Living In Mobile Home To Save Money

Living In Mobile Home To Save Money

Save Money: Buy a Mobile Home

It is a common trope that mobile home park owners are cigar-chomping sleazebags who squeeze park tenants dry of their last cent. Believe me, I know the stereotypes — I own mobile home parks, and I watch late-night TV.

But — is it true? A close look at a numerical example indicates that manufactured housing is the cheapest form of non-subsidized housing available today. That's good for me, and it's good for my tenants.

To examine the true cost o f buying a mobile home and renting a mobile home lot in a park, let's look at the housing costs of two hypothetical tenants. Assume that, in Year 1, Tenant A buys a mobile home that is located in a park, and Tenant B rents an apartment. Who comes out ahead?

In the example, Tenant A buys her home for $20,000 in Year 1. To buy it, she puts $2,000 down and borrows $18,000 at 10% interest for ten years. Her payment on the loan is $237.87 per month; this will remain stable over the full term of the loan. Lot rent in the park where the home is located is $350 in Year 1 and will increase by 3% each year. She expects to sell the home for $15,000 in Year 10.

Tenant B rents an apartment in town for $850 per month for ten years. Apartment rents increase by 3% per year. After ten years, Tenant B moves out.

If we assume an annual discount rate of 5%, the present value of Tenant A's housing costs for ten years will be $53,364. the present value of Tenant B's housing costs will be $92,640 [1]. In other words, the cost of renting an apartment is almost three quarters more than the cost of buying an equivalent mobile home in a park.

Now, let's assume that lot rent is $450, and apartment rent is $850. The present-value cost of renting an apartment is still $92,640. The cost of a mobile home is $64,262. That's more, but still significantly less than the cost of an apartment.

When I price lot rents, I try to make them a little less than half the price of apartment rents. Let's say a 950 SF apartment in town is renting for $800 a month. A 14 x 70 single-wide should go for a little less than half that. If lot rents are #385 a month, the present-value cost of living in a mobile home will be $57,178. By contrast, the cost of living in an apartment would be $87,190. buying a mobile home is still a bargain.

How high would lot rents have to go to achieve equilibrium? If equivalent apartment rent is $850 per month, lot rent would have to increase to slightly more than $700 per month, for the present value of Tenant A's housing costs to match those of Tenant B. That would be insane. Lot rents in my park in central New York are $390 per month this year, and lot rents in my park in northern New York are $330. Lot rents vary broadly nation-wide, but for non-lifestyle parks, i.e. clean, no-frills parks that serve people who need affordable housing, they generally range from the low $200s in the southeast to maybe the mid or high $400s in the northeast and California. There is no way my lot rents will approach $700 per month until well after I am in the old folks' home, drooling on myself and begging my kids to pull the plug. And when that happens, apartment rents will be much higher.

These numbers are not trivial. Our tenants are faced every day with what economists call the decreasing marginal utility of money. That is a fancy, Latinate way of saying that your top dollar is always worth less than your bottom dollar. Make $20,000 per month? $100 is probably money for good dinner, a bottle of good scotch, or some craft beer. Make $500 a month? That money will go to feed your kids, buy school supplies and diapers, and maybe blood pressure meds or beta-blockers. You can save a crap-ton by living in a mobile home instead of an apartment. When all you have are bottom dollars, that is important.

Conclusions: (i) the market for lot rents is inefficient; (ii) this is good for the people we serve, and (iii) this is good for me as a park owner. My job is to provide clean, safe and affordable housing to people who need it. And affordable means a lot to my tenants.

[1] For a breakdown of the math, see https://dirtlease.com/numbers/.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions

Living In Mobile Home To Save Money

Source: https://themakingofamillionaire.com/the-titillating-story-of-the-economic-inefficiency-of-mobile-home-park-rents-4faeb9be0026