Are you investing in demand?

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The masses are chasing rainbows in the stock and crypto markets right now – driving the Dow and bitcoin to record levels.

Armed with stimulus checks and free trading platform Robinhood, millions of novice investors are treating the markets like their personal casinos. This widespread speculation has the Dow trading at a PE (price to earnings) ratio of more than 30 – near DotCom bubble levels.

Bitcoin has rocketed from a price of around $6,800 to approximately $56,000 today in just a year on the crypto side.

Experts are screaming bubble, but the masses ignore the warnings – thinking the bull market will last forever. Sophisticated investors know better. 

Instead of chasing rainbows, these investors would rather chase demand because there will always be demand with certain commodities. People will always need food and water, warmth, and shelter. No matter how dire economic conditions are, there will always be a demand for necessities.

Maslow’s hierarchy of needs is a motivational theory in psychology comprising a five-tier model of human needs, often depicted as hierarchical levels within a pyramid. From the bottom of the hierarchy upwards, the needs are: physiological (food, clothing, and shelter), safety (job security), love and belonging needs (friendship), esteem, and self-actualization.

Maslow’s hierarchy of needs says that unless the basic needs are satisfied, there can be no progress towards fulfilling the other needs. This makes sense.

Without the stability of shelter, it is tough for a person to find and maintain a job (security – the second level in the hierarchy). It’s one of the reasons why homeless people find it very difficult to gain employment.

We can probably all agree that shelter is a vital need and essential to the welfare of the general populace and the country’s economic engine. Right now, there is an affordable housing crisis in the US, affecting a large swath of the country’s population.

HOW BAD IS THE AFFORDABLE HOUSING SHORTAGE?

Each year, the National Low Income Housing Coalition (NLIHC) measures the availability of affordable rental housing to extremely low-income households and other income groups. According to the NLIHC, of the 44 million renter households in the US, 10.8 million, or nearly 25%, have extremely low incomes at or below the poverty level.

According to the NLIHC, the U.S. has a shortage of 6.8 million rental homes affordable and available to extremely low-income renters. Only 37 affordable and available rental homes exist for every 100 extremely low-income renter households. Highly low-income renters face a shortage in every state and central metropolitan area.

The affordable housing crisis is directly correlated to the affordability of homes – or lack thereof.

According to Harvard researchers, nearly two-thirds of renters nationwide say they can’t afford to buy a home, and saving for a down payment only becomes more complex with time, with home prices rising at twice the rate of wage growth.

This affordable housing crisis has resulted in an unprecedented demand for mobile homes, and in 2020, mobile home parks (MHPs) demonstrated their recession resiliency.  

According to a recent businessinsider.com article, while multifamily as a whole saw decreased rents and occupancy in 2020, MHPs saw increases – the only segment besides industrial that saw positive gains. “Mobile home parks were the top-performing real estate class in 2020, as stated by Green Street Data. Mobile home parks had a 12% increase in commercial property value when a majority of other commercial real estate asset classes struggled in 2020.”

There does not seem to be any end in sight for the affordable housing crisis with supply constantly falling further behind. This is further exacerbated with new construction often getting delayed or altogether abandoned due to rising cost and lack of availability of materials.

It is no surprise that there is a sudden focus on MHPs to fill some of the affordable housing gaps with investors, non-profit advocates, and even government policymakers (occasionally) making a big push in this space. Their ideas have included:

  • Developing new parks;
  • Updating and expanding existing parks; and
  • Finding abandoned parks and restoring them.

The demand and need for affordable housing are apparent. 

The affordable housing crisis does not appear to be going away any time soon. In the meantime, MHPs have offered some relief amid this crisis – resulting in unprecedented demand that is expected to last for years.

CHASE DEMAND

Savvy investors don’t chase rainbows. They don’t speculate. They pursue demand – primarily in essentials like shelter that people will always need.

Right now, people have never required affordable housing more than at any other time in our history. The lack of affordable housing is at crisis levels, but options like MHPs offer one avenue for relief.

For potential investors, MHPs offer the opportunity to participate in fulfilling a significant societal need while investing in an asset with solid demand that is not expected to wane anytime soon.

There’s no such thing as a sure thing – especially on Wall Street – but if you chase demand instead of moonshots, you’ll be led to assets like MHPs that are not only recession-proof but will deliver reliable and consistent income and appreciation for years to come.

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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