Recently, Seattle increased their minimum wage to $15 per hour. While that’s quite a jump from the national level of $7.25 per hour, there is a grassroots movement to increase the Federal minimum wage in many states. One of the biggest beneficiaries of this event, if it is to happen, will be mobile home park owners.
Affordable housing is built on minimum wage.
Mobile home park tenants are traditionally low earners. And minimum wage is a standard limit on what they make. Assuming a tenant makes $7.25 per hour, they have a monthly income of $1,200, and a housing budget of $1,200 x 38% (based on U.S. suggested level of housing cost) = $456 per month. As a result, most mobile home park owners try to keep prices in the $500 range. If minimum wage was to double, then the maximum rent ceiling would double, as well.
A higher minimum wage is the only way for this segment to have higher incomes.
Mobile home residents do not have glamorous jobs. They have little bargaining power. So they get paid the minimum amount allowed by law. If the law raises that amount, it’s probably the only way they’ll ever earn more. It’s not going to be based on supply and demand, as there are plentiful people for unskilled jobs.
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Higher minimum wage allows for higher mobile home park rents.
As described earlier, minimum wage hikes would be every mobile home park owner’s dream. The arbitrary limit on rents has been as a result of minimum wage levels. If those went up 40%, then so could mobile home rents. Even more important, these rent increases fall straight to the bottom line. Effectively, a hike in minimum wages could prove to be the largest windfall for mobile home park owners in the last 50 years.
The impact of these potential rent increases is huge in park values.
Don’t forget that most mobile home parks trade at 10% cap rates. That means that for every dollar of increased net income, the value of the park goes up by $10. So a minimum wage hike that allows $200 rents to go up 30%, for example, in a 100 space park, would increase the value of that park by around $720,000 [$60 x 100 x 12 x 10]. So guess who the big winner is if the minimum wage is increased? It’s not just the workers.
Conclusion
Mobile home parks cater to those who live on the lower fringes of the economic ladder. While hard working, these customers have been enslaved for years to the minimum wage. If minimum wages begin to rise, which it appears is going to happen, one of the biggest winners are mobile home park owners. Before this becomes obvious to everyone, you might want to investigate the mobile home park investing business. Mobile home parks have proven to be a contrarian bet on the declining U.S. economy. And the hike in minimum wages is an unexpected windfall.
