12 reasons that make mobile home parks the best sector for investing in real estate.
By Chad Freeman.
A lot of people today dismiss the idea of investing in a mobile home park due to the negative stigma associated with this type of real estate. I know that investing in a “trailer park” is not a sexy business, but let me assure you, it is a good business! The negative stigma is unnecessary and outdated, largely because of shows like Cops, 8 Mile, and Trailer Park Boys and years of unfair portrayal by the media. This is good news for people wanting to invest in this sector because it’s still relatively undiscovered. However, this is changing rapidly and our overall reputation is improving.
I don’t know about you, but when I find an asset that is cheap, hated, undervalued, has huge demand, decreasing supply, and large barriers to entry, it makes me want to dive headfirst into that opportunity. Our “trailer park” industry is exactly like that today. The entire sector is misunderstood and looked down upon, but it contains hidden gems. If you want to take advantage of this contrarian niche market before it is fully discovered and asset prices soar, now is the time. Also, we have a very real and limited time opportunity as these communities are changing ownership and the industry is beginning to consolidate.
Mobile home parks enjoy many benefits that other sectors of real estate do not, including some assistance from some mega trends in the economy. Listed below are top reasons why mobile home parks are the best real estate investment you can make today.
MEGATRENDS:
- The Great Reshuffling. A growing number of people are flocking to suburbs and exurbs, which leads to more jobs and demand for affordable housing. Due to the fact that most mobile home parks are located in suburbs and not within major metropolitan areas, this is further driving demand.
- 20 million baby boomers retiring in the next 10 years. With roughly 10,000 baby boomers retiring every day, a large number of manufactured housing communities are now starting to transact for the first time in decades. The main reason for this is that many mobile home park properties are still owned by “mom and pop” entrepreneurs who acquired these assets decades ago. This has created a once in a lifetime opportunity, an “open window” and once this window closes that’s it, it’s going to be gone forever. The flip side is that many retirees have no pensions or retirement savings, so they rely on government social security for their income. Many retired Americans find mobile home parks to be a great option and we see a lot of demand from baby boomers.
- IIJA (infrastructure Investment and jobs act). In many ways, this bill is tailored to the mobile home park industry. When you examine where the money is flowing and to which states, you will see how beneficial this bill is for the entire sector. Mobile home parks located in the top 10 states with the largest spending allocation also rank in the top 8 states by number of parks. New jobs will be created as a result of this spending, and many of these workers will be working low-paying jobs that require affordable housing.
- A nation of low earners. Around half of the jobs created since the great recession pay $10/hour or less, further driving the need for affordable housing. America’s average single-family home costs over $300,000. Over 70 million Americans make less than $30k a year, so this represents a significant financial challenge. Used mobile homes sell regularly for under $30k in the markets we focus on.
OTHER ADVANTAGES:
- Government-backed barriers to entry/Low competition. Warren Buffett and Sam Zell both recommend looking for businesses with a large “moat”, or barrier to entry (they are both major players in the industry). Mobile home parks have this advantage. For several reasons, governments usually don’t allow new mobile home parks to be built; about ten per year, on average, over the past 30 years. But why? Mobile homes are not considered real estate, so they are titled as vehicles (very expensive-to-move vehicles) so governments do not collect enough taxes from residents to pay for social obligations such as police, fire, and schools. Additionally, citizens usually don’t want a new mobile home park constructed in their back yard (known as NIMBY or Not In My Back Yard), so they press local governments to block new construction.
- Better product. There is no other sector who can compete with us for price and value. Homeownership is available at a fraction of the cost of apartment living. The average apartment in the United States costs about $1300 per month. The average rent at mobile home parks is only $280 per month. There are no walls, ceilings, or floors shared between our residents like there are in an apartment building. They also enjoy a front yard and a parking space at their own front door.
- Better residents. Our company rents dirt to homeowners. We do not own homes! In essence, we operate large parking lots where almost no vehicles ever leave. A mobile home costs about $6,000 to $8,000 to move, so most mobile homes never leave their park. They usually just change owners and remain in the same community. Furthermore, since our residents own their homes, they have a vested interest in the community, and this helps with retention. On average, mobile home residents stay in a community for 14 years.
- The entire industry is massively undervalued. The typical mobile home park is operated by “mom and pop”. And, being “mom and pop” they simply failed to adjust annually to keep up with inflation. When you adjust the lot rent from the 1960’s for inflation, it comes out at around $600/month and that is today’s fair market value. You don’t need to take my word for this either. A recent study by Charles Becker, an economist at Duke University, shows exactly this. If interested, you can easily find his paper with a simple Google search.
- Diminishing supply. As a result of mom and pop operators failing to adjust their rents to keep up with inflation, many mobile home parks today are being repurposed and utilized for more profitable means. In fact, it is important and often misunderstood that we adjust our prices based on fair market rates (we never gouge on prices). We need to do this because if we don’t, there won’t be many mobile home parks around in the future and our residents will be forced into section 8 programs and lower quality apartments. Approximately 100 parks are being repurposed each year. Furthermore, owners of assets that are in high demand with a shrinking supply have a great opportunity to profit from future appreciation.
- Consolidation has commenced. Currently, only 10% of the approximately 45,000 mobile home parks in the USA are institutionally owned, but this is beginning to change. The number of mobile home park transactions have been increasing recently. According to a report published by JLL’s capital markets group, the transaction volume for manufactured housing communities in 2020 was around $4.2 billion. This is a dramatic increase from $1.2 billion in 2013. With major players like The Carlisle Group, Blackrock (who invested $550 million in 2020 alone) and GIC investing massive amounts of capital in this sector, you can expect prices to rise and cap rates to compress. Also, within the last 5 years or so, we have seen three transactions over $2 Billion take place when Sun Communities bought Carefree, Brookfield bought RHP and GIC bought Yes Communities.
- Lowest default rates = more attractive debt. Market reports from 2021 show that debt is now being sold at a lower cost to mobile home park operators than the beloved class A apartment complexes by almost 40 basis points.
- Inflation protection. For the year ended December 2021, the annual inflation rate in the United States was 7.0% – the highest since June 1982, and it is expected to rise. Let’s put some numbers down on this. Imagine as an investor you have $1,000,000 in cash sitting around right now. You are losing $70,000 a year in value to inflation, and this number is expected to rise. With an income-producing property, the rent can be adjusted for inflation through rent increases, and the value of the property will rise with inflation.
America’s mobile home parks are iconic and unique, and today they are making a comeback. Apart from being one of the best investments you can make in real estate, they have also provided operators like ourselves with the opportunity to acquire and improve entire communities, contribute to the economy, create jobs, and feel good about what we are doing to make money. Our mission is to help hardworking Americans who want to live in a safe, affordable community realize their dream of homeownership. This can be achieved within our communities for a fraction of the price of a traditional single-family home.
MHPinvestors, LLC. We are changing the world, one community at a time.