Today’s blog title sounds like an oxymoron but it couldn’t be closer to the truth. What I am discussing today are mobile home parks. Managed properly these are a fantastic commercial real estate investment. Done wrong and they become a residential landlord’s worst nightmare.

Here’s how to do it wrong. As a novice real estate investor, look at the “potential” revenue from a mobile home park that is half owner occupied and half of the trailers are owned and rented out by you as the investor. Of the 100 spaces, 50 with trailers owned by you are rented for $550 per month ($550 X 50 = $27,500). The other 50 are owner occupied and the dirt only rents for $300 ($300 X 50 = $15,000). Total “potential” monthly rent comes to $42,500.

Now, let’s look at what the “potential” numbers don’t tell you. Mobile home renters are very low on the economic ladder. These people often have credit scores so low they don’t even register as relevant. Employment-wise, they are highly unstable. They are also much more transient than mobile home owners. After their first month rent and deposit is gone and they lose their job, they disappear into the night. What they leave behind are broken down cars, overflowing garbage cans, and busted out interior walls to the mobile home that you own. Your chance of collecting pass due rent and damages is between 0% and 50%. Your cost to clean the place up to put in another renter is over $700.

What new real estate investors need to understand is that along with higher rental revenue come expenses upward of 70% of the income. The “potential” net operating income is really $12,750 ($42,500 X 30%) along with lots of headaches.

Now, contrast that with owner occupied mobile homes where you only rent them the dirt to park their mobile home on. The “mobile” in mobile homes isn’t very mobile. The cost varies greatly but is seldom less than $2,000 and often closer to $10,000 – if the owner can even find another park that will accept them. That means they are motivated to stay at the park they are currently in.

These people are homeowners. They have more than a “rental deposit” at stake. If they bust out a wall, it’s their wall, not yours. You can make rules like keep the lawn mowed and the yard clean and they will follow the rules because they can’t afford to move their home.

You don’t even need to have all the spaces rented to have a better revenue stream. If you rent 75 of the 100 spaces to owner occupied tenants, your monthly rental revenue becomes $22,500 ($300 X 75). Your expenses amount to about 10% of the revenue or $2,250 ($22,500 X 10%). Your monthly net operating income is $20,250 ($22,500 – $2,250). That’s a whooping increase of $7,500 ($20,250 – $12,750). Best of all, it comes without the landlord headaches associated with mobile home renters.

Here is how you formulate a purchase price offer for a owner occupied mobile home park. Completely discount all of the rental mobile homes. You can calculate future value for renting the dirt but don’t count on rent from the current tenants. Your plan is to sell the mobile homes that are salvageable and pay to have the bad ones hauled away. Sell the salvageable homes to new owners and start collecting rent for only the space. Allow owners to move in their own home to spaces vacated by the mobile homes you had to have hauled away.

Once you improve the park, you’ll soon reach close to 100% owner occupancy. Your revenue stream will grow to $30,000 ($300 X 100) and expenses will be limited to $3,000 ($30,000 X 10%). Your monthly net operating income jumps to $27,000.

The only way to succeed as a real estate investor in a mobile home park is with tenants that have the pride of homeownership. That’s where the real money is.