It comes as no secret that mobile home parks are finally receiving the type of respect they deserved years ago. Because of the ridiculous stereotype that the media created for “trailer park” residents, many professional investors avoided the asset class altogether. Recently, however, even the largest private equity group in the U.S. – the Carlyle Group – has started to invest in mobile home parks. Few people realize that Warren Buffet is now the largest owner of mobile home manufacturing and financing, and that Sam Zell is the largest owner of mobile home parks. So why is Wall Street so impressed with the mobile home park business?
The word “mobile” in “mobile home” could not be farther from the truth. The actual statistic is that 98% of mobile homes never move from the spot that they are originally delivered. And how could they? It costs around $5,000 to move a mobile home (in some cases, more than they cost) and it is a risky business, in which there is no guarantee that the home can make the trip in one piece. As a result, the mobile home park occupancy never varies.
Mobile home parks focus on the lowest earning demographic group in the U.S. – those that earn from minimum wage to around $15 per hour. 60% of all new jobs created in the U.S. since the “Great Depression” of 2007 began are minimum wage. Affordable housing gets even more in demand during times of economic hardship. It’s the same concept that is propelling Dollar Tree and Dollar General past their rivals.
Ability to Push Rents Aggressively
Mobile home parks are the least expensive form of housing in the U.S. As a result, there is always room to push rents higher, as even a 100% increase in most markets maintains the status of being cheap. The average apartment rent in the U.S. is $1,030 per month. The average mobile home park lot rent is $250. Need I say more?
Low Operating Expense Ratio
Mobile home parks have an enviable expense ratio that runs typically 30% to 40% of gross. This is the lowest of all real estate sectors. One key driver to this is that mobile home parks are all about renting land, and land does not require any repair & maintenance, or expensive capital upgrades. There are no toilets to fix or roofs to replace with mobile home parks.
No Future Supply Competition
While you can develop a new apartment complex, retail center or self-storage facility virtually anywhere, there’s not a city in the U.S. that allows new mobile home park development, except in rare cases. Why? Nobody wants a mobile home park going up next to their house or business. That’s one benefit of the “stigma” that mobile home parks have been saddled with – the destruction of future competition. With supply and demand, having no future new supply always makes values high and rising.
The number one attraction for Wall Street investors to mobile home parks is simple: money. Mobile home parks have the highest returns of any form of real estate. Why is this? Probably because there are more sellers than buyers thanks to decades of the “stigma” scaring off widespread investor interest. Another reason is that most mom & pop owners are extremely unsophisticated and don’t know what the real value of their mobile home parks are. It is not uncommon to buy parks at 10% cap rates and cash-on-cash yields of 20%+.
Nothing has much changed in the mobile home park industry over the past 50 years. That is, except for the perception of the industry. Wall Street is suddenly waking up to the amazing advantages of investing in mobile home parks, and the rest of America cannot be far behind. If you’ve thought about buying a mobile home park in the past, you better hurry while prices are still low.