I’ve been investing in real estate for 26 years. I’ve owned apartment buildings, commercial real estate, little strip centers, multi-family homes, single-family homes and manufactured homes.
My best real estate investments – by a wide margin – have been manufactured homes. These investments have provided consistent annual returns in excess of 20%.
More importantly, my manufactured home investments were NOT impacted by the BIG real estate crash in 2008. And truth be told, these little homes saved me financially in the market crash and have ultimately led to my financial freedom.
In this case study, I’m going to take you inside one of my recent investments so you can see how these investments work and why they are so profitable.
A manufactured home has many names. The most common name might be “mobile home.” Depending on where you live, you may find manufactured homes on private lots where the homeowner owns both the home and the land. However, the majority of manufactured homes will probably be found in mobile home communities.
This is where the majority of my manufactured homes are located, inside mobile home communities, or mobile home parks. The mobile home park typically owns the land throughout the park. The park is split into various lots where these homes are located. When you buy a manufactured home inside a mobile home park, you only own the home. The park owns the land under the home and charges all of the homeowners in the community lot rent each month for the use of the land.
When a homeowner inside a mobile home park stops paying monthly lot rent to the mobile home park, the park eventually evicts the family, and in the process, they’ll obtain ownership of the home.
And as you might imagine, some of the homes acquired by the mobile home park through the eviction process, are in very bad shape. These “ugly” homes present an attractive investment opportunity.
For various reasons (mainly lack of $$$), many mobile home parks don’t renovate these homes they acquire through the eviction process, especially if the home is in really bad condition. The park will simply let these homes sit their vacant. If you were to drive through different mobile home parks, you’d probably find several vacant homes in need of repair.
Each vacant home inside a mobile home park represents a possible investment opportunity for you. This is because we can buy these vacant homes from the park, renovate them and then turn them into very attractive monthly cashflow.
Here are a few pictures of one of these abandoned manufactured homes that a partner and I recently purchased directly from a park:
This “ugly” home is located in a park here in Ohio. Our purchase price was only $250.
Yes, we bought a three-bedroom, two-bath manufactured home for just $250.
As part of this purchase, the mobile home park paid the county taxes due and they gave us two months of free park lot rent while we renovated the home.
The reason why we were able to buy this abandoned homes so inexpensively is because there is zero competition from other buyers. Nobody (and I really do mean nobody) is interested in these “ugly” homes.
The crazy part is that this home probably cost $30,000 to $40,000 when it was originally purchased by the first buyer and we bought it for just $250.
After getting the title to the home, we hired different contractors to basically rebuild this home. This included new plumbing, new heat tape, new furnace, new hot water tank, new bathroom sinks, new toilets, new flooring, new drywall, and lots of cleaning and painting.
When we were finished with this renovation, we basically had a brand new home. All the major mechanical systems in the home were new.
Here's how it looked...
We offered this home for sale to a tenant/buyer on a 6-year rent to own program. Their monthly payment for the home is $325 per month for 72 months. If they stay in the home and make all the payments as agreed, we’ll collect $23,400.
In addition the payment for the home, the tenant/buyer will also pay the park lot rent each month of $325. Their total monthly payment is $650 until they pay the home off.
And because they’re buying the home, we structured the agreement so the tenant/buyer pays for all the maintenance, repairs and taxes. The maintenance and repairs shouldn’t be too expensive considering the home is basically brand new!
Please understand that this is a very good deal for the tenant/buyer. They’re buying their own home, which as been completely renovated, and will have it completely paid off in just 6 years. More importantly, their total monthly payment of $650 is significantly less than what they would have to pay to rent a single-family home in the same area.
To get an idea of what our return on investment on this home is, I used the "Time Value of Money" calculator in the PowerOne app pictured here.
The 13,507 included for the present value is what our total investment was to buy and renovate the home. The -325 is the monthly payment we’ll be receiving from the tenant/buyer. We’ll be receiving this payment for 72 months, so this what the total number of periods is for the calculation.
Our INITIAL fixed return on this investment is 20.187%
Are you starting to see why manufactured homes have been my best investment when compared to every other real estate investment?
Now, I know what you might be thinking…
What happens if the buyer stops paying and moves out of the home before the end of the 6 years? Well, a buyer default typically means you’ll make A LOT more money, and this may be one of the most important reasons to invest in manufactured homes.
The average real estate investor dreads a tenant default. It’s the last thing they want to deal with because it “feels” like they’re losing money.
This is certainly NOT the case.
As an example, let’s say the tenant/buyer who moved into this home stays in the home for two years and then moves out. They could move out for any number of reasons including: divorce, the death of a family member, medical issues, loss of a job, or they could relocate out of the area.
I’ve had all of these situations happen to me over the years. In the big picture it really doesn’t matter why they move. Just know that it’s a very, very good thing for you if they do!
After 24 months, we’ll have collected $7,800 in monthly payments ($325 * 24 months). We’ll clean the home up, which will probably include investing $1,000 to $1,500 in painting, cleaning, landscaping, etc.
