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.