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WHY INVEST IN MOBILE HOME PARKS
Media outlets, private equity funds, and even Sovereign wealth funds have started to recognize the attractiveness of mobile home parks as investments. So why are mobile home parks now getting more attention? The asset class has always done well, but investors are finally getting over the stigma usually associated with the asset class and learning to appreciate affordable housing. What makes mobile home parks so special?
1 - Hedge against U.S. economic malaise
The U.S. economy will struggle to generate real growth for the foreseeable future due to a ballooning federal budget, aging population, and partisan politics. We are also about to enter a period of ever-increasing income source volatility and reliability due to the changing dynamics of the economy and this will increase economic insecurity for so many Americans. These forces will continue to provide the impetus for an increasing need for affordable housing.
2 - Demand is large and growing
Affordable housing is a hot topic because over 20% of the U.S. population has household income of $20,000 per year or less and 10,000 baby boomers are retiring everyday with average social security incomes of $1,500 per month. This trend will with us for the next 20 years.
3 - Barriers to entry
Very few people want a mobile home park as a neighbor due to the stigma mentioned above. This is the primary reason that virtually no city or town in the U.S. will allow new parks to be built. This static supply combined with the increased demand mentioned earlier is a good reason why mobile home parks are great investments.
4 - Mobile Homes Inventories are VERY sticky, meaning they are resistant to change
Moving a mobile home is cost prohibitive for most residents, costing on average $3,500 in our markets. This in addition to cost associated with hooking the home up to infrastructure are the primary reason 95% of mobile homes are never moved after their initial placement. When most residents decide to move from the community, the vast majority of homes are sold to the community owner or another individual who keeps the home in the community.
Mobile home parks offer the best risk-adjusted return of any real estate class and is the only real estate class that grows stronger during times of declining economic activity. OneTake Investments believes the next three to five years will offer opportunities to acquire mobile home parks at attractive valuations and or under very favorable terms. The manufactured housing industry will likely continue to consolidate, demand for affordable housing will continue to grow steadily in good times and in bad, and the supply of mobile home parks will continue to slowly shrink. All of these things will lead to an increase in the cash flow generated by these cash cows and to significant price appreciation of the asset.
WHY YOU CAN MANAGE MOBILE HOME PARKS FROM A DISTANCE
Some things require the owner to be there all day in order for the business to be successful, but when operating with a owner occupied home model, that is not the case for mobile home parks.
OWNER ADDS NO VALUE
The owner offers no value-add, exclusively of establishing the appropriate culture. Renting land is a low impact endeavor, and the owner is compensated for owning it, not because their association increases the value.
LAND ONLY
You are only renting land. There are no toilets to fix or leaky roofs to replace. Most community owners pay to mow the common areas and fix infrastructure related items, potholes or water/sewer line stoppages.
SIMPLE BUSINESS MODEL
It has a simple business model with established management systems. Renting land is a vert simple model and doesn’t require much thought on the part of the owner. Owning a park is not like owning a factory or a consumer facing business. Very few things change and the pace of change is glacially slow. There is no technology shift to worry about or consumer taste changes.
REMOTE ACCESS USING TECHNOLOGY
But don’t overlook the benefits that technology provides. You can “virtually” drive your park by having your manager use a GoPro style camera on a drive through. With the proliferation of cell phones and emails, you are always available in case of an emergency.
