In this blog post, you will learn how to flip mobile homes, why it is a good investment, and what challenges you may need to endure.
Because of its great earning potential, flipping trailers and mobile homes have become more common. As a property investor, you can make a profit out of these because they are much more affordable than traditional residences. However, this project has challenges that newbie house flippers might find impossible to overcome. It is, after all, a high-risk real estate investment, though it may bring solid returns.
Whether you are just curious about this venture or are absolutely determined to do it, this article can help you. In this guide, you will learn:
- Why investing in mobile home flipping can help you build more capital
- What challenges you may face in this project
- 10 steps on how to flip mobile homes
Why Invest in a Mobile Home Flip
Flipping mobile homes for profit is a great way to earn income quickly. You purchase a mobile home for a low price, renovate it (which is why you need to know how to flip mobile homes), and sell it for a net gain. Here are some of the benefits you will get from doing mobile home flips:
Less Capital Needed per Unit
Compared to a single-family house, the price per square footage of a mobile home costs half as much. This means the same budget you would have for a single-family home can get you more mileage with a mobile home, or you could just lower your budget and save the rest elsewhere. A third option is to buy multiple mobile homes in the area, flip them, and sell them at a higher price.
High Demand for Affordable Homes
Because of its price, affordable housing like mobile homes will always be in high demand. So whether you rent out your flipped home or put it up for sale, you will always find a buyer or tenant. Of course, you have to price your property well to attract prospects. Your target market is likely to be price-sensitive, so you would not want to outprice your competition.
Ample Opportunities for Finding Lucrative Deals
Finding mobile homes to flip can be challenging, but once you find one, it will most likely be a good deal. There are still a number of mobile home parks owned by simple mom-and-pop operations. They should already be retired or are soon to retire, which would make them want to cash out of their business. Plus, only a small number of them are professional landlords, and they may have experienced difficulties in bringing new homes and residents into their parks.
If you buy an entire mobile home park, renovate all of the mobile homes, and improve the management, you will soon attract new, stable, long-term tenants and residents.
Challenges in Flipping Mobile Homes
The reason it took a while for flipping manufactured homes to become popular among investors is because of how different they are from traditional residential properties. Before you decide on whether to venture into this sector, here are three main hurdles that you have to get over:
Depreciating Market Value
Similar to automobiles, mobile homes depreciate in value once it leaves the factory and as time goes on. This is because they are legally considered “personal property” instead of “real property”.
- Real property is defined as land and anything attached to it permanently.
- Anything that can be removed from the land without permanently damaging it is labeled as personal property.
But it is possible for mobile homes to appreciate in value if they are taken care of and if they are permanently installed on land. This is why renovation is an important component here; it is the key to selling a used mobile home at a profit. Other reasons why the value of mobile homes change include:
- The housing market
- The neighborhood: Must be well-maintained and has easy access to essential businesses and public transportation
- The initial price of the mobile home
- The age of the mobile home
- The inflation rate
- The supply of mobile homes for sale or rent
- The extent of an organized resale network: they tend to sell mobile homes for higher prices
Mobile homes built after 1976 normally have HUD tags that certify that the manufacturer complies with safety standards. If you find a unit with this tag, you can focus your renovation budget on low-cost cosmetic issues like interior and exterior painting, lighting fixtures, and flooring.
But unlike permanent structures, you may have a hard time doing extensive remodeling. For example, if you want to create an open floor plan, you must first make sure that you are not taking down a load-bearing wall. You will need to contact the mobile home manufacturer to determine this. If they have gone out of business, then finding this out will be next to impossible. Removing walls may also risk cutting into wiring and plumbing, which will eat up your budget to fix.
Few Desirable Locations
Location is perhaps more critical than renovation. A mobile home in a desirable location creates high demand, high rent rates, and high sale prices. If your mobile home is far from essential staples like grocery stores and public transportation, potential tenants and buyers may still pass up on it.
The maintenance and hospitality of the community, whether it is a mobile home park or suburb, is also important. Neighborhoods with high crime rates and subpar park management reflect poorly on community quality and deter potential buyers and tenants from moving there.
10 Steps on How to Flip Mobile Homes
If you have decided to learn how to flip mobile homes, here is a 10-step guide for you.
