Mrs. 1500 and I are in the process of closing on one of the biggest investments of our lives. We’re partnering with a couple of others to join the mobile home park investing boom. Our share will set us back $170,000.
And I know almost nothing about the investment. Buying a trailer park wasn’t on our radar. What could possibly go wrong?
Mobile Home Park Investing: How & Why
While we did wind up making the investment in a mobile home park, it wasn’t without very specific reasons. We analyzed our existing investments, considered how the mobile home park could fit in, and looked for how it could boost our portfolio.
Diversification
I love real estate and it has always been the goal of Mrs. 1500 and I to own rental properties. Since we moved to Boulder County in 2013, we’ve made offers on several, only to be outbid by cash buyers willing to pay ridiculous prices. I knew we would never own investment real estate in our town last year when a 4-plex sold. It came on the market for about $800,000:
- Me: $800,000 is just crazy. They’ll never get it.
- Mrs. 1500: Yep.
A bidding war broke out and the 4-plex sold for $960,000. We gave up on owning rental property.
But, there are other ways to invest in real estate. We’ve been doling out private loans ($290,000) and investing with syndicators ($200,000).
We love these deals. We make a healthy return with zero hassle beyond depositing the paper checks with a phone app. However, we weren’t done.
Our ideal portfolio balance is 50-50 split between the stock market and real estate. With our personal loans and syndication deals, we were at 66%/33% in the stock market and real estate respectively. Then came the opportunity to invest in a mobile home park…
Trailer Park Puzzlement
A very wise friend asked us last month if we’d be interested in a mobile home park investment with him and another partner. Similar to our other real estate investments, our role would be a passive one. The other two partners would manage the property. I like that a lot. I have enough things going on and don’t need something else to add to my busy days. However, there was a major problem:
I know nothing about trailer parks or investing in them.
I hit up the Google, but was quickly overwhelmed.
Too. Much. Information.
I dismissed the investment. I’m not going to throw money at something I know nothing about and don’t have the time to research. But then, I had another thought.
The other two partners are successful real estate investors. They both have years of experience and have executed many successful deals. Perhaps I was looking at the situation all wrong?
Instead of considering it an investment in a trailer park, maybe I should look at it as an investment in the other partners. Since I trust them, I can invest with confidence knowing they’ve done the research. So, Mrs. 1500 and I pulled the trigger on the deal.
Investment Numbers
The trailer park was under-managed for years and needs work. It will take at least a year to stabilize. This will take work, but I won’t be doing any of it.
Once all of the issues have been resolved, this investment has the potential to return around 14% or $24,000 per year. This will cover about two-thirds of our primary expenses. I’ll be thrilled if a $170,000 investment covers most of our spending. If we didn’t have a mortgage, it would cover all of it.
Another fun fact is that we invested in the mobile home park through our self-directed solo 401(k), so we’re not going to take a tax hit from it, at least not until we draw from the account in a couple of decades.
Would You?
After I reframed how I thought about mobile home park investing, I was comfortable with it. And this isn’t much different than how I think about some of stocks that I own. I invested in Tesla because of Elon Musk, Facebook because of Mark Zuckerberg and Berkshire Hathaway because of Warren Buffett/Charlie Munger.
I admit that it still feels weird throwing $170,000 at an investment that I’ve never seen and know nothing about. However, I don’t lose sleep over it. Time will tell if this was a crazy brilliant move or just crazy stupid.
And there is a lot more to tell. I haven’t gone into any of the numbers or details about the park, but I plan to in future posts.
Would you do join the mobile home park investing boom?
One more thing: After realizing just how cheap it is to live in a trailer park, I had this conversation with Mrs. 1500:
- Me: We have $400,000 in equity in our home!
- Mrs. 1500 (with deep suspicion): Umm, yes?
- Me: We could sell it and move into a trailer!
- Mrs. 1500 (very firm): No.
- Me: But we could then invest the $400,000 and live for dirt cheap!!
- Mrs. 1500 (even firmer): No.
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Wow make sure you get tornado insurance…. 🙂
That’s my knowledge of trailer parks. Huge congrats though! Sounds to me like you invest based on trust and inspiration, and those are two good things. I can’t say I’d do it, but then again I don’t know the two partners. I’m sure you’re a good judge of character (you hang out with dinosaurs…), so you’re going with your gut. I like it!
