New here? Be sure to start with –> PART 1 OF THIS SERIES
Have you ever lived in an apartment before? How about a manufactured home park (aka, mobile home park)?
I’d venture to guess that, for most of us, apartment living is very familiar, but manufactured home parks are a different animal. Most people have lived in an apartment in college, or when they first move out of their parents’ house, but many people have never set foot in a manufactured home park.
However, just because we’ve never lived in one ourselves doesn’t mean we should write them off as an investment opportunity. In fact, once you get to know manufactured home parks, you’ll see why they’re the best kept secret in real estate investing, and why you’d be crazy not to consider investing in them.
But first, if you haven’t already, please go and read part 1 of this series, to take a closer look at what manufactured home parks are really like, and why it’s incredibly important, not just merely profitable, for us all to invest in them.
If you’re ready, let’s take a look at nine undeniably good reasons to invest in manufactured home parks.
From a purely investing standpoint, this reason is perhaps the most “duh” reason for investing in manufactured home parks. Manufactured home parks have the highest yields in commercial real estate. Often, you can find cap rates over 10 percent, and cash-on-cash returns around 20 percent.
Compare that with apartment investing, which more often sees cap rates of 7 percent, and cash-on-cash returns around 8 to 10 percent.
The need for affordable housing is more pressing now than ever. Today, ten thousand baby boomers will retire. Tomorrow, ten thousand more will retire. The next day after that? You guessed it. Another ten thousand. Their social security checks average $14,400 per year.
For those still part of the workforce, there continues to be a growing gap between income levels and housing costs. Housing prices continue to rise, yet incomes are not rising to meet them, leaving people with a shortage of housing options.
As such, the number of people who want to live in nice, well-maintained manufactured home parks is on the rise.
If you’ve invested in or considered investing in apartments, you know that there’s fierce competition in the apartment world. Why? Because everyone and their mom has lived in an apartment before, so the model is easy to understand. Hence, people feel that it’s a “safer” investment, because they understand it better.
With manufactured home parks, it’s different. Very few people have had the experience of living in a manufactured home park, and as such, most people don’t understand them. Add to that the fact that investing in a manufactured or mobile home park isn’t exactly the sexiest thing on the planet, and most people will turn away and invest in something else instead.
For those who do end up investing in manufactured home parks, this creates the best possible investing landscape, because competition is low. This space isn’t nearly as crowded as the apartment investing space.
This allows manufactured home investors to snatch up better deals and to get better returns.
In virtually any city in America, you’ll find cranes and construction sites putting up new apartment complexes. This increases the supply of apartment units, in an effort to meet that demand.
On the manufactured home front, however, there are no new parks being built. In almost any community in the country, people will lobby against manufactured home parks being built, largely due to the stigma and stereotypes they still carry with them.
Thus, even though the demand is strong and rising, there’s no new inventory being created to meet the demand in manufactured home parks.
Most manufactured home parks are still owned by “mom and pop” owners. These individual investors often own just a single manufactured home park and manage it themselves.
I don’t know about you, but when I invest in a rental home myself, I sorta just set it and forget it. I let the property manager deal with the day-to-day operations, and I’m happy, as long as we’re able to collect a rent check every month and nothing breaks down.
What I don’t do, is continually look for ways to optimize efficiency. (I know, I know. I should get better at that. Sigh. Add it to the to-do list.)
Similarly, with mom and pop owners, they’ve often owned these manufactured home parks for decades. The parks are profitable, but not nearly as profitable as they could be, with professional property management and a strong business plan in place.
That’s where it can be extremely beneficial (and profitable, of course) to invest in a manufactured home park syndication led by a sponsor who’s experienced in identifying and improving these inefficiencies.
Often, when investing in manufactured home parks, the purchase includes the land and the lots only, NOT the manufactured housing units themselves. There are exceptions to this, of course, but in most cases, the residents themselves own their own manufactured homes, and they pay to rent out the lots.
For investors, this is ideal. This means that there are very few “parts” to maintain. When you invest in apartments, you have to upkeep the roofs, the hot water heaters, and yes, those pesky toilets.
When you invest in a manufactured home park, the residents themselves are responsible for repairs, which drastically decreases operating costs and risk.
Did you know that manufactured home parks offer the lowest cost per unit of any real estate asset class? It’s true. See, I told you that manufactured home parks are the best kept secret in real estate.
As mentioned above, most park owners own the land, not the units themselves. Thus, the cost per unit (i.e., per lot) is very low when compared to other asset classes.
What this does for investors is that it allows us to spread out the risk and to diversify across multiple assets. With the same amount of capital, you can either by, say, a 10-unit apartment building, or a 100-lot manufactured home park.
In the 10-unit apartment building, if one person leaves, you’re at 90 percent occupancy. In the 100-unit manufactured home park, if one person leaves, you’re still at 99 percent occupancy. This provides a much greater buffer for investors.
Believe it or not, manufactured home parks are uniquely positioned to perform BETTER in a recession. This is because, in a recession, the demand for affordable housing increases.
Think about it. What happens in a recession? Unfortunately, people tend to lose their jobs. With less income, many people must find more affordable housing options.
Manufactured home parks provide one of the most affordable paths to home ownership. As such, they are a fantastic investment to hedge against a potential downturn.
Residents of apartment complexes are renters. They are typically on one-year leases, and at the end of the year, they are free to move to another complex across town at a similar price point. This leads to high potential turnover costs for apartment owners.
Manufactured home parks, on the other hand, tend to have long-term residents. This is because the residents are homeowners, not renters. Residents own the homes they live in, and it’s often cost-prohibitive to move the homes to another location.
Moving a manufactured home from one location to another can cost as much as $3,000 to $5,000 or more. Thus, most residents hunker down and stay in one location long-term. This is both great for keeping turnover costs low, as well as helping to create a strong sense of community and pride of ownership.
In part 1 of this series, we took a good hard look at the state of the affordable housing crisis in America, and how manufactured home parks could provide the solution to affordable home ownership that many Americans are looking for.
And, not only are manufactured homes more affordable than traditional site-built homes, but they also tend to be more environmentally friendly.
As ten thousand baby boomers retire every day, demand for well-maintained manufactured home communities continues to rise. These parks can provide residents a strong sense of community, as well as a multitude of amenities and increased safety.
Hopefully, by now, you have a little better understanding of how manufactured home parks operate, and the value they provide to residents across the country. As an asset class, manufactured home parks provide some of the best returns and the lowest risks of any real estate asset class.
Again, here are the nine undeniably good reasons to invest in manufactured home parks:
For any investor who’s invested in rental homes or apartment syndications, manufactured home parks can be a terrific addition to your portfolio, to help you diversify and try out a new asset class.
And who knows, with those high returns and the potential for such huge impact on communities around the country, you just might start to see that manufactured home park investing is pretty sexy, after all.