Does the myth that mobile homes depreciate in value keep you
from investing in them? Well, they do lose value in a park,
on a rented lot. Mobile homes with real estate, however, are
an entirely different investment.

My mobile home doubled in value in the twelve years I lived
in it. The home deteriorated a little (don't all houses?),
but the value of the land continued to rise. Also, by
renting rooms, I took in far more money from my home than it
originally cost, and I was living in it!

Forget your prejudices and look at the numbers. In this
town, for example, a two bedroom house rents for $800/month,
and costs about $120,000. A mobile home gets $500/month, but
you can buy one on real estate for $50,000 or less. The
cash-on-cash return on investment is obviously higher with
mobile homes.

What about the long term return from appreciation? House
rentals here typically have negative cash flow, while mobile
home rentals at least break even. Investors prefer houses
anyhow, believing they'll build equity faster, but is that
true?

Faster Equity With Mobile Homes

Buy a house for $120,00. Put $20,000 down, and you'll have a
$100,000 mortgage loan. Amortised over 30 years at 6%
interest, you'll have a payment of $599.60. Of the first
payment, $500 will go towards interest, $99.60 towards
principal. In other words, you only built equity of $99.60.
I'm ignoring appreciation, but only for the moment.

Second scenario: Find a nice mobile home for sale, and
borrow only $30,000, at 8% interest, amortised over 10
years. Note the higher interest - this is always the case
with "factory built home mortgages." The shorter term is
normal too, so you'll be done with payments in 10 years
instead of 30.

Now, despite higher interest and a shorter term, the payment
will be only $363.99. The first month, $200 will go towards
interest. That means the other $163.99 goes towards
principal. You bought more house (built more equity) in this
scenario.

A mobile home on land might appreciate more slowly than the
"regular" house, but faster loan pay-down covers this
factor. Pay less per month and build more equity! Don't
expect your real estate agent to tell you this. Don't expect
him to even agree with me after you explain it. I sold real
estate years ago, and math skills were not part of the
licensing requirements.

Cash Flow With Mobile Homes

In the example given, you'd initially lose about $150/month
on the house, after your payment, taxes, insurance repairs
and other expenses. You'd break even or better with the
mobile home, and after the loan is paid (ten years), you'd
have a lot of cash flow, of course.

Mobile homes are cheap to maintain. The furnace died in
rental I owned, the most expensive repair you'll have in a
mobile. I replaced it for $1,200, much less than a furnace
for a larger home. For $200 you can have a mobile home roof
tarred, instead of $5,000 to re-shingle a traditional roof.
Windows, plumbing, doors - they're all cheaper.

Property taxes cost less, because they're based on value,
and mobile homes have a lower value than stick-built houses.
Insurance will cost less too, because you are insuring less
value. The only precaution to remember here is to be sure
you can get insurance. Very old mobiles may be uninsurable
in some areas.

The Bottom Line

Mobiles have their own problems. Renters who have to rent
for less sometimes pay late, for example. These issues are
minor compared to the advantages. Your twenty thousand could
buy you two mobile home rentals, with ten thousand down on
each, instead of one negative-cash-flow house, for example.

Take an honest look at the numbers. The two investors in my
town that own most of the mobile home rentals always have
cash flow, and have millions in equity now. Other investors,
following their prejudices, struggle to make money with
their "nice" rental homes. So don't automatically pass on
those mobile homes for sale when you're looking for a good
investment.


About the Author
Steve Gillman has invested in mobile homes and other real
estate for years. To learn more, and to see a photo of a
beautiful house (not a mobile) he and his wife bought for
$17,500, visit http://www.HousesUnderFiftyThousand.com