The best part about reading tons of books is that eventually, you’ll start comparing things that people usually don’t compare. Today is one of those cases as I look at self-storage, mobile homes, and RV parks.
However, I will not be looking at the sprawling, mega-acre versions of these businesses. Those huge properties are commercial entities and require vast amounts of capital to start. Today, I want to look at the super-small versions of those entities.
I am talking about what the average person can achieve with one acre of land. The idea is to have your primary residence on your land, and with the remaining portion, create passive income via one of these types of businesses.
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I will eventually make similar comparisons with larger blocks of land, but today, let’s start with one acre of land. I will compare three criteria for each business; business model, costs, and passivity. With no further ado, let’s jump right into the comparisons.
Background reading. First, I want to list the books I have read that have helped me get some background on the topics. The books I read are “Growing Wealth in Self Storage,” “How to Invest in a Mobile Home Park,” “How to Start, Run, and Grow an RV Park.” Together, the information from these books is invaluable to making these comparisons—even when talking about the scaled-down versions of these entities.
Self-Storage Business Model. If you own one acre of land, with about three-fourths of the land available for a self-storage business, you have enough to make a good amount of passive income. The business model is simple, buy pre-built barn houses that you can rent via existing websites.
Self-storage has seen a huge spike upwards in the last ten years. Look around on your way to work and see how many self-storage businesses have sprouted up. In fact, I list Public Storage (PSA) as one of my 24 favorite blue-chip stocks.
Your mileage may vary in how to find and deliver a barn house to your location. In Florida, my wife and I bought a 12×32 deluxe lofted barn. It is enormous and can hold a fair amount of storage inside it, especially with two additional lofts above the ground level.
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You can rent your self-storage on Neighbor.com. They say that I can rent my barn for $180/month in my part of America. Again, your mileage may vary. This is where it gets interesting, though. If you have more space on your land, you can add additional options.
You can pave some of your lots and add vehicle (car, boat, motorcycle) storage. You can also add climate control and security options to your listing. You can probably get your listing to sell for $300/month if you take it seriously. And, of course, you can add multiple barn houses.
Self-Storage Costs. Getting one barn house should not break the bank. We bought ours in 2020 (during the pandemic) for $8,500. If you took a five-year personal loan at 8%, you would be looking at $172/month in debt service. Not too bad.
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You would also need to pay one-time costs of fences and security if required. The website pays for some insurance on your property and theirs, which is an excellent reason to go through the site versus starting your own business directly.
If you like the service, you can also rent out your garage. This method would be a little more personal but would cost no additional cash. If you rented the barn house for $300/month and were paying $172/month in debt service, your business would be in an infinite return. This means that you would be printing money.
Self-Storage Passivity. So, how passive is the self-storage business at this small level? It is very passive. Once you receive a client, you arrange the terms and how often they could visit their belongings. You don’t need to allow them to access 24 hours a day.
It would be even better to fence off the portion of land for the barn house. You could build a key entry at the front gate and have a lock on the barn house. It may take some cash upfront, but at least the clients wouldn’t have to disturb you.
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This is about as passive as a business can be at this size level. If you were retiring overseas, you might need someone to oversee the business, but hey, that’s what adult children are for, right?
Mobile Home Business Model. The business model for a mobile home is simple, buy a mobile home and rent it to tenants. Mobile homes are large, and you most likely could only fit one additional home on your property.
Now, I have a good question for you? Do you rent the entire mobile home to one family or divide the house into room rentals? Only you can decide what’s best for your business. Here are the pros and cons.
A single-family is easier to rent at first. However, you also lose the ability to enter the home without request. Room rentals allow you to walk through common areas as you desire but have more tenant turnover.
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As someone who rents rooms and also entire houses, I would go with the room rental method. You stand to make more money, with more control because you can rent month to month. If you have a bad tenant, thirty days later, you can remove them.
Mobile Home Costs. Mobile homes can be expensive, depending on the size. If you can only fit one home on your property, you might as well go big. I think the sweet spot is a two-bedroom, two-bathroom.
If you can get your mortgage under $1,200/month, you can charge at least $800/month per room. Rents would only rise with time, keeping pace with inflation.
Now, getting a mortgage with a mobile home is much more expensive than a traditional home. That is because you will not get the lowest interest rate available to sticks & bricks (standard dwellings). I would assume at least 3% higher than a typical home.
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This scenario would be one of the rare times I recommend buying the home with cash or putting in a large down payment. Paying 6-7% for a home is not a good thing versus 2-3%. You must crunch the numbers and develop a realistic cash-on-cash return that would give you a solid return. Mobile homes don’t appreciate in value, so your rental income is the profit-maker—take this seriously.
Mobile Home Passivity. Anything dealing with tenants will require time and attention. Yes, rental income is passive, but you will have to spend 5-10 hours a month dealing with tenants and maintenance issues. That’s just a part of the game.
