Trailer homes, also known as mobile homes, house trailers, static caravans, and residential caravans, are prefabricated structures that are usually built in a factory before being transported to certain sites.
These homes can be used as a form of primary residence, as a vacation home, or as rental properties. Estimates show that around 22 million people live in manufactured residents such as trailer homes throughout the United States alone. Statista.com states that the highest number of mobile homes are in the states of Texas, Alabama, Louisiana, North Carolina, and Florida.
With so many families living in these mobile homes, many investors have seen them as an investment opportunity. But, are trailer homes as rental properties a good investment or not? Well, we need to examine the pros and cons of purchasing a trailer home and renting it out to find out. Read on to discover if trailer homes are unique investments or if they should be left alone.
Trailer home investment – Advantages
When considering investing in something, you must consider the pros and cons of doing so. Some factors you must also consider include:
- How much you’re currently paying on rent.
- Whether or not you intend to buy a new or used trailer home.
- The cost of the space needed to rent a trailer home in a certain area.
- Your long-term financial goals.
- Whether or not you will need to borrow money to buy the trailer home. If so, what financial options are available to help you.
Let’s study some of the main advantages of investing in a trailer home.
- More affordable – Manufactured homes, such as trailer homes, are cheaper than many other types of properties. Because they are mass-produced in factories, their costs tend to be a lot less than compared to a conventional home built from brick and mortar.
- Lower maintenance and repair costs – Unlike many rental properties, the tenants in a trailer home will be solely responsible for any repairs and maintenance. Therefore, you do need to spend time with contractors and will save a lot of money over time.
- Luxurious options are available – Not all mobile homes are as basic as you may think. Because you will be spending fewer dollars on the purchase of the trailer home, you may have money left over to afford certain luxury items such as hardwood flooring, top-quality countertops, and other top-of-the-range fixtures. With higher-quality upgrades and accessories, you should be able to charge more on rental and find it easier to attract potential tenants.
- In high demand – Trailer homes are popular with many people who are searching for more affordable forms of accommodation. Every year, we see a rise in demand for trailer homes and, once they are rented out, they can easily become cash flow properties.
- Lower turner of tenants – Compared to single-family homes, apartments, and multi-family homes, trailer homes have a much lower turnover rate. This means less time stressing about finding new tenants and more time getting to build a relationship with your existing tenants.
- Very safe – Every mobile home is constructed according to the code standards of the United States Department of Housing and Urban Development (HUD). Therefore, each one is very safe so you do not have to worry about renting your property out if it is located in high-risk areas for tornadoes, hurricanes, and other natural disasters.
- Not as much competition – There are not as many trailer home investors as with other types of properties. With this limited competition, it means you have more opportunities to further your investments with manufactured dwellings.
Trailer home investment – Disadvantages
As with any form of investment, there are drawbacks to go with the advantages. Here are the most common disadvantages of investing in a trailer home:
- A quicker depreciation – Compared to traditional homes, trailer homes tend to depreciate a lot quicker. Although this is a positive from a tax perspective, it is not great news if you wish to resell the trailer home in the future.
- Requires land – When purchasing a trailer home, you may need to acquire/buy land on which to place the home. Alternatively, you can look for available space in an existing trailer home park which is usually pretty easy.
- Possible prejudice – There is a certain stigma associated with people living in mobile homes. Some people see these homes as options for poorer people while others associate them with danger and criminals. Therefore, finding tenants could be a little harder in some cases.
- Not as many financing options available – The majority of traditional lenders will not offer any kind of financing for mobile homes. This is especially true if you do not purchase land with the trailer home. This results in chattel loans being the only option left. However, these tend to charge higher interest rates if you need to leverage the property at any point.
Now we have considered the pros and cons of purchasing and investing in a trailer home, let’s explore the process of buying one below.
Purchasing a trailer home – The Process
If you feel that you are ready to invest in a trailer home, you should consider the process of buying one.
Below is a step-by-step guide on purchasing a trailer home to help you gain an idea of what to expect.
Various types of trailer homes
Firstly, you need to decide what type of mobile home you want to invest in. Overall, there are two main types of manufactured trailer homes:
- Single-wide units
- Double-wide units
The primary difference between these is the size. Double-wide mobile homes are twice as large as single-wide examples. Furthermore, the rooms in a single-wide unit are connected back-to-back. In a double-wide unit, the rooms are separated by a hallway.
We recommend visiting a trailer home park to check out the two options. Then you can decide which is the best option for you as an investor.
New or old
You need to decide whether you want to purchase a newly built trailer home or an older construction. Both have their pros and cons which you need to weigh up.
If you decide to opt for a new mobile home rental, you must take the time to research various retailers. Compare at least three or more retailers before putting any money down and making a final decision. We recommend searching and checking the reviews of different companies before you contact any to understand if they are reputable and reliable. You can also ask friends and family if they have any recommendations for trailer home retailers. There are also forums online that you can join to ask for help.
If you think a used trailer home is the better option, you can ask a local real estate agent to help you find any trailer homes for sale in the area you have chosen.
Consider the rental potential
Once you have searched for different properties and found a few you like the look of, you can visit Mashvisor.com. This is real estate investment software that allows you to analyze rental properties and their potential.
The tool allows you to enter some basic information for properties both on and off the market. Once you have completed this, the system will use rental comps from the property’s location and estimate how well it will fare when being rented out. This includes the rental income, cash on cash return, and cash flow.
You need to study the features of the trailer home, whether it’s new or old. Examine possible features that could have an impact on the resale value. This includes:
- Stainless steel fittings
- Granite countertops
- Wooden flooring
- Siding (this should preferably be vinyl)
- Pitched and/or shingled roofs
- Installed water cutoff valves
The financial options available
At the end of the day, you are looking to make substantial sums of money from your investment in a trailer home. Therefore, you must look for manufactured homes that lenders believe to be a “real property.” This will help you stand a better chance of achieving a traditional mortgage.
Properties that lenders consider “real” include:
- Those that sit on a permanent foundation
- Homes that are sold alongside the land on which they sit on
- The building was constructed after the new HUD standards came into place
If your trailer home does not fulfill these requirements, you can still finance the buy by using chattel loans. Just bear in mind that these tend to have higher interest rates.
Close the deal and have the trailer home delivered
Before you pay for your trailer home, many retailers will give you the option of including taxes, insurance, and warranties in the overall price. At first, these offers may seem seductive but we do not recommend taking the retailers up on them. You can usually secure these extras from a local broker for more affordable prices.
Once the sale is closed on your trailer home, you should find a reliable transporter service to deliver the home to where you want it to be installed. We encourage you to shop around and compare different quotes before you make a final decision on a transporter company. All in all, you should expect to wait around 2 days for the trailer home to be installed on average.
With sufficient planning and research, buying a trailer home can be a pretty straightforward process. If you take your time and consider the pros and cons as well as follow the proper guidelines, you should be able to enjoy a reasonable or significant return on investment from your trailer home rental.