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John Meyers, Real Estate Pro in Park Ridge, IL

Does it make sense to purchase a mobile home and then rent it out to earn a little income? They seem cheap to buy but there must be drawbacks.

Asked by John Meyers, Park Ridge, IL Mon Jul 18, 2011

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There are some drawbacks:

**The land lease (or lot space). That can bump up you total costs to the point that you're not making any money on the rental.

**Park restrictions. Some parks don't permit rentals. Others permit them only with a satisfactory background and credit check.

**People's preferences for apartments versus mobile homes. Lots of people are willing to pay a bit more (10%, 20%, etc.) to have an apartment versus renting a mobile home.

There is a strategy that can work. It's nicknamed a "Lonnie Deal" after an investor named Lonnie Scruggs who developed/refined and popularized the idea. (I'm sure you can look his stuff up online; he's got a couple of self-published books on the strategy.) Basically, it involves an investor buying a mobile home cheap for cash. Then the investor does whatever rehab is needed, then sells it on terms to someone else. Here's a real quick example: You find a mobile home that you can acquire, all cash, for $6,000. You put $2,000 into fixing it up. You find someone who wants to buy it. Your terms: $2,000 down and $180 a month for 7 years.

The buyer pays the lot rent.

Sound reasonable? You, the investor, are into it for $6,000. (You put $2,000 into rehab, but got that back as the downpayment. $180 a month for 7 years repays an $8,000 loan at 20,49%. So the price you've charged the buyer is $10,000, $2,000 down, 20.49% interest. (Watch out for any state usury laws.)

But it gets better (for you). Remember: You're only into the deal for $6,000. But you're getting a return on an $8,000 mortgage. What's your return? You're getting $180 a month for 7 years on a $6,000 investment. That's a 32% return on your $6,000.

What makes the deal work? Lots of folks selling mobile homes will take a deep discount for cash. And lots of buyers can't afford all cash. They're looking for affordable terms. The "sweet spot" is being in the middle. Buy low with cash; sell for more on terms.

And what makes it so attractive for investors? It's not just that you're getting a good return on the sales price, but that your investment (thus, ROI) is less than that sales price.

That's how you make money by purchasing a mobile home.

Hope that helps.
0 votes Thank Flag Link Mon Jul 18, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
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Remember that when you purchase a "mobile home," you do not get the land too. You only get the mobile home. Make sure that if you're supposed to get the land, that it's designated that way in the contract. Where are you looking to station the mobile home?

Attorney Ranj Mohip is a Chicago real estate attorney. The information in this answer is general information and is not intended as legal advice. Further, answering this question or otherwise contributing as a member of Trulia.com does not create an attorney-client relationship. Remember--consult the best real estate attorney in Chicago or in your respective area. Contact us at http://www.ranjmohip.com for more information.
2 votes Thank Flag Link Mon Jul 18, 2011
In addition to your Mortgage payment, you will have Insurance, Maintenance & Repairs, and Space Rent; these add up.
If it was such a great deal, everyone would be doing it.

After you are through, you will find that used Mobile Homes are hard to sell.

Good luck and may God bless
0 votes Thank Flag Link Mon Jul 18, 2011
It depends. You need to complete you due diligence. Some things I would research, (1) what is the average rent in the area you are interested in. (2) Add up all the expenses to determine if the rent will cover your cost, leaving you a positive cash flow. There are many other things you need to look at. Just because the mobile home may seem "cheap", there are other cost involved in renting a property, I suggest working with a realtor in the area to determine the full cost of investing.

Good luck in your endeavor!
Web Reference: http://www.cyndibell.com
0 votes Thank Flag Link Mon Jul 18, 2011
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