So you’re looking into the concept of investing in mobile homes to make a high rate of return on your money. There’s no question that the demand for affordable housing is definitely working in your favor. But should you rent or sell those homes? That’s a great question, and one worthy of some discussion before you decide.
The SAFE Act
Enacted in 2008, this law requires you to get a mortgage license before you can create mortgages on mobile homes. Dodd-Frank, enacted in 2010, further regulates what you can and cannot do when selling a mobile home and carrying back financing on it. If you sell a mobile home (except for a cash sale) and carry back the financing, you will be subject to these laws, and must stay in conformance with them. This has led many mobile home investors into renting rather than selling the homes. For more information on the SAFE Act laws in your state, consult your state’s Manufactured Housing Association. The SAFE Act has no impact on renting mobile homes.
Dealer’s License Requirements
If you sell more than a certain number of mobile homes per year, you are also subject to obtaining a mobile home dealer’s license. Consult your state’s Manufactured Housing Association to see what the laws are. If you rent mobile homes, you do not need a dealer’s license.
Foreclosure vs. Eviction
When you sell a mobile home and carry back the financing – and the buyer defaults on the note – then your only recourse is to file for foreclosure. This can be an expensive and time-consuming endeavor. In some state, it can take 6 months to a year to obtain the foreclosure, and cost thousands in legal fees. When you rent a mobile home, you only have to file for eviction. An eviction, by comparison, can be completed in 60 days or less, and costs a few hundred dollars.
When you sell a mobile home, you are responsible for certain warranties of condition and title. When you rent a mobile home, you are only responsible for what are called “the minimum habitability laws”, which specify such things as that the heater works.
Repair & Maintenance
This item definitely appears to be in the favor of selling the mobile home. Mobile homes are normally sold “as is” and you do not do any maintenance on the home. If the toilet breaks, it’s the buyer’s problem. However, if you carry the financing, there is always the chance that the buyer will default on the mortgage and, when you get it back, you find the home was destroyed due to a plumbing leak or other repair item that the tenant never completed. So there is some amount of argument on whether ot not you are helping yourself by not staying on top of repairs as the landlord. When you sell a home for cash, then this issue does not apply.
Quality of Tenants
Those that think of the property as theirs make the best tenants. And nothing makes it more “yours” than buying it. This makes the tenant a “stakeholder” in the business, and they will generally keep the property in a better condition than a mere renter who does not plan on living there that long.
There is no right or wrong answer to the question “should I rent or sell the mobile home”? But you will probably be able to clearly see what works best for you after considering the issues involved. Educated decisions are the best ones.
Frank Rolfe is a mobile home park investor and owns over 100 parks with his partner Dave Reynolds. Frank also leads regular Mobile Home Park Investing Bootcamps through www.MobileHomeUniversity.com.