Bloomberg Markets magazine recently featured an article entitled “Double-Wide Returns,” which was also described on the cover as “Why Wall Street Loves Trailer Parks.” This article immediately started media discussions from as far away as Russia and Australia. Why did this article cause so much discussion? Because it touched on many issues that many readers found shocking.
The shocking truth about the decline of the U.S. economy and the need for affordable housing.
Roughly 20% of U.S. households make less than $20,000 per year, which is nearly poverty level. The BBC News did a story last year about the fact that America is no longer prosperous across the board. Roughly 46% of all Americans are on food stamps! This is a news story that always shocks and alarms people, as they assume that poverty is a much smaller percentage of our population. The fact is that the economic decline in the U.S. has taken a huge toll, and this economic environment has created a gigantic demand for affordable housing – a demand that far outstrips the supply.
Why would people walk away from high-paying jobs to buy mobile home parks?
In the article, it describes how three Wall Street types dropped lucrative careers in corporate America to by mobile home parks. The juxtaposition of “mobile phones to mobile homes” caused many people to question the purpose of a high-flying, high-stress career that pays less than owning a trailer park. One person who was interviewed gave up a high-tech career in Silicon Valley to buy a mobile home park in Oklahoma. Many readers could not believe that a mobile home park yields as much money as a high-tech career, but it does.
The article outlines the key drivers to mobile home park profitability. One that was particularly unexpected is that mobile homes are anything but “mobile.” It costs about $4,000 to move a mobile home from point A to point B. That’s why one park owner was quoted as saying “it’s like a Waffle House where the customers are chained to the booths.” Since the customers can’t afford to move, you can raise rents and lose zero occupancy. In addition, since most leases are month-to-month you can raise the rent as frequently as you like.
Yes, Warren Buffet is the largest owner of mobile home manufacturing and financing in the U.S., through his purchase of Clayton Homes. And Sam Zell is the largest owner of mobile home parks in the U.S. (he also has been the largest owner of office buildings and apartments). Interestingly, mobile home parks are the only assets type he’s never sold off, because it just keeps getting better. Many readers where dumbfounded that two of the most high-profile investors in the U.S. were quietly the kings of the industry.
“Double-Wide Returns” was a landmark article for Bloomberg. It caused quite a stir. If you have not seen the article, then you can find it here. See what you think. Maybe mobile home park investing deserves further research of your own?