Investing in Mobile Homes: Pros and Cons of Park-Owned vs. Tenant-Owned Homes

You’ve decided to take the plunge and invest in mobile home parks. You’ve scoped out available properties for months, creating a shortlist of attractive investments. But as you’ve refined your list, you’ve noticed a critical distinction between your choices. Some properties contain park-owned homes, while others run on the tenant-owned model.

Now, you’re deciding which model is better from an investor’s perspective. Should you favor one investment over the other, and why? While the answer will vary among investors, it helps to know the ins and outs of the new investment for your portfolio and what you’ll need to do. Luckily, you can gain a good understanding by exploring the pros and cons of each business model below.  

Pros of Park-Owned Homes

Investing in a mobile home park with park-owned homes involves renting more than the lots. As an owner, you also assume responsibility for all the homes. Your job is to maintain everything while finding tenants to occupy each mobile home. The advantages of this model include additional rent revenues and control over the park’s appearance.

You also gain more wiggle room when negotiating lease agreements. Some tenants may want to rent-to-own their homes, while others will be content with standard rental contracts. Investing in park-owned dwellings can provide the community with a wider array of housing options.

Higher interest rates are one factor contributing to the housing shortage in the U.S. With the average 30-year fixed mortgage rate at 7.39%, existing homeowners are staying put. Rates this high also mean potential homebuyers don’t have as much purchasing power. They’re looking for housing options within their reach, including rent-to-own contracts.  

Park-owned homes allow you to offer these agreements to appeal to a broader tenant base. In the meantime, you’re collecting rent on the houses and the lots. The potential for increased ROI is there. Plus, offering rent-to-own contracts increases retention rates. Those tenants will be more inclined to stay put since they have skin in the game.

Cons of Park-Owned Homes

Of course, the advantages of park-owned homes come with corresponding disadvantages. If you’re looking for a passive investment in mobile home parks, park-owned homes aren’t it. You’ll oversee each trailer’s maintenance and the park’s common areas. More upkeep means added expenses.

As an investor, you must factor these costs into your budget. In addition, increased maintenance costs impact your profit and loss statements. Your initial investment costs will increase since you’ll buy the homes plus the park’s land. Within this disadvantage lies an opportunity to network and collaborate, and your tax accountant can help you make this a tax advantage.

You could find another investor to split the costs and profits with you. They’d also share the responsibilities of keeping the park and its homes in tip-top shape. As Lifestyle Investing expert Justin Donald says, “You will be amazed, as I have been, how often your worlds will collide with people who can help you. You will be surprised at how collaborative this industry is and how very helpful people can be — long before you make it big.”

So, while you could face financing challenges with park-owned home business models, to begin with, you might form long-term professional partnerships. You’ll share a few risks associated with this model, including potential higher vacancy rates. Simultaneously, you’ll join forces under a partnership to tackle challenging tenants, routine repairs, and periodic upgrades. A park-owned home model doesn’t necessarily mean assuming all the risks yourself.

Pros of Tenant-Owned Homes

The main advantage of the tenant-owned home model is investors don’t have to oversee as much. They collect rent on the lots and ensure the park’s common areas are well-kept. Since tenants own their homes, they’re responsible for keeping them in good shape. Maintenance expenses, such as appliance repairs, don’t show on your balance sheet.

There’s typically more stability in mobile home parks where the tenants own their trailers. Moving a mobile home to another park is usually expensive and somewhat impractical. Different jurisdictions may have zoning restrictions for mobile home parks, limiting the availability of open lots and lot sizes. For mobile homeowners, this translates into keeping their homes in place once they find a suitable lot.

When tenants establish roots, investors collect steady, predictable revenue. A tenant-owned home model can make an investment less risky regarding costs vs. profits. Consequently, these parks are easier to finance. You’ll find a more comprehensive array of financing options as banks look favorably on investments with fewer threats to a healthy ROI.

Furthermore, fewer maintenance responsibilities are attractive to investors with a bent toward a hands-off approach. Say you find a park with only roads and utility hookups to maintain. Your operational involvement will be less than a park with additional common areas like playgrounds and laundry facilities. When there’s less to look after, your investment can become more passive income. If this is important to you, parks with tenant-owned homes are the way to go.

Cons of Tenant-Owned Homes

The disadvantages of parks with tenant-owned homes are fewer revenue streams and less control over a property’s appearance. Essentially, you’re limited to collecting rent on available lot space. Your income is less diversified unless you find other ways to make money from shared onsite facilities. Laundromats and vending machines in common areas are ways to expand your cash income.

Investing 101 tells you the less diversified your portfolio is, the more you expose yourself to individual investment risks. With lot rent, you’re restricted to the number of spaces in a park. Yes, you can adjust lot rents with local supply and demand. However, you risk upsetting and alienating tenants if you raise the rent too much or too often.

Although you don’t have as many maintenance responsibilities under a tenant-owned home model, this can backfire. Say you’ve got some tenants who don’t keep up the appearance of their homes. The exterior paint is peeling, there are signs of rust outside, and overflowing trash bins in the yard. A few unkempt homes can detract from the park’s otherwise charming ambiance.

As the owner, you don’t have ultimate control over when and if those homes’ appearances improve. It could hurt your ability to attract new tenants and fellow investors. Like any rental property, a park with run-down properties also presents challenges when it’s time to sell. Passive investment structures sometimes mean the details don’t always determine how you want them to. A certain level of risk comes from relinquishing control to others in the mix.

Making Your Choice

It takes time to decide which investments are suitable for you. Evaluating the pros and cons is a crucial step in your decision. Mobile home parks present attractive opportunities to get into real estate or expand a portfolio. Within this category are additional distinctions that could impact your goals.

Properties with park-owned homes versus tenant-owned homes present separate pros and cons. These advantages and disadvantages will carry various weights with different investors. Once you decide what you can reasonably handle, the options on your shortlist will narrow. You’ll have a clearer direction and be ready to choose your next mobile home park investment.