I have an Economics degree from Stanford, so I’m no stranger to charts, graphs and theories. But there is one law of Economics that they don’t teach you: the “stigma” effect. “Stigma” has altered the supply and demand function in mobile home parks, rendering the investment niche more profitable than any other. Yet most people are unaware of this “stigma” and the effects.
Where the “stigma” comes from
Americans are afraid of mobile home parks. Some of this is based on the fact that mobile home park residents are among the lowest earners in the economy. But part of the negativity comes from a very poor media portrayal that depicts everyone who lives in a mobile home park as dangerous, stupid and worthy of the show COPs. For decades, the media has portrayed park residents as inferior to all other groups. Factual studies, such as one done by the U.S. government that found mobile home parks have no greater crimes than traditional subdivisions, have done little to reduce this “stigma”. This stigma is a powerful force.
How it effects the supply of mobile home parks
Since Americans are afraid of mobile home parks, they deliberately banish the construction of new parks in virtually every city and town in the U.S. This freeze in the supply of new mobile home parks makes all existing parks more valuable, as the demand for affordable housing is increasing every day. For example, there are roughly 10,000 Baby Boomers per day retiring in the U.S. and downsizing their housing into something more affordable. When you graph growing demand and static supply, the result is a huge run-up in rents and values.
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How it affects the cap rate
While millions of investors are comfortable with investing in single-family houses, they have a negative “stigma” wall to climb before they can invest in mobile home parks. This wall is so high that it takes gigantic cap rates to get them comfortable with the concept. As a result of the stigma, mobile home parks have the highest cap rates of any form of commercial real estate. It’s not based on any facts. Mobile home parks have the most stable revenues of any investment, because it costs $5,000 to move a mobile home, so the tenants can never afford to leave. They also have the lowest loan default rate of any form of commercial real estate. The “stigma” is an irrational factor that artificially increases the cap rates without any reason for that increase.
Why nobody ever discusses it
So why is this “stigma” effect never discussed? Simple. It’s not politically correct. Americans believe it is improper to discuss poverty, or their hatred of living next door to “trailer park people”. City governments hide their unwillingness to have more poor people move into their city or town, so they pretend like they allow mobile home parks, but secretly have setbacks and zoning requirements that preclude them. Political parties never take up the affordable housing debate because poor people don’t contribute to political campaigns or vote very often. So the “stigma” wall will never go away or get smaller.
Conclusion
Mobile home parks have a unique advantage over any other niche of commercial real estate. They enjoy higher yields and greater supply stability due to an irrational “stigma” against mobile home parks and their residents. In a world of 5% cap rates, mobile home parks offer 10% cap rates or higher. In a world in which real estate owners are terrified about competition being built across the street, mobile home park owners never have such worries. Don’t let the “stigma” wall get the best or you. Learn more about the real mobile home park industry and dispel the myths. You’ll find that mobile home parks are the ultimate hedge to a declining U.S. economy, and offer unbelievable stability in a world of uncertainty.
