The successful mobile home park business model has always been simply to rent land. But sometimes the simple path is not enough for some owners, who venture out with additional ideas to boost net income. Sadly, most of these ideas fail to be profitable. In this Mobile Home Park Mastery podcast we’re going to explore the many different side-hustles that park owners have tried that have failed to actually make money.
Episode 398: Avoiding Park Side-Hustles That Make No Money Transcript
I've been in the mobile home park business for around 30 years now, and I've learned over those three decades the best way to make money with any mobile home park is just to rent out the lots, just to rent out the land, simply to be a parking lot. However, over those same 30 years, I've seen many park owners, myself included, who've tried some additional concepts to make some ancillary income, kind of your traditional what is known today as side hustle because we're curious souls as park owners. We're trying to find out, is there some way we can tweak the business model a little differently to make more money. But the sad truth is there really isn't. This is Frank Rolfe with the Mobile Home Park Mastery podcast. We're going to explore all the concepts people have tried, that I've seen people try over the last 30 years to make that little additional side money, and then go over why they didn't work and what you might be able to look at instead if you were trying to actually make some money with that. So, let's start off with the number one on almost everyone's list, and that's rental homes.
Rental homes are a pariah of the industry, toxic, money pits, have ruined many a park owner's life. Now, why are rental homes so unprofitable? Well, the key reason is that when you put in a standard plug number of repair and maintenance, which would average in most of America probably $200 to $300 per month of repair and you add in property tax and insurance, you're talking about a $300 or $400 per month expense on a rental mobile home. And the problem is when you take an average lot rent in America of $300 to $400 a month, there's just no room in there to make any money. If I rent a mobile home for $800 a month and I have $400 of expense and $400 of lot rent, why am I renting the home? There's simply no money at all. And on top of that, it kills you in stress and all kinds of management issues. Those rental homes are man-eaters when it comes to time, efficiency, and happiness.
In my very first park, Glenhaven, I was saddled with a large number of rentals and I learned on that first property I wanted nothing to do with those things going forward. But any of us would probably be okay with having a little heartache and headache if there was a pot of gold at the end of the rainbow. But sadly, with rental homes, I've never seen it. There was a public company years ago called ARC and as I recall, they had a rental division inside that company. It's the only time I've ever seen anyone actually post the real results of rental homes. But as I remember it, that rental home division never really made any money. That was on a very large scale. So, can your typical mom and pop be making any money on rental homes when even large REITs can't figure out how to squeeze a nickel out of it? It's very, very unlikely. The only time I've ever seen rental homes actually make money, and I mean really true money, not when people tell you they make money with rental homes by leaving out the repair and maintenance, tax and insurance costs, I've only seen it when you have a very, very low lot rent in a very, very poor state. Somewhere like Mississippi where sometimes lot rents are $100 or $200 a month and yet you can rent a home for $800 a month.
Then and only then, when you take out the $200 lot rent and, let's say, $300 a month of expense, would you be able to eke out positive cash flow. But it's so rare that you'll encounter a market like that that I would pretty much advise you probably not to even enter those markets because I want to be in the land business and so do you. But let's just say rental homes really don't work. Then you have park and store lots, many mobile home parks have these, I've even built some of those. And the problem is you will never get enough customers paying your little paltry $50 a month or so that you'll charge for their park and store lot to ever make any economic sense of it. It sounds good but when you go ahead and build that area, which typically you have to gravel in many cities, and then build a security fence around it with a locking gate, and sometimes park owners even put in lights which burn electricity, I am willing to bet you you will never ever make your money back. You'll probably end up even on a 100-space park with maybe 10 or 20 customers which are paying $500 to $1,000 a month and you are going to say, "Why in the world did I ever do this?" You will never get your money back.
The problem is that mobile home park residents frequently don't have the things they need to store. They don't have a lot of boats, they don't have a lot of RVs. Traditionally, what you end up with are a bunch of old beat up trailers which often they quit paying on after just a few months because the rent is more than the trailer is worth. So, I would scrap or stay away from any park and store lot concepts. And on the concept of storing things, self storage has always proven to be a loser as an industry inside of a mobile home park simply because most Americans appreciate the concept of storage as equaling security of their possessions so that when they go back to retrieve them, they're still there. And most Americans have a very negative stigma on mobile home parks, trailer parks. So, they think, "Why in the world would I store my stuff inside of a mobile home park?" So, consequently, your typical customer on those storage lots in mobile home parks are the tenants themselves. But once again, they don't have a lot to store, they don't have very large budgets.