Our total initial investment $13,507
Less income collected ($7,800)
Amount of our $$$ in investment $5,707
Plus cost to clean up the home $1,250
New amount of our $$$ invested $6,957
After cleaning the home up and getting it ready to show again, we’ll only have $6,957 of our initial investment in the property.
Can you guess what we’ll do?
We’ll offer this home for sale on a new 6-year rent to own program for $325 a month starting our 72-month income stream back over at payment number one!
What do you think this does to our return on investment?
When we sell this home to the second rent to own buyer, we’ll increase our annual return to 53.65%! This is because we’ll have a lot less money invested in the home.
This is so incredibly important for you to understand.
Every time a buyer defaults you’ll increase your return on investment!
In fact, if our second rent to own buyer moves out after paying for another 24 months, we’ll have all of our money back out of the investment and will have a free asset generating monthly cashflow.
Here’s how this would look:
Income from 2nd buyer $7,800 (24 months of $325/mth)
Less our $$ invested ($6,957)
Actual Profit on Home $843
When this second buyer moves out, we’ll have all of entire investment back out of the home, plus we will have collected another $843 in profit.
To present this another way, we’ll have a free manufactured home and $843 in our bank account. Not too shabby, if you ask me!
Now, to be conservative, let’s say this second buyer leaves the home in bad condition when they move out and we have to invest an additional $3,000 to get the home ready to show again.
Our net investment into the property would look like this:
Cost to get the home cleaned up $3,000
Less profit on home ($843)
Net amount invested into the home $2,157
After getting the home ready to show for the third time, we’d only have $2,157 of our money invested into the home and we get to sell the same home again on a new 6-year rent to own program!
However, this time we’ll reduce the monthly payment for the 3rd tenant/buyer to $275 a month because the furnace and hot water tank are now 4 years old, and the home isn’t new like it was when we started.
Here’s what this return on investment looks like:
Yes, you read that correctly.
Our annual return on investment has skyrocketed to a whopping 152.96%.
Seriously think about that for a few minutes. On the surface this property looks like a nightmare, doesn’t it?
We’ve cleaned the same home up three separate times in just five years. This process also included showing the home three different times; screening applicants three different times and handling three different new tenant move-ins.
However, throughout all of this, the home gets more profitable for us. Despite all of these problems our return on investment continues to get much better!
You may not believe it, but I’ve resold several of my manufactured homes five or six times to different buyers. All of these homes are basically free assets because the previous buyers paid back all of my investment to buy and renovate each home.
In fact, I still own one manufactured home today I purchased 13 years ago. This means I’ve owned the home for around 156 months. Throughout these 156 months, I’ve resold the home to several different buyers and still collect $265 each month! Without looking back at my records, let’s assume that I only collected 145 payments of $265. This means that this one manufactured home generated a total $38,425 of income and it’s still pumping out more income each month.
I’m sharing all of this because I’m trying to show you that you can lock in a MINIMUM RETURN ON INVESTMENT OF AROUND 20.00% ANNUALLY by buying inexpensive abandoned homes that everyone else ignores.
If your first buyer stays and pays the home off as agreed, which does happen in around 40% of these transactions, you’ll have a very attractive hassle-free investment. However, if the buyer defaults at any point after the first year, you’ll increase your return on investment significantly.
The only way you can lose money on a manufactured home investment is if you sell it for cash, or walk away from it.
Your plan should be to simply to keep reselling the home to a new tenant/buyer every time it goes vacant until someone stays in the home and pays it off.
Please understand I don’t want my rent to own buyers to default. I screen them very thoroughly to make sure they have stable incomes and can afford the home. However, when it does happen, the investment becomes more profitable for you because you’ll be able to extract a lot more income.
Take a minute and compare this investment to the stock market...
What happens to your financial situation if the stock market crashes? Do you make more money? Does your return on investment increase?
No, it doesn’t.
When the stock market crashes, you lose money.
This simple illustration shows that stock market is actually a riskier investment when compared to these inexpensive abandoned manufactured homes.
To go one step further, can you find any other investment where you actually make more money when things go wrong? I can’t.
If this isn’t good enough, consider the following:
- Manufactured homes are inexpensive to buy. In most cases, you won't need to borrow any money, which reduces your risk further. It's hard for an investment to pull you into bankruptcy, if you don't owe a penny on it!
- Because they're inexpensive, they allow you to turn small investments into attractive monthly cashflow. See if you can find another investment where you can turn $13,507 into $3,900 of annual income WITHOUT leverage.
- In most areas, manufactured homes are consider personal property. They are treated similar to a car title. You can buy a manufactured home with a quick stop to the title bureau. No escrow and not expensive closing costs!
- There is STRONG demand from families in need of affordable housing. This demand virtually guarantees the investment's success. This demand actually INCREASES during hard economic times including market crashes and recessions.
- You can structure your investments so that the tenant/buyer pays for all maintenance and repairs making them more profitable and easier to manage.
- You have virtually NO competition from other investors. Other investor ignore these investments. This means no multiple offer bidding wars!
- You can buy these investments inside a self-directed retirement account. In addition, you can buy these investments for your children.
If you're interested in investing in manufactured homes, there are two ways I may be able to help you:
My 4-Week Lifestyle Business
Mobile Home Investing Course
Mobile Home Investing Course