From my perspective as an investor, mobile homes are even worse than condos.
You think you are a ‘homeowner’ but you don’t own the land you are sitting on.
My electrician has owned his mobile home in east county for many years. When rents were rising so quickly in 1998-2004, the rent on his trailer pad increased by a factor of 4. He is paying $600/month to rent the pad that his free-and-clear home sits on.
And don’t kid yourself about a mobile home being mobile after it has been placed onsite and lived in for a few years. If you buy a used mobile home you should assume that it is going to sit right where it is for the rest of its life.
The ‘tax deduction’ is one of the many real estate myths that have been fed to the American people for years. Forgive me for being long-winded but …
The reality is that there is no tax benefit to owning real estate until the mortgage interest you pay exceeds the standard deduction that everyone gets when filing their taxes.
As a single person I get a $5000 standard deduction on form 1040. If I choose to itemize my expenses in order to claim mortgage interest, I GIVE UP THE $5000 DEDUCTION. And therein lies the myth.
Let’s use some example numbers to clarify.
Your friend pays 100K for the mobile home and gets 100% financing at 6.5% interest only. That means he will pay $6500 in mortgage interest each year and will enter this amount on schedule A of his tax return. He loses his standard deduction of $5000 but reduces his taxable income by the $6500 paid in interest. At a 30% tax rate that means a tax savings of $1950. But don’t forget that he has spent $6500 on interest so his net position at the end of the year is: DOWN $4550.
If the same person remains a renter and keeps the standard deduction he saves $1500 in taxes and doesn’t spend any money on interest. His net position at the end of the year: UP $1500.
I’m being very simplistic in this example. There are other reasons for itemizing deductions besides real estate and everyone’s tax situation is different. My point is that owning real estate is not the tax paradise that it is portrayed to be. Don’t use the ‘tax benefit’ as a reason to buy real estate.
(And the reason these cheap units aren’t getting snatched up is because no investor wants them. If it made economic sense to own the units an investor would buy them. The only way mobile homes make sense is if you need a place to live and you’re willing to live in a trailer.)