So, probably the best you'll get in monthly rent is going to be 50% of what they charge at a normal storage facility down the street which we're going to equate to probably $50 a month. And while that will give you revenue on that existing storage that came with the park when you bought it, it is in no way going to justify any cost in building new additional storage. Simply run the numbers on it, look at the rent you'll truly achieve. Don't comp public storage which has security, bright lighting, a gate that operates off of a code. You have none of those things. So, as a result, you will not get their rates, you will not get their occupancy and you really aren't going to do too well as far as making net income off that.
Then you have raw land. Some people buy the raw land that's adjacent to their mobile home park, often mom and pop force you to do it. But don't for a minute think that it will be profitable. I know myself when I got in the business, I had an ego trip when it came to land. I thought land was the greatest thing ever because I had always heard the true sign of wealth was land ownership. But it might have worked on the person who was lucky enough to have a farm in the middle of downtown Dallas, but for the average mobile home park owner, that land next door is not going to generate any money at all. I've tried farming it out for livestock, there's no money in that. I've tried renting it out to any other endeavor, anyone who wants to open a roadside stand. Never sticks, there's no money in it. Meanwhile, you're cranking away writing checks for typically things like mowing, property tax and insurance. So, I don't think raw land is probably a very good sideline.
Then you have your good old laundry rooms and laundry buildings. These are a hallmark of older mobile home parks back in the days before they had washers and dryers. But the problem today is all mobile homes manufactured in America currently have washers and dryers in them. The only homes in your mobile home park that don't have washers and dryers in them are the homes from typically the '60s and the '70s. That means your customer base is very, very small. On top of that, we have found that laundry buildings always exhibit much greater costs than most people imagine. When you get done with the utility cost and repair and maintenance, there's really no money in it. And if you go ahead and lease the thing out to a real laundry company and they give you $200 a month or $300 a month, that will be totally eaten up in utilities and repair and maintenance on the building. And don't forget, as part of the laundry you're going to have an unlocked building 24 hours a day just asking for somebody, a street person or someone to sleep in that thing. So, you have all kinds of liability issues on top of that.
Then you have renting out the clubhouse. Many a park owner has thought when they buy a park that comes with a large clubhouse, and we've had some that look like Pizza Hut franchises sometimes made out of bricks with metal roofs, they think that they can somehow make money with those and the answer is you can't. I'm not sure there's a clubhouse in America that truly makes any money. You may on the onset say, "Well, I'll just rent that clubhouse out once or twice a month for someone to hold a party or have a wedding shower." The truth is you're probably going to be renting the thing out more like once a quarter. And even then, you'll be lucky if you get $100 or $150 for it. And of course the cost of the AC or the heat and the repair and maintenance is going to eat away any potential profit that you might have. So, when you're running your pro forma and thinking, wait, there's got to be money in renting out the clubhouse, my sense is the answer is no.
And then, finally, you have the concept of expanding your mobile home park. This is one concept that can be very profitable. Whenever you buy a mobile home park, if there's land that is adjacent to the mobile home park that comes up for sale, if you can tie that up under contract and have it subject to zoning and get zoning for a mobile home park on it, you'll be a very smart individual to buy that land because it will cost you probably around $20,000 to $25,000 of space to build the expansion. But a lot today in many mobile home parks is worth $70,000, even $100,000. It's really very hard not to make money with that concept. However, there are some asterisks you have to be aware of. If you're in an area that has very, very low lot rent such as my example of Mississippi or sometimes Louisiana where lot rents can be $100 or $200 a month, that's not going to support spending $25,000 to build the expansion. So, that can be a real issue.
Also, don't forget that if you build the expansion to fill the lots, you're going to have to bring in new or used homes to do so, get them ready and sell them off and there will be additional cost in that and risk. But of everything we just mentioned, expanding your mobile home park, that is your absolute best avenue to making additional money, significant money. The bottom line to it all is stick with being a parking lot, that's where all the big money is. If you want to try things out, I'm not opposed to that. Sam Walton was a big believer in testing things, although he demanded it be scientific where you actually saw what the real numbers would be.
If you think there is an opportunity in something in your mobile home park to make some money on the side, there's certainly nothing wrong with that concept. That's where cable monetization came from which was a big deal a decade ago. But just be aware that typically the odds are it's not going to work out for you and you need to keep your eyes wide open and make sure that you're telling yourself the truth on the bottom line. This is Frank Rolfe, the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.