Why Mobile Home Park Investing Just Makes Sense

Knowing where to invest your hard-earned money may very well be one of the most difficult choices you have to make in your lifetime. With so many different investment vehicles out there, from traditional investments, including the stock market, bonds, CDs, and more, to the more complex investments, such as investments in small business equity and real estate, it can be tough to choose the best haven to safely store and build your wealth.

Known historically as one of the greatest investment instruments for both wealth creation, and the incredible tax benefits it provides, investment in real estate has long been a favorite for both high-net-worth individuals, and everyday Americans alike. The current economic climate today is no different. Owning or having a controlling interest in your own piece of the Earth is something that allures people from all classes and walks of life to continue to invest money into real estate, leading to continued demand, growing scarcity, and increasing appreciation. When considering where to place your investment in real estate, however, not all opportunities are created equal.

For several decades, multi family housing has historically reigned supreme as one of the most stable asset classes in commercial real estate. This common belief promotes the idea that in all economic phases, people will require a place to keep their families safe, to lay their head at night, and to call home. This model, however, does not take into consideration the desire in many Americans to own their own home or that increases in the number of new multi family properties being constructed across the country will lower the effective value of these income-producing properties.

With increasing apartment options created by new developments, scarcity is decreased. An over-saturated market will always lead to a decrease in the overall value of an investment. This is not to say that investment in multi family properties should be considered an unwise choice, but only to say that other, better, options do exist. Mobile home parks fall into this space.

With typically fewer than 100 new parks being constructed in the United States each year, and 1-2% of the approximately 45,000 parks remaining in the US each year being redeveloped, the demand for mobile home parks is, and will continue to increase. The number of parks is significantly decreasing at an incredible pace. While many local governments are attempting to "zone-out" mobile home parks in favor of other, higher tax-yielding improvements within their jurisdictions, the need for affordable housing remains stable.

Mobile home parks are able to provide their tenants with a value that leased apartments simply cannot provide - the pride of homeownership. While it is true that some parks lease their homes to tenants, the majority of mobile home occupants do in fact own their homes, only leasing the ground beneath them each month from the park. They pay for a place to store their home for the long-term, and for the use of community improvements, such as sewage, city water supply, and park-maintained roads. Essentially, what this means is that the park tenants are leasing a slightly-improved parking lot each month, on average, for somewhere between $250-$600 each month.

For the investor, this source of potential revenue represents a largely untapped gold mine of opportunity. With minimal capital expenditures and significantly fewer maintenance requirements when compared to multi family assets, mobile home parks seem like a no-brainer investment.

In addition, the market is largely fragmented, with the majority of park owners being non-sophisticated, "mom and pop" types. These owners may or may not live in the park themselves or have close ties to many of the residents, and often, have failed to raise rents to market standards in a number of years. In some cases, this may even be decades. The properties may be mismanaged, have an unusually high level of vacancy, and fail to update the park standards to those market conditions around them. This represents a very unique opportunity for investors to capitalize on this market, seizing many opportunities for improvement and income growth of the asset.

While some may be concerned that increasing the lot rent to match market conditions in these parks may force mobile home owners to seek alternatives, the reality is that this is cost-prohibitive, and often not the case. The cost to transport a mobile home to a new site can easily reach thousands of dollars, even for a short distance move of a couple miles. For the majority of mobile home residents, this is a nearly impossible task. This forces tenants in the park to either abandon their homes in search of other, more affordable housing, or to comply with the increased lot rent, resulting in significant gains for the park owners.

For example, to increase the cashflow of a property with 80 lots by $100,000 per year, you would simply need to increase the lot rent by $52 dollars per month and reduce the monthly expenses by an equal amount. For a mismanaged park, these numbers are not out of the question, and frequently represent what the market standard. This increase in cashflow results in significant value-add opportunity for the investor, both in terms of regular returns, but also in the value of the property as the owners position themselves to exit at some point down the road.

With such opportunity, it's surprising more investors aren't jumping in to capitalize on the enormous opportunity that exists with mobile home parks. The stigma attached to them has managed to stand as a barrier for many investors, although this is largely myth. Statistical data shows that while some bad apples may exist, the majority of mobile home parks are comparatively safe neighborhoods when compared to site-built homes.

Warren Buffet is quoted as saying, "“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.” Mobile home park investing, to me, seems to solidify this very experience. With a remarkably low number of investors jumping into this niche, there remains a significant opportunity in mobile home park investing to be greedy. For my family and our investors, this will continue to be a good thing.