Occasionally, I run into a new mobile park owner who thinks a great way to boost their bottom line is to own the homes in the lot and rent them out. That’s not what I think. I think if you’re renting a lot with a home on it, you’re not in the mobile park business anymore—you’re in the apartment business. And that’s not a great business.
If it’s an option, you should just stick to renting out lots. If you do own a mobile home, I’d recommend that you get it out of your name, and quick, either by selling it outright or setting up a rent-to-own agreement with a tenant.
Why You’re Better Off with Lots Alone
Some people might think they’re leaving money on the table when they just rent out lots. After all, the tenants’ are making two payments to live where they live. They’re paying rent for the lot and they’re making a payment on the dwelling. Why wouldn’t you want to get in on some of that money?
Well, because that relatively small amount of money you bring in every month from renting the dwelling to them probably isn’t going to even out when you consider how much it will cost you. When you rent out a mobile home, you’re responsible for:
- All the repairs if something breaks, like a toilet
- Regular maintenance, from painting to new carpets
- Move out clean-ups
- The escrow account for security deposits
- The property tax
- Lender payments, including interest
- Marketing the dwelling when it’s empty
For all that trouble, you get a relatively small boost in how much the tenant pays you every month. After all, most of the time you’re renting a used home, which goes for about $300 to $500 a month, on average. Does that make up for all the responsibility of maintaining the home, to the point where you’ll probably need to hire additional workers, like repairmen, financial managers, and cleaning people, falling on you?
Also, it makes it easier for tenants to move out. If a tenant decides to leave your lot and they own their home, they’re going to have to move that home themselves. That’s an expensive hassle that could keep someone in your park for years. But if the tenant just needs to move their stuff out of the home, then you’re running the risk of high turnover. That tenant doesn’t have to move the home, so they might just move out as it pleases them, meaning you’ve got to rent the place out all over again.
Now just because I say you shouldn’t rent out the dwellings doesn’t mean that you’re never going to have to sell a home. Maybe a tenant abandoned one or it came with the park you bought, but most mobile park owners I know wind up owning a few homes in their tenure, even if they don’t want to. When that happens, your goal should be to turn them over as quickly as possible by selling them to someone else.
Sell, Don’t Rent, That Home
I’ve made it pretty clear why renting lots, as opposed to renting lots and homes, is better. Renting lots gives you a lot more freedom—and a lot less responsibility—than renting homes. That’s why when you do wind up with a home that you own, you’re going to want to sell it, rather than rent it. When you sell a home outright, you shift the responsibility to the new owner. When you own it, that responsibility is all yours.
I try to be as hands-off as possible in the lending process by leaving it up to the potential buyer to figure out all their financing. But today’s loan market isn’t what it used to be. It’s getting harder and harder for people to get loans and, sometimes, you have to get involved if you want to sell the place.
The best case scenario is that you list the place for sale at $12,000 and someone hands you a check for $12,000. But if they can’t pay that, you might want to adjust the price. Say, for example, they had $10,000 in cash and couldn’t get lending to cover the rest. It might be worth it to just take the cash and call it good. Or, you could offer to get into a rent-to-own scenario. You say to the tenant, “Give me $200 a month for the next two years, then you’ll own the place—free and clear.”
The Risks of Rent-to-Own
Rent-to-own can be a good option for staying away from all-out renting mobile homes, while offering a similar structure for tenants who can’t get traditional lending. However, there are some risks you’re going to run into, which is why you only want to do this on a case-by-case basis. And, you still need to take a down payment, even if it’s just the first month’s rent, as well as establish an owner agreement so you won’t be on the hook for maintaining the place.
That being said, I’d say the first problem with rent-to-own agreements are the complications you’re going to run into if the tenant defaults. You might try to evict, but taking back a home is technically a foreclosure—and the courts are going to want you to treat it like one. That opens a whole new can of worms because it completely changes the process for getting the tenant off your lot and out of your home.
Next, you have to remember that mobile park communities are small and intimate. People talk. That resident who has to take out a loan to buy their home is going to get angry if the person you’re offering a rent-to-own agreement with is getting a better deal. Once you give one person a deal, everyone wants a deal. And that’s not a good position to be in.
Most people get into the mobile park business because they don’t want to be in the apartment business. When you own the dwellings and the lots, that’s pretty much the business you’re in—you get a lot of responsibility for very little payoff. When you do own a home in your park, you don’t want to rent it. You want to sell it outright and take some of that responsibility off your shoulders.
Of course, even then, you might find that owning a mobile home park is still too much of a burden. If you’re thinking about cashing it in, give me a call or drop me an email. I buy mobile park communities and can give you a fair price on yours.