Mobile homes and stick-built homes differ in one key attribute: land ownership. But is that good or bad for the customer? In this Mobile Home Park Mastery podcast, we’re going to drill down on the benefits and disadvantages for mobile home residents regarding renting the land instead of owning it.
Episode 323: Looking At Housing From A Different Perspective Transcript
Menards, a Home Depot competitor recently sent around a flyer, and I got one and it was advertising they would sell you a complete three-bedroom, two bathroom, 1185 square foot single family home kit for $89,099. So that's basically a modern day equivalent of the old Sears homes that Sears sold through their catalog back in the 1930s. Now, can you build and move it right in? Well, no, there's one thing lacking in that ad, one additional feature you'd have to buy, and of course, that's the land to put it on. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're gonna talk about the one key difference between single-family homes and mobile homes, and that's all about the topic of land.
Now, the average residential lot in the United States is $80,000 in cost, so if you combine that home kit with the land, you're at about $170,000 plus the labor to put that home together, a fairly significant some even for a home, it's inexpensive that sold through a circular out of a newspaper from Menards. So one way to look at it is that that stick build home requires you to go out to buy $80,000 of land, whereas a mobile home that you buy and put in a mobile home park, all that asked you to do is pay a rental of typically in the US and areas were about $300 per month.
Now, what are the benefits of owning the land? Infact Menards home, which is stick build in nature and the mobile home, which is a HUD Code home, if we assume that those were comfortable and we're just all about the land, let's just focus on land, so what are the benefits of owning land? Well, number one, it's mandatory for a single-family home, you can't rent land for a single-family home because a single-family home is real property and a mobile home, of course, is chattel property, personal property. So right off the bat, you gotta own land, if you're gonna own a stick-built home, you can't rent it. And of course, if you own the land that is yours for eternity, well, unless you miss one of your mortgage payments, then maybe it's no longer. And you can landscape it as you see fit, because it's completely your property, you can put a fence on it, you can plant trees, whatever you care to do.
But of course, you have to pay for those improvements. Now, the disadvantage of owning land are it's expensive, $80,000 on average in the US, and you know that that's not really what the single family home lots cost in your neighborhood, so $80,000 isn't gonna get you the best of neighborhoods, but it might get you in a decent starter neighborhood for that house that you buy on the kit. And of course, if you buy the land besides paying $80,000 up front to get it, you're gonna have to pay property tax on that land, so that's another problem. So we don't just get the land for free, we gotta pay tax every year, and then of course, we gotta insure that land and we gotta maintain that land, we gotta maintain the roads, the water, the sewer pipes, all of those things.
And then finally, a disadvantage of owning land that your house sits on, and course is you can't move your house because your home is permanently affixed to the land, so if you need to move for whatever reason, you can't take the home with you because you own the land. Now, let's focus on the mobile home resident and their approach to the land. So how do they benefit by not owning the land? Well, number one, they saved $80,000, and even though neither the single family customer or the mobile home customer is gonna have $80,000 to buy the land with cash, they're gonna have to get a substantial mortgage for that $80,000, you're gonna come up with $16,000 at least on the down payment on that, and then another $64,000 mortgage, typically about 8% interest, so it's gonna cost and with principal interest probably 700, $800 a month right now for the mortgage, just for the land portion. And of course, the mobile home park resident doesn't have to pay any property tax on the land because the land belongs to the park owners, so they save that cost, and of course they don't have to fix or maintain a darn thing, not the roads, not the water, not the sewer lines, not the electrical boxes, nothing at all.
And if you add all those together, if you add the mortgage payment on the land and the property tax on the land and the insurance on the land, their per maintenance on the land, you're easily over $1000 a month, just to say that you own the land. Also they can move their home as it's not attached to the land. So really what happens is, when you look at mobile homes and mobile home buying and living in and of a single-family home, it really is all about this concept, or do you wanna own land or do you wanna rent the land? Now, there are other assets in America that people decide to rent over owning. Let's assume, for example, you like to go out to the lake occasionally and you wanna ride around in the boat. Do you wanna buy that boat? Do you want it to pay put that boat up in winter? Do you wanna pay the slip or____ to house that boat in the marina? Do you wanna pay the insurance on it and the upkeep and make sure the engine is running and all those things? You may say, No, I don't wanna do that stuff.
I just wanna go ahead and use that boat when I wanna use it, I don't want to pay all the other costs, I only use it a few weeks of the year, why would I wanna spend money on all the other features of that boat for 11 months? So therefore, you might wanna rent that boat as opposed to own it. Or let's say you wanna go on a vacation, you wanna go to the western side of Michigan, all those cool beach towns over there in Saugatuck and Grand Haven and South Haven, but you're only gonna go over there 'cause you can only travel and hang out there a month of the year, so what do you do? Well, do you buy that beach house? No, you say, Well, that's crazy for me to own it, I think I'll just rent it on Airbnb for a month, that's much cheaper way to do it. Well, let's say you need to move somewhere and you gotta move a large object, well, you can always go and buy a big old truck or maybe either just go rent it at U-Haul. So all of us, not just mobile home residents are typically choosing frequently between owning and renting.
So if renting is superior in some ways to owning then we have to admit that there are some good things to renting land and lots for the mobile home, and these items are not fully appreciated, we don't commonly think about comparing that land component of that stick-built home versus the mobile home, or the fact that renting that land gives our customers some huge advantages they would not otherwise have. Now, first item, as we've discussed is, if they have to buy the land as opposed to rent it, it burdens them with roughly double the cost. So if that house for Menards is about $80,000, $89,000 an the lot is $80,000, they're gonna have to earn twice as much to qualify for that loan because they own the land, whereas if they rent the land, they don't have to. So that's a big deal, I think. And then, of course, if the customer has to own the land, they have to maintain that land, because in a mobile home park, the park owners are one who pays all of those costs as far making sure that land is fully functional and good repair. But if you own the land, it's up to you as the customer. And then of course, our customers in mobile home parks have much greater freedom than single-family residents do, because unlike that stick-built home, they can move that home if they want.
They have detached the cost of the land from the home, which gives them one more element of freedom, the stick-built home people don't have. I'm constantly amused when the media says things like that mobile home park owners have an unfair advantage because it's very, very difficult for the customer to move the home. Well, I am unsure of who thinks you can move a single-family home or move a condo or move a town home. Of course, the answer is you can't move any of those. So at least in the case of a newer mobile home on a lot, the customer really does have that freedom, it's a freedom you don't have under the other real estate sectors. So the bottom line to it all is when you look at the mobile home versus the stick-built home, you've got to put some attention on the land, you can't just compare apples-to-apples, the concept of the home versus the concept of the home part of the mobile home, because it's the land, that is the pure difference and the land is what creates the value to the mobile home customer. When a mobile home park customer looks back and all the years they lived in that mobile home park, and they didn't have the land and the potential appreciation of the land, what they did have was the tangible in their hand savings of not owning the land and maintaining the land, which can be a substantial amount.
Let's just look at that for a moment. If the average lot rent America is $300 a month, and the average lot is gonna cost them $100 a month, and they're saving $700 a month by virtue of renting the land 8000 a year, and they lived there for 20 years. They saved $160,000 by renting the land. That's what makes the mobile home park business model so affordable, that's what makes it so popular is because we don't force people to buy land, we allow them to rent land, it's a choice that they make, is a choice that they make typically because of money, and the lower cost, it also the choice they make because it's a lot lower stress on them to maintain it with much fewer capital calls. This is Frank Rolfe of Mobile Home Park Mastery Podcast. I hope you enjoyed this. Talk to you again soon.