Evaluating Mobile Home Park Investments: Why Warren Buffet Invests in Them
Mortgage interest rates are rising and single family homes are more expensive than ever. The American dream is becoming more like a fantasy to most average hard working Americans already struggling to pay the rent.
Additionally, what is going to happen to countless families that recently purchased their first home under those new adjustable rate mortgage loans that take effect after a very short fixed rate period? These people are going to have serious payment shock when they realize the effect that two percentage points has on a long term, several hundred thousand dollar mortgage. Foreclosure numbers are going to skyrocket in this country. A severely damaged credit score rating will drive these people back to the rental market or into some type of “owner financed” property.
A mobile home offers a solution to these families. Yet, because of the negative stigma associated with mobile home parks, city officials will generally do whatever it takes to prevent new park developments. Couple this fact with the significant cash requirements to build a mobile home park and you have a powerful discrepancy between demand and supply. Savvy real estate investors know this and are already profiting from our nation’s lack of affordable housing.
Still not sure if a mobile home park investment is a good idea? Perhaps, this might change your mind. The king of Wall Street, Warren Buffet recently invested 1.7 billion of Berkshire Hathaway’s capital by purchasing Clayton Homes Inc, one of the largest manufactured housing companies in the world. This was after an unsuccessful bid to buy a huge portfolio of delinquent mobile home loans from Conseco Inc.
Typically, when Warren jumps, millions follow and bank on yearly 12% returns. However, this is a unique opportunity for investors to gain huge profits from Buffets financial wisdom in the short term. The “Oracle of Omaha” as always been know for buying value, buckling down for the long haul and closing his position decades later when he’s squeezed every penny from each respective stock. The beautiful thing about a mobile home park investment is that (provided you know what you’re doing) you don’t have to wait a decade to realize triple digit returns on your money. Every day, mobile home park investors sell parks for multiples of what they paid for them a few years prior. Corey Donaldson, an experienced mobile home investor was recently able to retire as he doubled his equity (1.2 million) with his Texas mobile home park in just one year. Similar investors across the globe are able to accomplish this seemingly impossible feat with every park they purchase. These are generally deemed “turnaround” mobile home parks, where the investor finds an owner that has managed his/her park poorly over the years, either out of apathy or ignorance. Once locking up the property (many times with the previous owner carrying the mobile home park loan) this knowledgeable mobile home investor makes the sweeping changes necessary to increase net operating income.
However, you don’t have to buy a poorly run park to realize significant returns. Most of mobile home parks are between 15 and 30 acres. Historically, that land becomes so valuable that over time those mobile homes are replaced by larger commercial, retail or residential developments. However, unlike most land investments that are considered sunken costs until someone sells or builds, mobile home parks are producing large monthly cash flows as you rent the dirt the mobile homes sit on. In other words, you can profit by leasing the land to people as the value of your land appreciates.