A recent article in Time magazine proclaimed that mobile homes are the “home of the future”. It has suddenly become apparent that mobile home parks – often subjected to ridicule and negative stigma in the past – are one of the key solutions to the U.S. affordable housing crisis. But what most people still don’t realize is that mobile home parks are not only the solution to American housing woes, but also the best investment in real estate right now.
Mobile home parks typically sell for around 10% cap rates and 20%+ cash-on-cash returns. That’s the highest yields in all of real estate. One of the key reasons for this is that most buyers are afraid to buy a mobile home park due to the stigma the media has created, thanks to films such as 8-Mile and television shows like COPS. As a result, the competition is low and the prices are lower, as well. In addition, you are typically buying directly from the mom & pop builders of the parks in the first place – most of which were built between 1950 and 1980 – and they offer sometimes insanely low prices.
Another attribute of buying mobile home parks from the original mom & pop owners is that they frequently include seller financing. This allows you to avoid the entire banking industry, including credit scores, presentations and committees. It also means a lower amount down and lower interest rates.
One of the unique features of mobile home parks as a real estate sector is that it is the only one that you can no longer build. The supply is basically permanently capped. This is because virtually no city in the U.S. will allow new construction of mobile home parks so, when you add in the parks that are torn down each year for new development, the actual number of mobile home parks is actually declining each year. Because of the law of supply & demand, this one feature makes mobile home park values continually increase.
Over 50% of every job created in the U.S. since 2007 is $10 per hour or less. We are basically creating a nation of poor people. And this bottom third of the U.S. demographic has no ability to afford the median home price of nearly $200,000 and the average three-bedroom apartment rent of $1,200 per month. The only form of housing that provides an affordable quality of life is the classic mobile home park. This has created an environment of escalating rents and high levels of occupancy – and this shows no sign of ever declining.
Mobile Homes are not “Mobile”
Most people do not realize that mobile homes are only designed to be moved one time: from the factory to the mobile home park lot. 98% of them never move again. It costs around $5,000 to move a mobile home from point A to point B, and no resident has anywhere near that amount of money (a recent study found that 70% of American households do not have even $1,000 in total savings.) Since mobile homes are not mobile, occupancy is never at risk of reducing.
No Capital Repairs
Mobile home parks are all about renting land, not structures. As a result, the homes belong to the residents and are treated as personal property. This means that you don’t have to worry about fixing roofs or foundations, or saving up to re-carpet the building. All the mobile home park owner typically has to worry about as far as future capital repairs is the paving of roads.
Few Maintenance Issues
With the park owner not owning the homes, there are also few maintenance requirements that the owner has to endure. As long as the water and sewer are flowing, that’s basically the end of the owner’s obligations.
Low Management Requirements
The typical mobile home park owner only has to write ten checks per month. Other than depositing the rent checks, and writing those checks, there is not much to manage. Most mobile home parks are similar to subdivisions in that each resident owns their own home and are basically stakeholders in the business model.
While mobile home parks may be a secret to most investors, they’re not to two of the biggest investors in the U.S. Warren Buffett is the largest owner of mobile home manufacturing and financing in the U.S., and Sam Zell is the largest owner of mobile home parks. Those are the two biggest names in American real estate and investing. They would not be involved if it was not a terrific sector.
Most Americans think of mobile home parks as low-class bastions of crazy hillbillies. Smart investors realize that this stigma is absurd and are drawn to the asset class due to its stability and high levels of demand. It’s basically a battle of stupid vs. smart. If you’re smart, you’ll learn more about this real estate sector.
Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 5th largest community owner in the United States, with more than 23,000 lots in 28 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top-selling ones in the industry. To learn more about Frank’s views on the manufactured home community industry visit www.MobileHomeUniversity.com.