The Dow has fallen nearly 10% this year already. China’s economy is collapsing, and oil is approaching $25 per barrel. This is a time of financial panic and fear is rampant. But there is one sector that is actually growing in value and strength: mobile home parks. Mobile home parks offer the ultimate contrarian hedge on a falling American economy.
Why they are contrarian
Mobile home parks focus on the lower third of American wage earners. This is a group that has consistent earnings that are mandated by the Federal Government in the form of minimum wage. It is illegal to pay less than $7.25 per hour, which offers a solid floor. Executives earning $100,000 per year, on the other hand, have a massive amount of potential for revenue reduction. By relying on folks that can’t get any worse off, mobile home parks have a steady customer base. In addition, the U.S. economy has plenty of jobs for this lower income segment. Over 50% of the jobs created in the U.S. since 2007 have been minimum wage ones. Just look at the classifieds in your local newspaper. You will see that minimum wage jobs are plentiful. This gives mobile home park tenants a steady supply of employment opportunities.
How they maintain their strength when everything else is in panic mode
It costs $5,000 to move a mobile home from point A to point B. This keeps customers in their lots and revenues extremely stable. It is not uncommon for the rent roll in a mobile home park to remain constant for years on end. In addition, virtually no city in the U.S. allows for new mobile home park development, so there is no danger of future over-supply or even mild additional competition. While every other sector of real estate is subject to over-building, mobile home parks have no risk of new building, period. Essentially, mobile home parks stand strong when everything else is in a death spiral. Case in point, the recent sale of two Sunnyvale, California mobile home parks for a little under $200 million. Can you name any other industry that is setting records in sales prices at this moment?
What could go wrong with a mobile home park?
The greatest threat to mobile home parks is prosperity. That hit the industry hard in the 1950s. When Americans are earning more, they can afford more in the way of housing. To invest in mobile home parks is to bet on a declining America, or at least an America that does not show higher performance. At this point, with the basic facts that 10,000 Baby Boomers are retiring per day and we have massive consumer debt, it’s unlikely that we’ll see prosperity again in the next few decades. If you think that the stock market has a bright future – which is a reflection to an America that’s on the upswing – then by all means, call your broker and take a position. But remember the old adage “before you can have return on principal, you must have return of principal”. That might be impossible in most conventional investments right now.
A built-in advantage over its peers that is astounding
Mobile home parks are a close relative to apartments. They compete for the same customers. But they have a huge advantage, with average rents that are around $1,000 per month less. Most mobile home park owners can fill every unit they have with a simple direct mail piece to the closest apartment complex. And it’s more than just a pricing advantage. Mobile home parks offer no neighbors knocking on walls and ceilings, your own yard, the ability to park by your front door, and a sense of community. On top of that, mobile homes allow you to own your own house, something that apartments never allow.
We face historic challenges in the American economy. If you are comfortable betting that things will be fine or even improve, then the stock market is for you. If you instead believe that the economy is poised for decline, and that conventional investments will be crushed accordingly, then mobile home parks are the ultimate contrarian hedge.