When I first stumbled upon mobile home park (MHP) investments, I was completely surprised. Not only are mobile home parks (also known as manufactured home communities) one of the best commercial assets for investing, but they are cash flow machines if you buy the right one.
Mobile home parks fared better than any other investment class during the last economic recession. According to Greet Street Advisors, a global real estate research firm, operating income from MHPs NEVER experienced a decline between 2004 and 2018!
Take a look at the performance of different real estate sectors compared with the S&P, according to the NAREIT. During the Great Recession from peak to trough, the S&P dropped 53% and performed at negative 36%! What this means is, if you had $100,000 in the stock market prior to December 2007, it would have dropped as low as $53,000 in value! The comparative yield during the recession were:
- Manufactured Homes: 0.47%
- Self-Storage: -3.80%
- Apartments: -6.72%
- Office: – 8.16%
- Retail: -12.32%
- Industrial: -18.31%
- S&P 500: -36%
By investing in MHPs, your investment portfolio is shielded from the volatility that comes with the stock market. MHPs provide the best consistent stream of passive income through an economic downturn.
A Brief History behind Mobile Home Parks
Trailer homes were once a luxury item only owned by the upper class with disposable income. Hotels were not as abundant in the early 1900’s. The wealthy needed a more comfortable alternative to camping as they traveled around the country, especially in the suburbs where hotels were little to none. Luxury trailers were custom-built so the rich could travel in comfort and style.
World War II created a sudden demand at the military base to supply housing for new servicemen. Since the GI bill provided free college education, housing was needed where dorms were overflowing. Trailer parks were purchased to address both housing demands.
Fast forward to the 21st century. “Trailer park” has a negative stereotype due to societal influences and outdated opinions. The negative stigma sheltered this asset class from other real estate investors getting in and driving up the purchase price. This translates into MHPs remaining a very lucrative and recession resistant asset class over the years, while also having a relatively low level of competition.
Four Reasons to Love Mobile Home Park Investing
Demand for Affordable Housing
While the cost of living continues to rise, mobile home parks provide the best affordable housing option in the country. Over 10,000 baby boomers retire daily, and most Americans haven’t saved enough for retirement. Social Security roughly accounts for 40% of a person’s retirement income, and this benefit will eventually run out. There aren’t many options available for affordable housing besides apartments and mobile homes. The constant need for affordable housing fuels the demand. Consequently, MHPs will survive through a recession.
Limited Permits to Develop
Mobile Home Parks tend to be undesirable for most city officials. MHPs can be an eyesore, and they generate less tax revenue for the city when compared to other asset classes, such as office space or commercial retail. Most cities have limited permits to build new MHPs. Land usage is permitted for higher and best use construction, i.e. apartment buildings. The limited supply coupled with constant demand for affordable housing, reinforces MHPs as a recession resistant asset.
Park owners protect affordable housing, despite incremental lot increases. They prevent developers from coming in and building new construction, which would displace many residents and cause them to spend more on housing costs.
Mobile Home Parks Have Low Expenses
The best MHPs are the ones where the majority of homes are owned by the tenants. Park owners want to be in the land business, when park residents simply rent the lot to live in the park, and are responsible for their own repairs and maintenance.
Submetering the utilities is a powerful strategy a MHP owner can use to decrease overall expenses by up to 10%. By submetering water, sewer and garbage, utilities are charged directly to tenants. When tenants are responsible for their own consumption, they’ll tend to conserve water. This results in a positive impact on the environment.
Low Vacancy Levels
Vacancy rates for mobile home parks are lower than apartment buildings. Residents owning their own homes, tend to stay in the park for many years, because it’s cost-prohibitive to move. The expense can range anywhere from $3000 to over $5000. Compare that cost to the low lot rent, and the lot rent is the affordable option.
A New Wave of Sophisticated Investors
For many years, MHPs were owned by “Mom and Pop” owners who didn’t have the best management and systems in place. It was common to see lot rents remaining the same for years and the maintenance being deferred.
Professional real estate investors, as well as private and institutional firms, are pouring more money into this asset class. As a result, skilled operators are moving in and managing the parks efficiently and cost-effectively. Sam Zell, one of the largest apartment building owners in the United States, sold his apartment portfolio to buy mobile home parks.
Warren Buffet, who is considered one of the most successful investors in the world, moved into this niche and purchased Clayton Homes, to own the biggest home manufacturer company in the U.S. Blackstone Group and the Carlyle Group, two of the largest investment equity firms in the world, are buying up portfolios of MHPs.
What this Means for You
MHPs provide one of the most consistent, stable streams of income. Our investment thesis is validated as you see more institutional money moving in this asset class.
Fortunately, if you don’t have the time and resources to purchase and manage your own park, there are several syndicators who are best-in-class operators. They’ll do all the heavy lifting, while investors invest the minimum amount required, then can sit back and collect passive income.
By working with the right operators, we are able to leverage their sophistication, years of experience, existing systems, and gain access to their network to obtain the best loans and purchase the right producing MHPs. Investors are able to diversify their retirement portfolio by having the opportunity to invest in different geographies and niche asset classes.