Accidental FIRE recently posted…Sensationalizing Risk
Tornadoes! That was my first thought too. Luckily, they are rare in this part of the country!
Trailer park, eh? You’ve got me scratchin’ me chin now, matey… I can certainly relate to the madness in competition for real estate. Here in MPLS, houses that as recently as 2014/15 were going for 150K are now going for nearly 200K. So, I’m out too. My latest “branch out” for property #5 was a condo in northern Michigan (to spy on Physician on Fire and Adventure Soon to be Riches.)
Good luck on this endeavor, And even though you don’t have to worry about ‘nadoes, do keep an eye out for those trailer park girls going round the outside. They’re devious.
“do keep an eye out for those trailer park girls going round the outside.”
Oh man! So much more I could say, but I have to keep my mouth shut or else I’m going to get myself in trouble quick!
That is awesome congrats. Ive went to a real estate seminar and he briefly talked about how profitable trailor parks are. I have invested in family numbers who are very successful and knew a but about the investment but choose to go ahead because in the trust of the people.
Best of luck sounds exciting. Is it on water?
Cheers
Trailer parks are awesome because you don’t have to own anything besides the land. There is little maintenance! And yeah, it’s a couple hundred yards from a beautiful river.
Have you checked the FEMA Map Service Center (msc.fema.gov) to see if it’s in a Special Flood Hazard Area (flood zone)? As a Certified Floodplain Manager, that would be my first concern. There are specific elevation and siting requirements in flood zones.
Otherwise, sounds like an interesting investment.
Yep, this was actually one of my first concerns since it’s near a river.
A 14% return is pretty sweet! If I trusted the guys and it did not make up more than 10% of my portfolio, I’d probably do it also. Do the other two investors get an extra cut for doing the management?
Side question. Why 50/50 between stocks and RE? I’d love to know the logic behind that split.
Jason@WinningPersonalFinance recently posted…The 9 Biggest Money Regrets of 2017
50/50! I just pulled that split out of my behind. Well, kind of. The number isn’t static. With markets high, I wouldn’t mind pushing it to 60-70% in favor or real estate. When we have a big correction, I’ll redeploy money back into the markets.
Now that’s interesting, we are doing exactly the same. Currently have about 70% in RE and the rest in the stockmarket/other investments. Hoping to put some money back into stocks during the next correction from the cash-flow of the RE investments.
Great post – loved the title.
I’m with you on the challenges of direct rental property; we’ve never owned a property yet (even our primary residence), but we plan to do so in the future. Living in NYC for 8 years and now Chicago the last 2.5 have just made it unrealistic earlier in our careers / lives – mostly due to the higher entry points. We’re about 25% in real estate though but all via REITs as we’ve commented on recently.
On your question, as mentioned, I’m no real estate pro, but I have visited trailer parks multiple times 🙂 . From some personal experience with a family member and a trailer park from a single “unit” perspective:
– My Uncle and Aunt have owned a place for years – a “fixed” trailer in southern New Jersey near Sea Isle City. It’s about 15 minutes from the beach, so cheaper than closer to the actual water. Popular location.
– The trailer can be moved, but it’s got an extended build-out, so it’s more like a half trailer and half mini house (2 bedrooms, 1 bathroom, kitchen, and living room). It has a porch built around part of it, running water, electricity, AC, internet, TV, etc.
– The utilities are all connected throughout the trailer park – err campground site.
– The community probably has a few hundred lots, some of which are for the “permanent” residences or those that can live on-site when inseason from like April through October or something like that. There are also campground sites, spaces for tents, lots for visiting trailers, etc.
– The grounds also have a few pools, bars, and other convenient stores – it’s a gold mine really based on the prices the people pay for a lot of land to park a trailer.
Like any investment, as you said, time will tell. So many other variables to consider as well.
Mike @ Balanced Dividends recently posted…My 20 Year Addiction – 9 Things I’ve Learned
These things can be gold mines! The one I looked at yesterday had 200 spaces with an average rent of $800. All trailers are owned by the occupants. So, the owner of the park is bringing down $160,000/month before expenses, Crazy.
Good point regarding the ownership structure. I’m not certain if your respective property or the one you looked at yesterday is open year-round, but that can also make a difference on the bottom line.
