No niche of commercial real estate gets as bad a rap as mobile home parks. It has been the brunt of comics such as Jeff Foxworthy for 30 years, and is featured prominently in such “reality” shows as COPS – including its own misfit-filled reality show called “Myrtle Manor”. It’s O.K. to have a good laugh at trailer park residents, as long as you realize that it’s only fiction and has nothing to do with the “real” industry, or the residents who live in them. Here are some of the common misconceptions, as well as the true story.
8% of Americans live in mobile homes, so if mobile homes were made up of 100% hillbillies, then that would mean 8% of the entire U.S. population are hillbillies. Now there’s no doubt that there are some hillbillies that live in mobile home parks – particularly in the southeast – but remember that even the banjo-playing kid in “Deliverance” lived in a stick-built shack. So what are mobile home park residents really like? They earn around $10 to $20 per hour in real jobs, drive real cars and have kids that go to college – they do not resemble the characters in Duck Dynasty.
Due to shows such as COPS, the average American thinks that the crime center of any U.S. city or town is the local mobile home park. This could not be further from the truth. Mobile home parks are terrible places to locate a criminal enterprise. Why? Because you can approach them from all sides, and even a pellet rifle can shoot through the walls. Bonnie and Clyde would never have survived one shoot out in a mobile home. So where is the true crime center? Any city manager can tell you: it’s the Class C apartments. Those offer ‘security” to criminals as there is only one way in, and they have masonry walls to hold back the bullets.
Some people think that mobile homes are virtually disposable – that they have a short shelf life and then go into the dumpster. This is a crazy misconception. Think about it this way; the mobile home is built of 2”x4”s and plywood, just like the framing of a stick-build home. However, the final touch is to sheath the whole frame in solid metal. This makes a mobile home more like Iron Man than a stick-built home can even muster. There are mobile homes out there that are 60 years old and have an indefinite number of years to go.
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Many investors think that banks hate mobile home parks. This could not be further from the truth. Mobile home parks actually have the lowest default rate of any type of real estate, so naturally banks love them. This fact has been working its way through the bank circuit for several years now. Even the biggest conduit lenders, like Bank of America and Citigroup, offer mobile home park loans on aggressive terms of 10 year fixed interest rates and non-recourse.
Most people are unaware that one of the biggest benefits mobile home parks bring to the table is the availability of seller financing. This is unique to the industry. Why? Because mobile home parks are new enough (most were built in the 1960’s to 1980’s) that the original mom & pop owners still run them and paid off their mortgage years ago. What’s the benefit of seller financing? Here’s the short list: low down-payment (sometimes as low as 0%), low interest rate, non-recourse, no credit check or committee, no expensive third party reports. Seller financing is a wonderful thing.
This point was hammered home in the book “The Millionaire Next Door,” in which “mobile home park owner” made the list of top places to find a millionaire. Mobile home parks normally offer 10% to 20% going-in returns – about twice what some other commercial real estate niches can offer. When you couple these return levels with low loan interest rates, the cash-on-cash returns are staggering.
One of the big misconceptions of the mobile home park industry is that the owners are collectively as hillbilly as the residents – folks that look like Burl Ives in a straw hat. The truth is that the biggest owner of mobile home manufacturing and financing is Warren Buffet, and the biggest owner of mobile home parks is Sam Zell – that’s right, the same guy who is the biggest owner of apartments and office buildings. How’s that for a dream team?
The reality of mobile home parks is completely different from the average person’s initial impression. The truth is that the industry is professional and profitable, and worthy of further inspection from investors. If it was just a bunch of hillbillies, would Buffet and Zell be involved in it?