Step 1: Set a Budget
Before setting out to look for mobile homes to flip, you must first create a “buying a mobile home” checklist, starting with your budget. When deciding on this, do not think of how much you can afford to pay for the project. Instead, think of the maximum amount you are willing to spend and the profit range you wish to make, whether you are reselling or renting out your mobile home.
Step 2: Decide on a Location
The second step on how to flip mobile homes is to find a good location with properties that have earning potential. Put yourself in the resident’s shoes: they would want to live in a neighborhood that is decent, has low crime rates, and has access to essential businesses. As an investor, you would also want to find an area that is not already over-saturated with other mobile home flippers.
Step 3: Do Property Analysis
When learning how to flip mobile homes, you should also learn how to do property analysis. Since you are buying a mobile home as an investment, you need to see if the properties in your chosen location will generate your desired income or profit.
Step 4: Search for a Mobile Home With Resale or Rental Potential
The fourth step on how to flip mobile homes is the actual searching. Based on your property analysis and budget, you should have narrowed down which mobile homes in your desired area have the best earning potential. The best mobile homes to invest in are usually off-market, stale listings, pre-foreclosures, and foreclosures.
Step 5: Inspect the Property
Another skill to have when working on how to flip mobile homes is estimating repair costs while you inspect the property. If you do not have this kind of experience, consider hiring a contractor to help you.
Step 6: Negotiate Your Purchase Price
Based on the needed repairs that you find, you can use this information to negotiate the buying price. Usually, you just need to explain the repairs that you need to do, and the seller would understand and accept your offer.
Step 7: Make the Repairs
For renovations, you can do it yourself, hire a contractor, or do a mix of the first two options. Doing the repairs yourself can save you a lot of money, but it may take you a long time. Meanwhile, hiring a contractor would double the cost, but it will shorten your timeline. Depending on your strategy, you should be able to flip one to two mobile homes each year.
Step 8: Price Your Mobile Home
The basic formula in pricing your mobile home investment is by adding up your total expenses (purchase price + renovation cost) with your desired profit, which you should have determined in the first step. However, you also need to consider the numbers in your property analysis. If the sum of your expenses and desired profit is still lower compared to similar mobile homes in the area, you can increase your asking price to match the market.
Calculating the optimal rental fee
Meanwhile, if you want to rent out your mobile home instead, you can decide on the rent fee using the formula for getting the cap rate. This is your potential annual rate of return. You would want your cap rate to be within 4% to 10% per year.
To calculate your cap rate, you first need to get your estimated net operating income, which is the annual rental fee minus annual operating expenses. Then, divide the difference by the property’s new market value.
For example, you bought a mobile home worth $42,000 and made $14,000 worth of renovations. To make things simple, add these two numbers to get the property’s new market value, which is $56,000. You found that the average rental fee for mobile homes in your area is $1,000 per month. So your estimated annual rental income is 12 (months) x $1,000 (monthly rent) = $12,000.
Next, you estimate that your annual operating expenses will be $4,200. So you estimated net operating income is $12,000 – $4,200 = $7,800. You then divide your net operating income by the mobile home’s market value to get the cap rate: $7,800/$56,000 = 13.9%.
If the cap rate on your property is higher than 10%, you could choose to lower your rental fee a bit to stay competitive.
Step 9: Sell or Rent Out Your Mobile Home
You should now be able to advertise your mobile home for sale on real estate websites like Mashvisor. But if you are putting it up for rent instead, advertising on Craigslist and putting up signages on street corners and public bulletin boards should get you enough inquiries.
Make sure that you use good pictures and have a nice write-up about the property. Include as many details as possible so you do not have to field any further questions.
Step 10: Profit
If you followed the previous steps correctly, you should be able to earn a profit. How much you make depends on your overall strategy. If you rent out your mobile home, it might take you a few years to see your investment paid back.
Decide Your Next Step
Congratulations! You now know how to flip mobile homes. You can either take on another mobile home flip or switch to regular house flipping. The choice is yours. Ideally, you should have more capital now to start your next project.
To recap, investing in mobile homes can help you earn profits quickly. However, you need to budget carefully so you do not end up overpricing your property. You also do not need a lot of capital to do this project. And since mobile homes are considered affordable housing, you are sure to find interested buyers and tenants, but your property has to be in a desirable location and charge a reasonable price.
You can determine the numbers by doing a thorough property analysis and calculations of potential returns.
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