Like any rental, if you have vacant units (or I guess spaces in this instance), you can rent them out. That said, it might be cheaper to just close the whole place for a few months if people don’t live there permanently and the off-season demand is low.
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Interesting question. Most of us have a lot to learn about investing, and sometimes ‘diving in’ is a good way to learn and grow your circle of competence.
I wouldn’t just let this one slide-bye as a completely passive investment though. You have good opportunity to learn a lot here, both from your partners and from the business itself.
Don’t let the opportunity disappear, and good luck to you Carl!
Mr. Tako recently posted…Let Your Best Investments Run
Perhaps you can cash in on a trend and convert it into a tiny house community…
Ha, I thought of that! Maybe…
I’m gonna go on a limb and say that this will be an extremely rewarding investment for you. I can’t recommend enough Frank Rolfe’s boot camp with Mobile Home University. One of the best trainings I’ve taken in my life. Enjoy the benefits of being a Mobile Home Park owner!
Thank you for the tip!
It has been a few years since I stumbled onto your blog. Nice to stop back and read a few articles 🙂 Love the realization you made about investing in the people rather than the unknown. Like previous commentors have said, I highly suspect you’ll smile at this investment in a few years time.
Speaking of real estate investments, did you ever try out PeerStreet? I’m giving it a hard look right now having met the requirements to be an accredited investor within the past year. Would love to hear your thoughts if you took the plunge.
Dan B recently posted…A Deal With The Devil
I love PeerStreet and would invest in it if I didn’t have my private loans (kind of the same thing as PeerStreet).
Yup! Have been looking at buying one for years, but can never find the right deal. I would defiantly do it from a passive standpoint. Good Luck and look forward to reading more about this!
FIbythecommonguy recently posted…Moving, Packing and Unpacking
I dig it! I think bigger RE deals like this one, as well as lucrative private businesses are a great next step after FIRE.
Mr. PoP recently posted…Happy Friday – Hurricane Who?
Yep. When are we gonna partner on something? 🙂
Wow, didn’t see this coming. It’s great to be in a position where you can take on this type of opportunity. This is my favorite part: “This will take work, but I won’t be doing any of it.” Congratulations and looking forward to hearing more on how this investment pans out.
I think this is going to work out great for you. Back in my university days when I first hatched the FIRE plan, I was planning to build a trailer park empire (it wasn’t so easy to invest in the stock market in those days, Online brokers were still pariahs.) It can be a great business. There can be drawbacks if you attract riff-raff and don’t take strong action to remove them. But usually it is a cash gushing machine.
I turned to selling options but would still like to get some rental RE. Would love to find a passive way to do that like you have. Good luck@
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Good luck. HOpefully the investment goes well. The details on how the improvements were going to be funded were a little light, but it sounds like you at least have a good partnership agreement to start things off. Look forward to hearing more details along the way.
Money Beagle recently posted…2017 In Review
Improvements! So, our plan is to always keep $25,000 in reserve. However, we’re going to start off with $75,000 to fund repairs. We also won’t take a profit until the park is stabilized.
This sounds like a great investment. Now, sell you house, lose your mortgage, and move onto your new property (maybe on an end lot away from most of your new neighbors)!!!
brian @ singledadmoney recently posted…STOOPID, WEAK ASS GOALS – 2017 Goals review
Ha, I suggested this very thing to Mrs. 1500! It would free up $400,000 to invest! Despite that, she was NOT onboard.
If you’re looking to invest I got deals all over the place around here. Only thing stopping me is a lack of funds at the moment. Good luck with the trailer park! Errr…… mobile home park.
Hmmm, if our paths cross in Florida, let’s talk!
That is very cool! We have thought about trailer parks or maybe RV parks. A lot more daily work on the RV side. I love the idea of just investing in the people. I like hands off things in my life. And a 14% return in awesome! It’s great to have that income diversity. =)
Jillian recently posted…It’s Time to Quit
I think an RV park would be fun! You’d cross paths with a lot of cool people with interesting stories.
I know the last thing one considers when making an investment is the consequence of loss. If the deal doesn’t work out, investing through a retirement account prevents you from claiming a loss on your tax return…
True. I’m not worried though. Kind of like what you said, I never go into an investment expecting a loss.
One of the things I really like about this park is it was in very poor condition. We’re getting the property for just a fraction more than the land is worth (we had an independent appraisal). With that in mind, one of the investors is locally and has managed properties for years.