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As rents increase and your mortgage stays the same, you start to see the fruits of your labor. Once you pay off the mobile home, you’ll have a mega cash-flowing property that could easily set you free from working a job. Keep a long-term mindset in the rental business.
RV Park Business Model. Starting a small RV park on your land has three main ways to make income. I listed these ways in the article “The Business of RV Life.” First, you can build the RV hook-ups and rent them on a daily or monthly basis. You would basically receive “lot rent” for RV’ers to park and hook into your power, septic, and water.
Second, you can create the hookups, buy the RVs, then rent the RVs as long-term rentals. This would be a form of house-hacking, where you would rent the RV to long-term tenants. It would be the same as a room rental, but I would personally like to inspect the RV once a month. People don’t take care of your stuff as you can.
Finally, you can build the hook-ups, buy the RV, and do short-term rentals via Airbnb. The benefit to this is you could use your RV during off times. You could also inspect and clean the RV after each use, ensuring that the lousy renters would pay for damages.
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RV Park Costs. You would need RV hook-ups for each method. I would assume each hook-up costs $5,000-$7,500. That may be high, but we are in a labor shortage, so prices are steep.
Next, you may need to buy an RV or two because RVs run a range of prices and sizes. I recommend starting small. People are renting RVs for affordability, so they don’t need all the bells and whistles.
A good rule of thumb here is that you should be able to double your debt service with rent. So, if I bought an RV for $500/month, I should be able to rent for $1,000/month. Keep messing with the sizes and configurations until you can achieve this number.
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You can use leverage to buy your RV. Once you have a good business model, you can repeat it on the other side of your property. Getting good tenants is the most crucial part of this business. RVs are more fragile than homes, and you don’t want someone ripping up your RV.
RV Park Passivity. If you can find the right tenants, the first method is the most passive. Set up an RV hook up, fence it off, create a friendly environment, and seek renters. You would have hit the jackpot if you found an excellent renter with a lovely mobile home and quiet demeanor. Keep searching until you find the best tenants. Chances are, they will stay for an extended period.
From there, the second method (room rental) is relatively passive, except dealing with tenants. Using Airbnb is not very passive, but it allows you to check on the RV when there are no tenants. I consider that a huge win because you can charge bad tenants through Airbnb.
With the right amenities and seasonal outlook, Airbnb will net you the most cash but also the most work. Maybe you could use Airbnb until you pay the RV off, then move to a long-term rental model. Life is about being flexible.
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Final comparison. As you can see, there are lots of options when starting a small, passive business on your property. I would start by asking myself some questions.
- How much time do I want to spend on this business?
- How passive do I want the business?
- How much money do I have for the initial investment?
- Do I want to assume any leverage (debt)?
- How much money do I want to make per month in the short term?
- How much money do I want to make per month in the long term?
Let’s do a quick scenario and see what answer we can ascertain from our responses.
- How much time do I want to spend on this business? 3 hours a week
- How passive do I want the business? I have time to handle the business
- How much money do I have for the initial investment? $3,000 cash
- Do I want to assume any leverage (debt)? Leverage is okay
- How much money do I want to make per month in the short term? $200/month
- How much money do I want to make per month in the long term? $500/month
Looking at these answers, I would recommend starting a self-storage business. The entrepreneur can start by purchasing a barn house and using the $3,000 down to lower the payments.
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Then, they can pay off the barn house in two years with the cash flow. To diversify, they can then use the cash flow to purchase RV hookups. I would rent my hookups to an excellent tenant, netting me $400/month in passive income. Once complete, I would save up a nice little emergency fund of $10,000.
Finally, I would use leverage to buy an RV for roughly $30,000. They usually ask for 10%, which would be $3,000. The entrepreneur (you) has three potential revenue streams; a barn house, RV hookups, and an RV.
Conclusion. You can see the power of reading and forming a long-term mindset. The idea is to build wealth slowly. The wealth you create will not be fleeting—which means it is long-term wealth. It is such because you understand the ins and outs of your business model. You can recreate a business from the ground up in any circumstance and situation.
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I tried to cram a lot of information into a few words, and the article is still over 2000+ words. However, sometimes it’s good to stretch our digital legs. All of these options offer viable business models that are proven to work.
In the article “Multi-Generational Investing,” I write that you should always start investing in things that have a proven track record. This strategy lays the framework for further experimental investing. Self-storage, mobile homes, and RV parks have all proved themselves worthy of investment.
I look forward to the follow-up where I look at these three businesses when you have 5-10 acres of land to utilize. Please join my Facebook Group if you want the latest articles and free books delivered to your news feed. Also, you can contact me inside the group and ask questions. I also have a Facebook Page where you can see my latest articles.
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