Why Mobile Home Parks Are The Best Real Estate Investment?!

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Key Takeaways
  • The Mobile Home Park (MHP) business model
  • Steady cash flow
  • Recession resilience
  • Booming demand and shrinking supply
  • Value-add opportunities
  • Why investing in MHPs make sense
The Business Model
 
With mobile home parks (MHPs), also known as manufactured home communities (MHCs), the park owner owns the land and infrastructure (i.e., common areas, streets, utilities, etc.) while tenants (residents) pay the owner rent for the right to plant their mobile home on a “pad” within the park. Some parks own homes that they rent to tenants as well.  
 
Because of this split ownership structure, MHPs fill a unique niche in that it provides consumers an affordable housing option – in contrast to multi-family dwellings – with the privilege and pride of homeownership without shared walls. 
 
Steady Cash Flow
 
Because of pride of ownership, mobile home residents typically pay on time with very low unpaid receivables experienced by park owners. And despite their name, mobile homes are not particularly mobile. According to moving.com, the cost to move a single-wide mobile home within 50 miles, customers can expect to pay a moving service $5,000 to $8,000. Moving a double-wide mobile home this distance will likely cost between $10,000 to $13,000. And when compared to apartment living, MHP residents have an easy decision to make (more below).
 
The average price of a new manufactured home in the U.S. was $86,900, but in MHPs it is often closer to $50,000 (asthe MHP owner is less concerned about the sale price of the home vs. the occupied lot and the new consistent stream of income). On a 20-year mortgage with 10% down and with an interest rate of 7.5%, that would put the monthly payment at around $362! Combined with the average monthly lot rent of $300, the total cost of $762 ($662 plus +/- $100 for taxes and insurance) blows away the cost of most apartments (with average apartments typically costing $1,000+!). (A16*76 mobile home has 1,216 square feet, making the cost per s.f. about 63 cents a square foot – comparable three bedroom apartments are regularly double the cost in most markets. Need I mention that this mobile home is brand new, has nobody above/below you, and offers a parking space by your door, a patio/grill/yard, and the path to home ownership – as my wife says “you can’t afford not to buy it!)
 
Recession Resilience
 
Commercial real estate is cyclical, with some sectors more correlated to the broader economy than others. Retail and office properties tend to get hit the worst during economic downturns. During the last Financial Crisis and its aftermath, while single-family housing values plummeted, the affordable housing sector such as apartments and mobile homes thrived.
 
As the Financial Crisis and the latest COVID-induced downturn proved, MHPs benefit from economic downturns as people downgrade to more affordable housing. In 2020, while most commercial real estate sectors, including multifamily, experienced rent declines, MHPs saw increased occupancy and increased rents
 
Booming Demand and Shrinking Supply
 
Demand for mobile homes has been increasing since the Great Recession and is only expected to grow in the future with strong demand from Baby Boomers that is expected to last for the long term. Frankly, there is a massive demand for affordable housing in every city in America.
 
But, due to the stigma of “trailer parks”, new inventory is constrained by the “Not in My Backyard” (NIMBY)syndrome where local planning commissions attach the “trailer park” stigma to proposed MHP developments that might devalue their housing. This stigma, along with strict local zoning laws, often prevents the development of new parks. Many zoning codes prevent low-cost MHP developments as municipalities prioritize higher tax-generating properties like office, industrial, retail, etc. Only a couple dozen of these are built nationwide each year, thereby creating an artificial gap between supply and demand (and, thus, increasing the value for existing MHPs). 
 
Value-Add Opportunities
 
It is estimated that as much as 90% of the 45,000 MHPs in the country are owned by mom and pop operators. MHPs owned by legacy owners who are not professional landlords offer tremendous value-add opportunities. Mom and pop operators regularly mismanage everything from income potential to operational standards. These mom and pop operations present opportunities to correct inefficiencies to improve occupancies and rents.   
 
Distressed parks where, with property and operations improvements, rent can be increased without a decrease in occupancy because of the fixed nature of MHP residents who would rather deal with the rent increase than incur the costs of uprooting their homes. (By the way, residents often appreciate rent increases because professional management can then improve the property and increase the quality of life.) 
 
Why Investing in MHPs Make Sense 
 
By owning only the land and renting lots to tenants, MHP investments have a significantly lower cost per door compared to multifamily properties. The lower cost per door coupled with drastically reduced maintenance expenses compared to an apartment community and commercial property expenses results in above-average cap rates compared to other commercial real estate sectors. The locked-in tenant base is what enables park owners to enjoy stable recession-resistant cash flow. And with cap rates of 7-10%, few other sectors come close to matching MHP financial potential and performance. (Note: MHP cap rates in some markets have “figured it out” and are now lower than apartments, but it is possible to still find off-market deals at 12-15 cap rates!)
 
The above factors explain the reliable and consistent cash flow that MHP owners have come to expect. 
 
Ferd Niemann is a mobile home park owner, operator, and lawyer based out of Kansas City. He also provides educational content through his nationally-recognized podcast and website, www.themhplawyer.com

Ferd Niemann IV

Ferd Niemann is a mobile home park owner, operator, and lawyer, as well as a real estate investor, financial analyst, entrepreneur, and attorney whose career has focused on a myriad of areas of real estate. His experience includes mobile home park investments and turnarounds, retail development and redevelopment, residential investments, and real estate law.

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