There have been numerous recent articles predicting a rise in the U.S. inflation rate, as a result of lower unemployment and growing wages. Since interest rates and inflation run in cycles, it is about time that inflation re-enters the U.S. mindset, as it’s been gone for around a decade. While the very mention of inflation can be a very alarming for many investment niches, it is not a great concern to mobile home park investors. This is because mobile home parks fare very well in times of inflation.
All real estate does well with inflation
Of course, most real estate does well in times of inflation. Prices paid for properties are set in stone – as are their mortgages – but values escalate with inflation, building in a profit by nothing more than the gradual rise in prices. This has always been the case since the days of John Jacob Astor, America’s first real estate millionaire, who bought up a whole lot of farmland in the 1800s that later became known as Manhattan. In fact, some of the greatest fortunes in real estate were created by the massive run-up in rates of inflation – as high as 13% -- in the 1970s and 1980s. Inflation has always been real estate’s best friend.
But mobile home parks do even better
Although all real estate does well in times of inflation, mobile home parks do the best of any sector. There are several reasons for this:
- Mobile home park tenants are typically on month-to-month leases, so the rent can be increased frequently and perpetually. Shopping centers, by comparison, have leases that can be decades long and not subject to having rents raised at all.
- Mobile home park rents have massive room for increases yet still remain affordable. The average mobile home lot rent in the U.S. is around $250 per month, while the average apartment rent is $1,150 per month. You could triple the lot rent in most mobile home parks and still be the cheapest form of housing in that market.
- Mobile home parks meet that most basic human need for shelter. It is in no way a luxury product. One side effect of inflation is often national recession. As a result, the riskiest real estate niches are those that are strictly luxuries that can cease to be needed when Americans tighten their belts, such as marinas and vacation properties. But mobile home parks are absolutely essential and housing can’t be cut back on.
While inflation may be a positive for real estate as a whole, mobile home parks are huge beneficiaries on a micro level.
If the current headlines are true, and the U.S. is heading into an era of rising inflation, than you need to allocate your assets to address that risk. Many Americans will put their investment dollars in real estate, as it is the best hedge to inflation. But the really smart ones will put their money into mobile home parks.