4 Reasons Why You Should Consider Mobile Home Investing
by Christopher Levarek
“Notice that the stiffest tree is most easily cracked, while the bamboo or willow survives by bending with the wind.”
- Bruce Lee
We are always learning. You never get it done and you can’t get it wrong. This is why life continues to be fun everyday! Whether, you are simply putting on your clothes to get out of bed, giving a speech or investing into a real estate property, you will learn something. Recognizing that you just can’t fail by trying, because it’s all a lesson, is the key to living a successful & happy life.
Ok, so I’m channeling my inner spiritual wisdom a bit here, probably because of reading that quote above by Bruce. Still, you get my point and, in truth, it greatly applies to the concept or topic of today which is regarding investing in another asset class in real estate, mobile home parks. As you know, having a strong investment portfolio means diversifying and diversification in real estate occurs by investing into multiple asset classes(See our article on types of real estate for more on the various types.)
To this end, mobile home parks are another amazing choice for investment in 2022 and one which often gets overlooked by many real estate investors. Let’s explore this investment type!
What are Mobile Home Parks?
Mobile home parks by definition are specified sites, lots or land up on which three or more occupied trailer coaches or mobile homes are stationed or located. These mobile homes sit upon lots or pads which can be either leased or individually owned. In general mobile home parks are broken into two distinct categories:
Affordable Housing :
The more commonly known or traditional mobile home park are rated at three stars or less and feature little to no amenities on the park (laundry hookups, landscaping, on-site maintenance, security, recreational features, etc.). These type of parks account for the majority of the parks in the United States.
Non-Affordable Housing :
These types of parks are rated at four to five stars and typically feature a wide variety of amenities to include pools, community recreational features and even could be gated. People living in these parks pay a premium and reasons for living here are not financially related.
4 Reasons Why You Should Consider Mobile Home Investing?
So like many investments we cover on this blog, you the investor can actively purchase a mobile home park or invest passively into a syndication as a passive investor that acquires a mobile home park. In both cases, investing in mobile home parks have specific benefits to the investor. Let’s look at 4 of the major benefits of this type of investment or asset class :
#1 Recession Resistant
Mobile home parks are often labeled as “recession resistant”, meaning they weather a recession much better than other asset classes such as office, retail or specialty(boat harbor) for example. The reason for this is that most mobile home parks will rent for $250-$550 for a lot per month. This means a tenant, or renter, would only have to come up with at most $550, in this case, per month to continue life as usual.
If times were tough and a recession was in place, the renter would still be paying rent and so the landlord or investor would still be collecting rent. Thus, mobile home park income is typically lower on the list to be affected by someone losing their job or suffering financially from a recession. A very beneficial advantage for an investor!
#2 Supply and Demand
Supply is a major advantage to investing into mobile home parks in 2022 as…they aren’t making them anymore! Ok, this is a slight fallacy that is often repeated by mobile home park enthusiasts. Let’s correct it by saying, they aren’t making them as often. Why? In most case, nobody is building because of the fact that most cities holding strict regulations on the building of mobile home parks near city limits.
This means, a builder of mobile home parks has to build in the countryside where water and sewer become costly to run to the park. Additionally, new mobile homes will have to be supplied in most cases to the park thus increasing the cost for the builder and the bank lender, who, typically won’t even consider this construction loan type.
Due to this, there is an abnormally low supply of this asset type, around 46,000 mobile home parks in the entire United States! When we factor in the 37.2 million people living in poverty who typically utilize this supply or asset class for housing, you can see why this rental property type is in high demand.
#3 Rental Growth
So, according to the above, there is high demand and low supply, specifically low new supply. So what does that mean? It means most of the supply is represented by existing or legacy mobile home parks that typically have value-add opportunities. Many of the mobile home parks today have been run by typical “mom ’n pop” owners who have kept rents stagnant for the life of the property.
This means that an investor can often purchase a mobile home park, add value and raise rents to market rents just like with an apartment complex. This provides value to the existing and new tenants, while increasing the income of the property. Since demand is high and supply is low, rental growth is strong and opportunities exist from day one to raise rents to market.
#4 High Cash Flow, Low Expenses
Mobile home parks are commonly known as cash kings or cash cows. The reason being has to do with the aforementioned points above, yet also because of the fact that expenses are typically low for the mobile home park owner. Quite often a mobile home park acquisition will hold mobile homes with some of them self-owned by the tenant and/or owned by the landlord/owner.
In either case, the tenant pays a lot rent for the pad or space on the land yet some of the tenants, who don’t own the mobile home, will also pay rent for the mobile home itself. It is often the goal of the owner or investor to sell the mobile homes back to the tenant and just collect lot rents.
This is the magic area for a mobile home park owner because expenses(maintenance, issues, etc) decrease for the owner as tenants own their mobile homes directly. A person owning the mobile home is much more accountable for it’s condition and, thus, not the mobile home owner.
Effectively, the investor/owner then simply collects cashflow for the land and expenses decrease, driving income up. Try doing that easily with a typical apartment complex.
In Final
Hopefully, you now know a little bit more on Mobile home parks and why they might make a good investment as an active or passive investor. As we continue to move into peak of the cycle in real estate, our company is always looking at diversifying investments across asset classes that make sense for at the appropriate time. Mobile home parks are just one asset class we are looking into with partners for the potential future.
If you are interested in learning more on upcoming investment opportunities such as this, I invite you to join the Valkere Investor Club. Happy Investing!