When most Americans think of multi-family investing, they think only of apartments. But there is another form of multi-family that has a much superior business model, and that’s mobile home parks. This little known sector of real estate is taking on apartments in a big way – and winning every time!
Higher rates of return
Mobile home parks trade at roughly 10% cap rates in many cases. Apartment complexes often sell for 5% cap rates. There is no question that mobile home parks always beat apartments as far as return on investment. This is true on both cap rates as well as cash-on-cash returns.
Higher revenue stability
It costs around $5,000 to move a mobile home from Point A to Point B. It costs an apartment resident virtually nothing to throw their stuff in their pickup truck and drive off. As a result, mobile home park tenants never leave, and apartment residents churn constantly.
New apartment complexes are constantly being built. Any time a market has high apartment occupancy, up go a couple new buildings. However, new mobile home park construction is banned in almost every major city in the U.S. There are less than ten mobile home parks built per year in the entire nation combined. The law of supply and demand would dictate that this means that mobile home parks hold their value much more than apartments.
Customers always prefer mobile home parks to Class B and Class C apartments. Mobile homes offer 1) no neighbors knocking on your walls or ceiling 2) a yard 3) the ability to park by your front door 4) a stable sense of community and 5) the ability to be a homeowner. Apartments can’t compete with this.
Mobile home parks offer much lower rents than apartments. At a time in which the U.S. economy is in perpetual decline, this is a very important trait. The average mobile home park lot rent in the U.S. is around $275 per month, while the average three-bedroom apartment rent is around $1,250 per month – nearly $1,000 per month more.
Related to the giant spread between apartment rents and mobile home lot rents, there is obviously huge potential to increase mobile home rents going forward, while apartments have little ability to increase their prices. Literally, mobile home park lot rents could double and they would still be more than 50% lower than apartment rents.
Mobile home parks are the only remaining sector of real estate where you can still buy directly from the original mom and pop builders and, therefore, they have the ability to seller finance the purchase. That’s a huge advantage over apartments. With seller financing, you get a lower interest rate, non-recourse, no credit check, and no legal fees and points.
Mobile home parks beat apartment investing on almost every level. If you have not considered mobile home parks in the past, you should do further research. Affordable housing is America’s greatest challenge – and opportunity.