If there was a negative, it’s that neither of the other partners have ever managed a trailer park.
I’ve always dreaded even touching a trailer pole with a 100 yard stick. But after hanging out with the @biggerpockets crew, and other @realestate investors at fincon, and talking all subjects real-estate related, I gained an entirely different perspective on investing in trailer parks. I don’t think I’d want to lead the deal, or run the operation, but as a money play, the knowledge I gained sounded like they can be lucrative investments if you had the right team in place. If I had an extra $170K laying around, and the right team to lead it, I’d do it. Go 1500’s!!!!!!
On the surface, they do look scary. And holy crap, believe me when I say that this one is the poster child for a bad park. However, that’s also what makes it great. My partners will bring it up to speed and everything will be OK. At least I hope so! It probably doesn’t hurt to like a little drama in your life like I do!
I’m a little bit of a financial drama fan too. You can’t experience the amazing highs in life, if you’re not willing to risk a few lows along the way. 🙂
Yep. No one ever did anything great by taking the easy and/or comfortable path.
This is awesome! I actually have looked into buying one earlier this year, as they can be a great investment, but most were out of my price range. This should be a great investment for you guys! I am interested in how this will turn out.
Me too! Stay tuned for updates!
Hey, we were ready to plunk down like 10% of our net worth to buy Rockstar Finance, so we are always game to invest in something that I think will pay off. We probably wouldn’t fork over $170 Gs, though, but that’s only because our net worth isn’t nearly what yours is. Based on percentages, though, your investment was very similar to the one that we nearly made.
So – hell yeah. Only live once, right? Take some risks.
Sounds like good rationale to me.
Our attorney owns a trailer park (and two houses on the lake here…) So they are definitely something to consider. Being a passive partner on the deal is the best. You don’t need to turn it into a job. An RV park reminds me of AirBNB vs. regular monthly/annual rentals. It could be great fun to meet folks, but it is way more work if you are involved in the day to day management. Can you share what kind of interest rates you are bringing in on private loans you do? Are they short or long-term? Thanks 😉
Vicki@MakeSmarterDecisions recently posted…Scaling Up Our Lake House Renovation
Just went and read the article you linked. We’ve never done that kind of investing – but hope to do that in the future. I need to do more research on that though!
Vicki@MakeSmarterDecisions recently posted…Scaling Up Our Lake House Renovation
Ohhh a trailer park. That’s brilliant!! Stop giving me ideas!
WOW what a brave decision. I think its hard sometimes as you can wait for ages for an investment opportnity to come along and then when one does, your ususally totally unprepared! I think I would have chosen to invest. Like you said your not just investing to get a return (although thats not a bad reason) but your also investing ijn the other partners. Who knows, once this has taken off you all may end up investing in other things together and the combined returns will hopefully cover ALL your living expenses!
Little Miss Fire
LittleMissFire
That sounds like a very interesting investment, that will pay dividends for you. I love the turnaround potential, as well as the high cap rates.
Question: Who should I be nice to, so I can get to become a passive investor like you in a trailer park?
Dividend Growth Investor recently posted…Attractively Valued Dividend Kings
“Who should I be nice to, so I can get to become a passive investor like you in a trailer park?”
Listen to the BiggerPockets podcast and figure out who the smart people are…
Maybe you should go back to Mrs. 1500 and try to convince her to get a triple wide. Maybe that would change her mind. I have even viewed some trailer parks that have garages now. Maybe they aren’t so bad. Congrats on the investment.
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Very cool Carl! Hope it turns into a good investment for you and the ladies of the house. Looking forward to updates on this.
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I suppose it could work out ok or really well if those guys know what they are doing. But $170K sounds a bit much for you to toss in for something like that.
Ha, I like to live on the edge! Go big or go home.
Nah, I’m not that illogical. The cool thing is we’re buying it for like $1,030,000 and an independent appraiser said the land along is worth $1,000,000. I don’t lose any sleep over the deal.
Whenever you are ready to do a follow up post riddled with the numbers involved, I would love to read it. Good Luck.
Oh, hell yeah! I’m going to discuss it loads of details after we officially close and it starts brining in cash (or doesn’t!).
