property in good shape increases its potential market value. Proper upkeep also helps you attract tenants. On the other hand, expensive repairs and upgrades subtract from your bottom line. While the general rule is that real estate appreciates over time, there’s no guarantee it will. The elements of risk in any investment are the ability to generate cash flow and sell at a profit.
Because mobile home parks offer a unique business model, these properties can be appealing to long-term investors. Higher cap rates, minimal tenant turnover, and fewer maintenance demands translate to steady, predictable profitability. Mobile home parks may not produce the short-term gains of a flip. But they can fit into a portfolio designed to meet today’s cash flow needs and tomorrow’s desired return rate.
