Why Investing in Mobile Homes May Be Great for Your Self-Directed IRA
Self-Directed IRA investors love real estate investing, and for good reason. One of its many benefits includes rental income, which can provide a steady cash flow that’s a big part of an IRA’s investment strategy. When housing prices are high and steadily rising, however, a good deal on a rental property is harder to find. It might be time to look outside the box…what about mobile home parks?
The Advantages of Mobile Home Park Investing
Single-family homes and apartment buildings may be the first thing you think of when you start looking for ways to earn rental income, but mobile home parks have a lot of advantages over more traditional types of rental property.
Lower cost per unit. With a mobile home park investment, you are only purchasing the lots of land, not the accompanying structures. While a single-family home or even a single unit in an apartment building can run into the hundreds of thousands of dollars, a mobile home park generally results in a lower per-unit cost.
Lower expenses. You’re just leasing the land to a mobile home owner; you don’t have pay for repairs or maintenance to the home itself. While you still have some expenses, such as maintenance of common areas, these capital expenditures may be less than the cost of upkeep on a building.
Lower turnover. Tenants tend to stay in a mobile home park. Moving a trailer can cost several thousand dollars, which is cost-prohibitive for most owners. Turnover results in loss of rental income during vacancies, and low mobile home turnover reduces this risk.
Higher demand. Chances are even if you lose a tenant, it won’t be that hard to find a new one. Mobile homes are gaining popularity as more and more Americans seek affordable housing. Mobile home purchases give low-income families the opportunity to own their home and begin to build their own wealth.
Easier to acquire. Mobile home parks are less popular among investors. While there is often a lot of competition from both individual and commercial investors when purchasing the more common rental properties, you may have an easier time purchasing a mobile home park and be more likely to find a deal.
Self-Directed IRAs have certain limitations when it comes to investing in real estate including:
Prohibited transactions. The Internal Revenue Code has rules for IRAs that apply to disqualified persons, which include the IRA owner and certain family members. With a mobile home park investment, some common prohibited transactions by a disqualified person may include: buying a park from or selling a park to an IRA owned by a disqualified person; personally performing maintenance for a park owned by YOUR IRA; paying expenses for, or taking income from a park owned by an IRA of a disqualified person.
UBIT. Unrelated Business Income Tax (UBIT) could result if mobile home park investing became more than a passive investment to provide rental income, or if the purchase of the park was financed. The resulting tax must be paid out of the IRA’s funds.
Due Diligence. As with other real estate investments, mobile home parks require serious research. For example, you should be able to determine the park’s real market value within its neighborhood as well as understand its expenses and potential returns in order to ensure that it’s a sound investment. As with all Self-Directed IRA investments, be sure to do your due diligence. Such items as flood potential and mineral/gas leasing opportunities may be found on a mobile home park property.
The Bottom Line
While you may be able to find hundreds of mobile home parks available for sale using a variety of real estate platforms, they won’t all be a good investment. You may not want to go it alone, or at the very least you need to do your homework to make prudent decisions. The bottom line, however, is that mobile home park investing has the potential to be a profitable addition to your self-directed IRA. Don’t hesitate to ask an iPlanGroup representative about your potential investment in a Self-Directed IRA; we can help to guide you with knowing what is possible and permissible with retirement funds.