Hope you had some happy holidays 🙂
There’s an awesome bigger pockets podcast that says trailer parks are really good to own if you own the land (and not just the trailers). Sounds like a cool investment!
Can you only invest in non-traditional things with you i401k and not a corporate 401k?
Yeah, I heard that podcast too! We own the land and some of the trailers, but are looking to just own the former. Land doesn’t have many maintenance issues.
We can invest in traditional stuff too with the SD 401k: https://www.sensefinancial.com/solo-401k-faq/
Agree. My dad’s favorite saying is,” The only thing always in demand is land.” Looking forward to seeing some cap rates and numbers :)!
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Early on in my civil engineering career in PA, we designed a few mobile home parks or additions to mobile home parks. Here’s my take on a few issues we saw:
1. Zoning. Is this a use by right or use with conditional approval? If you ever want to make changes to the property and it is not a use by right you may run into all kinds of problems getting approvals from municipality. Zoning. Zoning. Zoning. Mobile home park zoning is a unicorn.
2. Is the park on municipal water and sanitary sewer? DO NOT TOUCH if it is not municipal water and sanitary sewer.
3. I was scolded by a Council Member one time for calling it a trailer park. It is definitely a mobile home park…never forget.
4. You will not have happy neighbors. And maybe not even a happy municipality. For one project we did the town tried to re-zone the property. The owner spent years in court and finally settled on a reduced units/acre than the original zoning.
5. What are the adjacent properties zoned for? Have you looked at flipping the property?
Thanks for your input. I think we’re good on all of these. Regarding #5, it is close to town, but there isn’t anything around it. Regarding flipping, if we get a really good offer, maybe. We’re mostly in it for the long term though.
The place is already established, but needs a lot of improvement.
And I have to stop calling it a “trailer park.” Perhaps I’ll invent a new term and before you know it, “mobile home park” won’t be acceptable. How about “raised home?”
“Manufactured homes” is also acceptable.
Maybe its worth taking a look at the adjacent properties to see if they are also zoned for “mobile homes” for future expansion.
Congrats! I hope this investment works out for you!
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You’re moving into trailer parks?
So much snarky comment potential. So little time. 😉
I’ll save them for when we see you next.
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The best research on running a trailer parks is to watch all of the seasons of the great Canadian show Trailer Park Boys. Perhaps your partners can find someone like Jim Lahey to manage the park for you?
Oooh, never heard of that one! I just looked it up! Looks like the Spinal Tap of trailer parks!
Congrats!
However, I would not get into this business as it brings more moral hazards than I would want to deal with. The main one being that most people in trailer parks have limited income and ability to generate more income to pay rising rents and other expenses. As an investor, I would want to maximize my return but as a human I would be putting people in very bad situations as they likely don’t have the money to move or the money to continue paying rent.
I believe there was a documentary done on this exact topic. Might be worth checking out.
For what it is worth, my goal for investments once I hit FIRE is to make money and keep my karma levels up. I hear she can be a bitch when you piss her off 🙂
Yep, I can relate to this. I have two thoughts:
1) The Mrs. and I won’t be involved in any of the management of this investment. The rules of a self-directed solo 401(k) actually forbid it. I don’t think I’d have bought it if I had to knock on doors to get rent.
2) The park was run by a slumlord type of person. We’re going to fix the place up including some beautification projects. We’ll make a life a little better for the folks who have to live there. At least I hope so.
Trailer parks all depend on the number of sites. You need at least 250 to make any money . I had a park with 78 sites and never made a dime. Then there is the water -sewer and electric you have to be aware of. Dealing with health dept for water testing and M.OE. for septic and sewer and electrical authority . Lots of potential liabilities. Then you need a manager who does not drink alcohol and is honest. They are hard to find. . You would think that dealing with the public in a nice setting would be a piece of cake, but most trailer park people like to complain about – their neighbors- dogs- kids- cars going too fast= boat docks- the stuff you sell in your store or restaurant ect ect ect. If your working a park yourself, expect to work 100 plus hours per week making your fuse so short you can explode like a firecracker. Good LUCK
Ours is doing pretty well with about 46 sites currently (we’re developing 4 more). Our returns for 2019 will be somewhere between 15 and 20 percent and should increase in 2020 as we sell units off.
Like you mention, one of the keys (perhaps the most important one) is to have competent brains on the ground running the operation. I’m thankful that we have a couple of great people working for us.