Why You Should Never Build A Mobile Home Park

People ask us all the time why, since we're one of the largest mobile home park owners in the U.S. and are extremely bullish on the industry, we don't build new ones. They'll call us with raw land that they want to sell us to build a new park on. The truth is that we would never build a new park from scratch. We don't recommend that anyone does. But now let us explain why that is not hypocritical.

You can't build in decent locations today

Virtually every city in the U.S. no longer allows new mobile home park construction. As a result, you'll have to build a new park way out in the county, where nobody can block your project. This location will be so remote that nobody will even know you exist unless you spend a fortune on advertising. And the few that drive out to look will be appalled by the commute time and lack of nearby services, like a grocery or liquor store. All the good mobile home park locations were taken 30 years ago. There's nothing new that's worthwhile.

You can't get municipal water and sewer

Because of this remote location, you won't have access to something that is essential for success - municipal water and sewer. So you'll end up having to put in a well and a private sewer treatment plat. This will cost you about $500,000 to $750,000 - and even then you'll have to spend this again over time, as these systems wear out. If that's not bad enough, you'll have to worry constantly about whether or not the systems are working, and then spend a bunch of money fixing every problem.

You can't fill lots without buying the homes

If you thought the private water and sewer was expensive, wait until you see the price tag on filling the park with mobile homes. Wait, you say, I'm in the park business, not the home business. Here's the reality: you cannot fill a mobile home lot today unless you buy the home and bring it in yourself. It will cost you around $25,000 to fill a lot, assuming a mix of new and repo homes. So the price tag to fill a 100 space community is around $2.5 million. And nobody's going to finance that. Does that sound attractive?

You can't get financing

And financing homes is not even your biggest banking hurdle. Getting a loan to build the park in the first place is just as impossible. Nobody wants to make construction loans these days. Why should they - they're chock full of unnecessary risk. If you can find a banker today that will finance your construction of a new mobile home park, then you are the LeBron James of bank dog and pony shows.

These projects are illiquid

If you build a new mobile home park, you will embark on an odyssey of risk like no other. Since banks won't make loans on parks that are not "stabilized" (80%+ occupancy), you will be on your own until you hit that number. You can't get out with the project at 30% -- even if you want to. It's like no-man's land in World War I: if you can't make it to the next trench at 80% occupancy, you're going to get annihilated.

You just can't make money with it

But perhaps the most important reason that you will not want to build a new mobile home park is that you can't make any money with it. It's that simple. When you take into account the interest carry of filling up a mobile home park from scratch, the return on the project is zero or negative. Even the greatest new park in America would be lucky to hit a 5% return. With hundreds of mobile home parks available - already built and at stabilized occupancy - at 10% going-in rates of return, why would you even consider building one?

Conclusion

Building a new mobile home park is just a bad idea. Buying an existing mobile home park is a great idea. The affordable housing industry is a great business model, But the real estate construction business model is not. Stick with existing parks. They are easier, lower risk and - most importantly - infinitely more profitable.

Editor's Note

If you think that a "man-camp" is the hottest thing in the industry right now, then read the above article again. All a man-camp offers are the same risks, only compounded with the inherent risks of the oil & gas industry. Just ask the folks who built new parks in Louisiana to cater to FEMA and see how that turned out.

Frank Rolfe Mobile Home Park Investment Expert
Frank Rolfe has been an investor in mobile home parks for almost 30 years, and has owned and operated hundreds of mobile home parks during that time. He is currently ranked, with his partner Dave Reynolds, as the 5th largest mobile home park owner in the U.S., with over 250 communities spread out over 25 states. Along the way, Frank began writing about the industry, and his books, coupled with those of his partner Dave Reynolds, evolved into a course and boot camp on mobile home park investing that has become the leader in this niche of commercial real estate.