A place to call home. It’s the dream that most people desire, and some might say that everyone deserves a place to call their own. Adequate, affordable housing is championed as a human right. Yet, securing a place to call home is starting to seem more like a privilege. With rising costs and declining wages, when factoring in inflation, affordable housing is becoming a memory.
The 28/36 rule states that no more than 28% of your gross monthly income should go toward housing expenses. Meanwhile, your home shouldn’t make up more than 36% of your total debt. However, with accelerated pricing, 18.8 million homeowners are spending more than 30% of their income on housing. Not only are the prices of homes rising above the average household’s means, but other expenses like insurance are, too.
Hotspots like Florida and California are among the locations with the highest number of homeowners paying $ 4,000 or more for annual premiums. Other states in this category include New York and Texas. And lower-income households struggle to cover housing costs even more. When the paycheck’s smaller, a larger percentage of it goes toward the roof over your head.
While often overlooked, mobile home parks play a critical role in affordable housing. Mobile homes offer lower living costs, a unique business model for investors, and less overhead. Let’s get into those three key roles.
1. Lower Living Costs
Although the prices of mobile homes are also rising, they’re not as steep as the average dwelling. Brand-new mobile homes cost around $124,300, compared to over $ 400,000 for a single-family version. It’s a significant savings—large enough to make a difference for someone on a tighter budget.
Even at 6% or 7% interest with little money down, your mortgage payment would be less than most areas’ average rental rates. In some states, the typical price of a new mobile home is less than the average. Indiana, Wyoming, and Ohio are states where sale prices fall under $110,000.
Lower-income households find owning a mobile home more reasonably within reach. Retirees, downsizers, and those needing or wanting to trim housing costs can make their monthly dollars stretch. They’re not destined to stay renters if they don’t want to be. And these individuals can achieve a greater sense of security, knowing they can put down roots and have a place to call their own.
Additionally, other household expenses, such as utilities, will be lower in a mobile home. You’re not paying as much to heat and cool the house. Less square footage is a major factor. But so are specific mobile home designs, with newer homes featuring energy-efficient materials. Some mobile home parks also bill specific utilities collectively, helping to reduce the burden of individual expenses.
2. Unique Business Model
For investors, mobile home parks offer a distinct business model. This model has higher profitability potential, making these investments more attractive than traditional options. You don’t have to completely banish stocks and bonds from your portfolio. However, if you’re including real estate in the mix, mobile home parks often have more promising expense ratios.
Regarding mobile home parks, Lifestyle Investing expert Justin Donald explains the primary advantages. One of the highlights of a mobile park investment is the high demand and low supply. Donald says, “We aren’t going to see an end to the affordable housing crisis anytime soon. While mobile home parks offer a vital solution, zoning restrictions and local regulations make it difficult to develop new parks. As a result of the supply-demand imbalance, existing parks are in high demand.”
The high demand, low supply advantage may seem counterintuitive to affordable housing, but investors are operating what’s known as a land-lease business model. In most cases, they’re essentially investing in the land on which the mobile homes sit. Adding amenities, such as community parks and pools, can increase the desirability of mobile home park communities.
Recruiting residents to pitch in with this development is a way to keep expenses low, including lot rentals. Raising the rent isn’t the only way to increase profitability, unlike with other forms of real estate. Expense ratios with multi-family apartment buildings are typically 50% or higher. With mobile home parks, the ratios are usually between 35% and 40%, and sometimes as low as 22%. This gives investors wiggle room to keep mobile home parks affordable for residents.
3. Less Overhead
A significant factor contributing to mobile home parks’ reduced expense ratios is less overhead. With the typical land-lease business model, residents own their homes. Ownership of the structures means they’re responsible for the majority of the maintenance. This includes the exterior and interior of the dwelling.
Other types of real estate investments don’t usually operate under these conditions. When you rent out an apartment building, you’re on the hook for nearly everything. Unless a tenant’s behavior causes property damage, you’re footing the bill for new windows, paint, carpet, and broken appliances. You’re also forking over revenue to keep units and buildings updated, which helps attract residents.
In addition, you’re paying to maintain the land the buildings sit on. You might be hiring contractors to keep the lawns manicured and collect the community’s garbage. It’s the rental rates and associated fees that help you recoup some of these costs. With a mobile home park, you’ve only got the land to worry about.
Expenses to maintain common areas are usually lower because there’s less to maintain. You may have some grass, roads, and smaller facilities, such as a shared fitness room, to support. But at the end of the day, less overhead often translates to keeping a lid on tenants’ lot rent costs.
How Mobile Home Parks Play a Role in Affordable Housing
Mobile homes aren’t on the radar of everyone searching for affordable housing options. While part of the American dream is owning a home, the stigma surrounding mobile homes can cause people to dismiss this option. Yet, the reality is that finding a budget-friendly residence is becoming more challenging for the average household.
Monthly wages aren’t keeping up with housing costs, including increases in utilities and insurance premiums. Mobile homes offer residents substantial savings on those expenses while providing investors with cost-effective opportunities. Although more mobile home parks won’t solve the affordability crisis alone, this type of housing can play a critical role, especially for young families and the retiring population. It only makes sense to start investing in real estate that can keep the American dream within reach.